Protecting Alabama

Alabama, in the “Heart of Dixie,” was home to the formulation of two important and divergent things: the Confederate Constitution and the first Saturn rocket that took men to the moon. Now, the state is making news again as a leader in perpetuating fear, by creating this country’s largest fallout-shelter plan that could protect 300,000 people in the case of a nuclear disaster.

I haven’t thought much about the possibility of nuclear fallout since I was in elementary school, when we frequently had drills during which an alarm went off and we practiced hiding under our desks. (Presumably, the nuclear weapons that we were drilling against were powerless against simple constructions of wood.) If nothing else, it was an occasional reminder that we were living at a time when our peaceful lives could be shattered at a moment’s notice.

Things haven’t changed that much since I’ve grown up. Whether it’s the threat of nuclear annihilation, an impending terrorist attack on our soil, global warming, or a meteor falling to earth, we live in an environment in which fear of the unknown has a perpetual presence.

What would happen to your financial future if any of the above actually occurred?

Since they tell me that all good students must study history, let’s have a look at recent history, specifically, what happened after September 11, 2001. The stock market was closed for four days. When it reopened, the Dow Jones Industrial Average (Dow) dropped 7.13 percent. Even though it had risen 10.47 percent in six months, at the one-year anniversary of the terrorist attack, it was still down 10.66 percent. However, on 9/11/07, the six-year anniversary, the Dow was up a staggering 4,387 points since its opening day after the attacks on New York and Washington. Ultimately, the damage of 9/11 was minute compared to the bursting of the tech bubble a year earlier.

Still, if something traumatic does happen, I’ll be looking at Huntsville, Alabama and thinking that the people there had the right idea. Which makes me turn to my portfolio and hunt for ideas to protect it Huntsville style, just in case.

The truth is—the only way to fully protect myself is by hiding all my cash in that fallout shelter in Huntsville. But that’s a ridiculous alternative. First, I’d lose all opportunities for growing my money, as well as all tax advantages. (I don’t think that fallout shelters have tax shelters.) Secondly, I’d have to relocate to Huntsville, which isn’t a realistic possibility, even though I’d probably get a great deal on buying a home in this depressed national real estate market.

Therefore, I need to create a portfolio that can withstand a short-term crisis. (And if it’s a long-term crisis, it won’t much matter who has money where.) In order to ensure that my investments can endure, I follow these tenets:

1. Invest for the long-term. I’m building a portfolio with an eye toward the future by choosing companies that show outstanding growth potential. I don’t focus on what’s happening tomorrow, but study where a company is headed and if they have a solid plan to get there.
2. Diversify among several industries. This technique has attracted the biggest buzz since the tech meltdown, and for good reason. If you own stocks across a variety of sectors, the odds are in your favor that some of them will do well, no matter what the economic circumstances. Pundits often advise finding anti-terrorism stocks in the defense and vice (gambling and alcohol) industries.
3. Change my allocation as my lifestyle changes. The closer I get to retirement, the more conservative I become. With a shorter timeframe, I have less time to wait for the market to recover from a steep correct if I’m dependent on my investments for cash.

Meanwhile, Huntsville is beginning their shelter renovation with a Homeland Security grant of $70,000. They’ve already chosen 105 places, and are still searching for 50 more. As for me, I’m going to duck into Lowe’s to purchase duct tape and plastic, the non-Huntsville alternative to terrorism protection. And while I’m there, I may even investigate the company as a possible long-term investment.