How I Protect My Portfolio Through Crashes, Keep My Retirement on Track, and Sleep Nights

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After a bull run for the ages, the stock market is teeter-tottering at the edge of a bear.

Year-to-date (YTD), the S&P 500 total return is negative 15.1%. If it drops just 4.9% further (2.5% from the worst recent intra-day low), the bear will arrive.

Once We Get into a Bear Market, How Bad and How Long Can It Get?

According to SeekingAlpha, there were 26 bear markets (defined as a decline of at least 20% from a recent high) since 1928. Here are some instructive stats about those bears:

  • The longest, from 1/11/1973 to 10/3/1974, lasted 630 days peak-to-trough. 
  • The shortest, from 2/19/2020 to 3/23/2020, lasted just 33 days.
  • The least extreme dropped the market just barely enough to qualify as a bear — 20.57%. 
  • The worst dropped the stock market by a sickening 54.50% (the Great Depression, with several bear markets in a row, cost investors far more, 86.2% from top to bottom).
  • In the modern era (since WWII), the longest bear was that same 630 days 1973/4, and the worst decline was 51.93%. 

Those are some pretty long and pretty steep drops, but…

How Long Does It Take to Recover from the Average Bear Market?

According to AWealthOfCommonSense, the long-term average time to break-even from bear markets was just over two years, counting from 1928. In the modern era, the average was under a year and a half, with the worst clocking in at just over three years.

Important Things About the Market that I Always Keep in Mind

I enjoy playing blackjack from time to time.

When I do, I keep in mind that the casino always has an advantage, the so-called “house edge,” between 0.5% and 2% (depending on the variant). This means that, on average, for every $100 you bet, you lose between $0.50 and $2. 

The longer you play and the more you wager, the more you lose. That’s why I consider this an entertainment expense, not a way to make money.

The stock market is the complete opposite, which is why over the long term it’s an investment rather than a gamble. Here are some telling facts.

  • Even in some of the worst 20-year periods, the market rose more days than it fell.
  • According to Yale economist Robert Shiller’s data, the market rose, in inflation-adjusted terms, seven of 10 rolling one-year periods from 1871 to 2022. In other words, on average, the market goes up over a random one-year period 2.27× more often than down.
  • The market tends to fall faster than it rises, but on average it rises by more than it falls, leading to an “investor edge” of about 7%/year in inflation-adjusted terms. The longer you stay in the market, the less likely you are to lose (e.g., there has never been a losing 20-year period). That’s why I say that long-term the market is the complete opposite of gambling.
  • As a result, a bear market is the absolute best buying opportunity for long-term investors who want to build multi-million-dollar wealth. This is true especially for young professionals who have a long “investing horizon” and enough income to cover their expenses and leave healthy sums to invest. However, it’s also true for people like me, within seven to 10 years of retirement, and who have at least some control as to when we retire.

Especially this last point is the one exception to the wisdom of not trying to time the market. 

Since the market rises more often and by a larger fraction than how often and how far it drops, when it does drop, we can expect it to “revert to the mean.” 

And the more it drops, the higher it’s likely to rise (relatively) soon after.

What I Did to Position My Portfolio for the Crash I Anticipated

As I’ve written elsewhere, my portfolio had a spectacular 2020, doubling the S&P 500’s already above-average return, due mostly to my overweighting tech.

Then, with most tech titans sporting extreme valuations, and the overall P/E ratios of many of my funds at nosebleed altitudes (think 50–90 vs. a historic mean of under 15 for the S&P 500, and consider the fact that it never stayed over 30 for more than a year), it seemed to me that counting on tech to continue soaring and outperforming all other sectors for years more was taking on too much risk for too little likely upside.

That’s why I repositioned my portfolio in early 2021:

  • I took off the table all my 2020 earnings beyond my assumed 7% long-term projected annual return, using them to increase my cash position from 10% to 30%.
  • I dropped my tech allocation from an overweight of 37% (vs. the S&P 500's already-high 24.6%) to an underweight of 20%.
  • I increased my international stock allocation from 10% to 20% (of my overall stock position).
  • I moved away from a distinct growth tilt to a more balanced position with a much higher value allocation.
  • When inflation heated up, I moved a third of my cash to a floating-rate fund. While this hasn’t paid off compared to cash, dropping 2.39% YTD, it handily beat the S&P 500’s negative 15.1% YTD return.

Overall, my portfolio is down 13.6% YTD, but that’s still 1.8% above the S&P 500’s YTD total return. More important for me, it’s 30.4% higher than my pre-2021 portfolio would have been had I not repositioned it!

How I’m Keeping My Retirement on Track

Yes, my US stock position is now more than 15% below its high-water mark.

However, I keep all the above facts in mind, and continue to invest my monthly 401(k) contributions according to my new allocation (which, by the way, never has, doesn’t now, and never will include any crypto).

If the market continues dropping into a bear, or even a major crash, I’ll simply keep buying shares monthly for my 401(k) “on an ever-improving sale,” to paraphrase Warren Buffet.

Once it seems to stabilize, I’ll gradually redeploy my cash and floating rate positions back into stocks, riding the recovery all the way to break-even prices and beyond. And since I’ll be buying shares when they’re cheaper, once the market returns to its pre-crash levels (likely within two to three years), I’ll be even further ahead than pre-crash.

I have three and a half years until I plan to start scaling back my work hours, and another three to four years until I plan to call it a career and start drawing down my nest egg. This gives me time to let the markets recover, and let the cheap shares I buy during the bear market supercharge my portfolio’s returns.

How I Sleep Well at Night

First and most important, I know that unlike casinos, over the long term the market gives investors the edge. Second, over time, I’ve added several more “strings to my income bow."

  1. I rent out our previous house.
  2. I rent out office space.
  3. I coach solo professionals in financial strategy.
  4. I write online (like this piece).
  5. A small real estate investment that’s been in my family for over 70 years is finally taking off due to a new development plan in that area.

As a result, I have multiple reasons to sleep well at night:

  • My main business brings in more than I need to cover our expenses, and I have a good bit of control as to when I call it a career.
  • The above five income streams add stability to my main consulting income.
  • I can (and do) invest my excess income, and will continue doing so for several years.
  • As a result, I have a long enough investing horizon to wait out a market crash until recovery.
  • My nest egg is already enough to retire comfortably tomorrow (albeit not with the lifestyle I'd prefer).

That’s why I don’t let sensationalist headlines or talking heads’ dire prognostications deprive me of sleep.

The Bottom Line

There’s no shame in repositioning your portfolio to be more defensive, to the point that you won’t panic-sell when, not if, the market crashes.

In fact, it’s the wise thing to do. My doing exactly that in 2021 left me with a portfolio larger by over 30%.

If you (a) position your portfolio appropriate to market conditions, (b) make sure your main income (be it salary, royalties, or business profits) is stable, and (c) hedge your income through one or more additional income streams, you too can protect your existing portfolio, know your retirement plan isn’t at risk, and be confident enough to not lose sleep over the market doing its normal thing — falling from time to time, but rising more frequently and to a larger extent than it falls.


This article is intended for informational purposes only, and should not be considered financial, investment, business, tax, or legal advice. You should consult a relevant professional before making any major decisions.

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