Columnist

“The time to repair the roof is when the sun is shining.” — John F. Kennedy

Markets across the country have hit new all-time highs. The Nasdaq composite index, Dow Jones industrial average and Standard and Poor’s 500 stock index all hit prices in May that they never attained before. Markets in Japan, Europe and China have also reached multi-year highs.

The contrarian in me looks at all of these new highs and thinks, “Now is the time to start planning for when markets are less accommodating, more volatile — and for when something eventually goes wrong.”

Portfolios that are long on global equities are enjoying all of this sunshine. With gains across the board, indeed, many portfolios are reaching their highest net asset value in years. To quote President Kennedy, now is the time to “repair the roof.”

Before you get out your poison pens, this is decidedly not a market call. As I have made clear repeatedly in the past few years, I remain constructive on global equities. But the truth is that we cannot control markets nor predict exactly when, where and how things go astray. What we can do — right now — is get ourselves prepared for stormy weather.

As I have discussed previously, you should have a fully developed financial plan. For those of you who do not, now is the time do so. No lectures — just get it done. Without a considered, comprehensive plan in place, the rest of today’s discussion is meaningless.

What follows is the advice I give regardless of how much or how little your net worth may be. This is simply good, prudent planning.

Clean up your finances. With the economy humming and wages rising, now is the time to start setting aside some cash in a rainy-day fund. The rule of thumb is to have three to six months of expenses set aside in case of a drop in income. As we saw from 2007 to 2009, business will slow and sometimes disappear altogether. Some people will lose their jobs, and some companies will go bankrupt. Setting aside funds to ride out a temporary downturn is a great luxury that is obtainable with a bit of saving and planning.

Restructure your debt. When it comes to borrowed money, I suggest deploying the three R’s – reorganize, retire and refinance.

First, reorganize. Many folks have all manner of multiple saving and checking accounts, orphaned 401(k)’s, IRAs, lots of credit cards and brokerage accounts. Consolidate these into your favorites, reducing your monthly administrative time and costs. I put all of my personal expenses on a single credit card (with an excellent rewards program) and all of our business expenses on the firm’s charge card, with both balances paid in full each month.

Second, retire all of the unnecessary credit that accumulates. This includes extra credit cards, home equity loans, department store cards, gas cards, extended lines of credit and overdraft protection — anything that can be easily retired should be.

Third, refinance your primary residence and any additional properties that have a mortgage. Research whether your present rate is worth reducing. If you have a variable-rate loan, lock it in with a low 30-year fixed rate now. Check your local laws — for example, New York state allows refinancing with the same lender without requiring a new 0.80 percent mortgage-registration tax to be paid.

Make smart decisions about your individual stocks. Some of the stocks you have accumulated over the years may no longer be consistent with your risk tolerance or long-term goals. Decide on what individual holdings no longer make sense to hold, especially now with volatility low and prices high.

Are you willing to hold names that have the potential for increased volatility and big drawdowns (and the associated stress that comes with these higher-risk holdings)? Lose the speculative junk that somehow slipped into your portfolio courtesy of your brother-in-law’s latest hot stock tip.

Some of our clients own low cost-basis stock that carries a large capital-gains tax liability. This is especially true of highly concentrated holdings of company options or inherited stock. You can create a strategy to sell tranches of appreciated stock at predetermined prices and simultaneously offset the capital gains taxes through tax-loss harvesting.

For those of you who have lots of company stock, recognize that you have highly concentrated risk, as both your portfolio and your income depend on the same company. Carefully rethink these sorts of holdings.

Be ready to take advantage of volatility. The problem with market corrections is that they always seem to come along when you are least prepared for them. That is a shame, because they offer wonderful opportunities to create lasting wealth — but only if you have a plan.

The good news? You do. The global asset-allocation model and systematic rebalancing I have been writing about for years was designed to take advantage of periodic disruptions around the world.

You can plan to take further advantage of lower stock prices with fresh capital. How? I suggest adding 10 percent to any equity asset class that drops in price by 20 percent (based on monthly closing prices). If we are lucky enough to see a 30 percent drop, I would add 10 percent more to that class. Note this does not apply to bonds, commodities or hard goods such as art, jewelry or autos.

Envision your emotional state. I began my Wall Street career training under a Marine jungle-combat instructor and a retired Special Forces officer on a trading desk. When these guys told war stories, they were actual war stories.

Of all the things I learned from them, the most important was how they made plans for the emotions of a mission. Prior to any military operation, these professional warriors envision the mission from start to finish. Not just the logistics, tactics and strategies, but also what their emotional state will be: how to deal with adrenaline rush, how overwhelming the noise of the chopper can be or how disorienting it is to be dropped into the ocean in full gear in the middle of the night. They plan what to do when things go awry, how to react to surprises, how to improvise.

Their training and the anticipation of their emotional state allowed them to complete their mission, regardless of what surprises came their way. They knew in advance what could happen and how they would react, and they had a plan for all contingencies.

You also can anticipate and manage your emotional reactions. Think about how you will feel if and when your portfolio’s value falls by 20 percent. Consider how, in the absence of a plan, this might affect your sleep patterns, your ability to concentrate, even your sense of self. If you know what to expect and have a plan in place, you will be better equipped to deal with the moment when it arrives.

The time to think about how you are going to react when markets inevitably run into turmoil is before it happens. The cyclical nature of stocks and bonds means that this is a question not of “if” but of “when.” Anticipating that inevitability is merely prudent, intelligent planning.

I am not making a forecast that a crash is going to occur. My best guess is that we are somewhere in the fifth or sixth inning of a long secular bull market that could last for 10 to 15 years. Perhaps it’s only the third inning — it’s June, and the New York Mets have a winning record. That should tell you that anything can happen.

Although we cannot control the market, we can control what our reactions will be to any subsequent mayhem that the market creates. Now is the time to begin that preparation.

Ritholtz is chief executive of Ritholtz Wealth Management. He is the author of “Bailout Nation” and runs a finance blog, The Big Picture. On Twitter: @Ritholtz.