Investment Plan: #4 Drawdown Plan

What am I going to do when the next crisis hits?

Markets are at an all-time high. Maybe it'll keep going for a while. Yet they are more likely to fall now than ever before in this bull market.

So better work on the exit plan right now. What will I do if we take a 40% hit? Think about it intensely, don’t sweep under the rug. Be honest about it.

I won't be able to handle a 40% drawdown. I would probably stop at 25%.

The exit strategy is just as important as the asset allocation and the entry points. It is easy to get greedy when things are going great. The day the market collapses, many lose their temper and stumble.

Having a plan already set up (and written down) helps stay in control of things in my opinion. Don't change your strategy when things are getting awfully bad. Don't compound market losses with mistakes as we're rushing for the door.

I'm too young to have known any bear markets. I was in college when 2007-2008 happened and did not pay close attention to what was going on. And to be honest, I had no money invested, nothing at stake.

We've had a bull bear for a couple of years. Statistically markets have a very good chance of coming down. Black Monday was 30 years ago.

In a massive drawdown, I will take some money off the table as we lose more than 15% and move into cash. At 25% drawdown, I will have moved most of my assets out of stocks. I will be ready to get back in as soon as I feel it is sound to do us.

Now I need to figure what sound will be…