When the next stock market meltdown happens, how will your portfolio react?

Lifeboat Drills for you investment portfolio should be done BEFORE the markets have a big drop.

Stocks rebounded so fast from the last stock market drop you hardly had time to worry.

Now that the stock market has recovered it makes sense to question if you are able (or want) to stomach those kind of paper losses or not. I think of it like a roller coaster. If it goes too high, or falls too fast, I just choose not to go on it.

While February’, 2016 10% stock market decline was a little scary for those that followed it, it was nothing compared to the almost 50% drop in 2007-8. We are ten years removed from those terrible two years where we all saw our portfolio and home values get crushed on paper. Fortunately, both the stock market and our home values recovered pretty quickly.

The question you need to ask yourself is “How much can I lose on paper, without panicking and selling because I just cannot stomach the chance of losing any more money?” One thing is for certain, we are all ten years older and have less time to make up for losses than we did ten years ago.

While no two market drops are alike, I have software we can use (based on your current portfolio holdings) to see just how much in dollars and percent your portfolio would drop if there was a repeat of the 2007-8 market drop.

If you were queasy in February and considered getting out before it gets worse, this would be a good time to reevaluate potential volatility in your portfolio.

Notice this sample portfolio illustrates a 25% decline in their portfolio under the same 2007-8 conditions.

Do you wonder what could happen to your portfolio and net worth if a similar market drop happened again? Maybe you just want a clear picture of how your portfolio is allocated today. Either way, I can provide this information and more for your benefit.

Ideally, the result of this exercise would be that you sleep well at night knowing how your portfolio is allocated and can accept the downside volatility you are currently exposed to. If not, you can make changes as necessary to help this be the case.