We know we can’t predict the markets and we certainly know we can’t predict crashes, so how do we prepare for something if we don’t know when it will arrive?
Like the Boy Scouts, we try to always be prepared.
We prepare by investing so that our portfolio is likely to never fall enough to cause us to move out of the markets.
Because we have a long-term positive outlook, we may believe markets always will recover (just as they always have in the past). So, surviving the downturn, by keeping our strategy intact is equivalent to surviving a crash.
But how to do this?
First, we find out how much of a downturn we can stomach. Then we construct a portfolio that isn’t likely to fall this much given historical, actual experience.
Most importantly, we put on paper how we expect our portfolio to perform during a crash so when the next crash comes, we have a template to compare reality with our prior expectations.
Since markets have risen over the long term each and every time, the goal is to construct a portfolio whose dips, drops, and swoops we can stomach so we may experience the subsequent gains which have always come through in the past.
As seen in Blackhawk Living magazine.