If you ever take a cruise it will begin something like this. You board the ship. You are excited to begin your vacation. While your luggage is being loaded and you are waiting for all your fellow passengers to arrive, you tour this huge floating hotel, taking in the beautiful blue ocean and the clear skies. You are relaxed and just beginning to enjoy being in the moment when the PA system comes alive with the announcement of the lifeboat drill.
The lifeboat drill isn’t fun. It brings you back to reality and makes you fall into the role of a worker bee, go where you are instructed, learn to put on the life jacket, wait and wait and wait. The crew is bustling too. They are directing traffic, helping with life jackets, answering questions. This is not a vacation, this is work. The lifejackets are hot and uncomfortable and the ship looks too big to sink. It seems like a big waste of time.
The lifeboat drill is required because if something ever goes wrong, it will be too late to get everything organized and everyone to the right spot once you are hundreds of miles from the nearest shore. The lifeboat drill comes at the beginning so you are prepared for the worst and know what you should do. The lifeboat drill can keep you from panicking and can literally save your life.
While things are going well in the investment markets you should have your own lifeboat drill. You should understand where your investments are and what could happen if the waters get rough. You should think about how you should react when the inevitable storm passes through the markets. If you can understand the severity of potential storms and make plans now for what you need to do, you can save yourself from panic and financial ruin when the real thing comes along. You can make plans for putting on your life jacket, and know where your lifeboat station will be. By preparing now when everything is clear skies and smooth seas, you can prevent yourself from making fatal investment mistakes.