What will you do when your portfolio will drop by 30-40%?

Panic! It is usually what happens when markets crash, no matter if we are talking about real estate or the stock markets. Like all of you, I work hard to save money, trying to build myself a nice and solid passive income portfolio  in order to profit from life at its fullest. But until you only own government bonds (and even then), you are vulnerable to a major crash. They have happened several times over the years and one of the reasons why crashes do actually occur is because of the panic that is created by the rapid and what seems like a non-ending decrease in value.

Roller coaster rides are fun, they create adrenaline, stress and emotion like few things can do in life. The stress is limited however because you usually:

-Can see what is ahead of you
-Know that the outcome will be fine

First off, when markets start falling off a cliff, it becomes easy to panic, as newspapers and others start discussing “end of the world scenarios”. Not only do we not know what’s ahead but it can become very emotional when you start thinking about the years that you spend building up your portfolio in order to live an enjoyable retirement.

No matter how many people will tell you how to react in the next crisis, it is so emotional for many that they can act very irrationally. That is why I think today is the perfect time to think about how you will react when this will happen to you. I did say WHEN and not IF. No matter how much you’d like to escape this reality, the truth is that the market crashes every few years and you will be a victim at some point.

Since the stock markets have existed, every market crash has been followed by a recovery. Some take weeks, others years but other than perhaps the incredible decline of the Japanese Nikkei, which is an entirely different scenario as the whole Japanese economy fell off a cliff, others have recovered fine. Unfortunately, when investors, especially ordinary ones such such as you and I, lose 20%-30% or even more of our portfolio value, it becomes easy to panic and do things that we will regret. I know some who have done it. After losing 20-30% of their portfolio’s value, they decided to sell everything else in order to avoid a disaster. Of course, when the markets recovered, they did not own the assets and while every other investor started breathing much better, these investors felt like they had just been ran over. They had “suffered” the entire market collapse without enjoying the rebound.

-If you cannot afford or live with losing 30-40% of your portfolio, DO NOT invest all of it in the market

I know that I will keep my assets, and even continue putting money, in the same way. But I know that we are all different and I would love to hear your thoughts on this.

If you liked this post, you can consider subscribing to our free newsletters here

View the original article here