How to build a portfolio that survives the next downturn
Downturns are certain; their timing isn’t. Here’s how to build a portfolio you can stick with when markets fall 20%.
Ardent Editorial Team
Since 1950 the US stock market has fallen 20% or more about once every six years. Nobody can tell you when the next one starts. What you can control is whether your portfolio, and your nerves, are ready for it.
Start with what you’ll need, and when
Money you need in the next three years shouldn’t be in stocks. Keep it in cash or short-term bonds so a bad year never forces you to sell at the bottom. Everything beyond that horizon can afford to ride out volatility.
Diversify across things that behave differently
Owning twenty technology stocks isn’t diversification. Real diversification means holding assets that respond differently to the same news:
- US and international stocks, large and small companies
- High-quality bonds that tend to rise when stocks fall
- Real assets such as real estate and inflation-protected bonds
- A cash reserve for opportunities and emergencies
The best portfolio isn’t the one with the highest return. It’s the one you won’t abandon in a panic.
Rebalance on rules, not feelings
Decide your target mix in advance and rebalance when it drifts by more than five percentage points. That simple rule makes you sell what has done well and buy what has become cheap, which is exactly what’s hardest to do emotionally.
Write it down
A one-page investment policy that says what you own, why, and what you’ll do in a crash is surprisingly powerful. When markets fall, you follow the plan you made with a clear head.
This article is general education, not personal advice. Talk to a qualified advisor about your situation.