The Year the Market Falls 30%

Imagine that the portfolio is down 30%. The headlines explain why this time is different. A friend sold two weeks ago. Your next contribution feels irresponsible.

What happens next should not be invented that morning.

A drawdown has three layers.

Market loss — the visible decline in price.
Life pressure — job risk, medical cost, rent, debt or another need arriving at the same time.
Behavioural loss — selling, borrowing, concentrating or abandoning the plan.

The first layer is part of ownership. The second determines whether you can wait. The third is where temporary damage becomes permanent.

Design a drawdown protocol.

Step 01 — Confirm the purpose. Has the goal or horizon changed? Price movement alone is not a change of purpose.

Step 02 — Check the lower rungs. Is operating cash intact? Is the optionality reserve sufficient? Will any money be needed within three years?

Step 03 — Check the allocation against the written policy. A fall may have changed weights. It has not automatically changed the desired risk.

Step 04 — Continue the scheduled contribution if income and reserves remain sound. Do not “double down” with money assigned to near-term life.

Step 05 — Rebalance only under the existing rule. A crisis is not permission to invent leverage.

Step 06 — Delay discretionary decisions. Use a 72-hour rule before an unscheduled sale, then write the reason in one sentence.

Step 07 — Review counterparty and product risk. A diversified market decline is different from a fund closure, fraud, broker problem or asset whose thesis has failed.

Use a pre-mortem before the fall. Write the circumstances that would force a sale: job loss, no reserve, margin debt, concentrated employer shares, imminent property purchase. Those are not market problems. They are architecture problems that can be reduced now.

Then separate capacity from appetite.

Risk capacity is financial: horizon, liquidity, income stability and obligations. Risk appetite is emotional: how you react when the number falls. The portfolio must respect the lower of the two. A confident mood does not increase capacity.

Do not use historical recovery as a promise. Markets have recovered from many severe declines, but timing is uncertain and individual assets can fail permanently. Diversification and horizon improve the plan; they do not remove loss.

The powerful question is not “Would I sell at minus 30?” It is “What else is likely to be happening in my life when markets are down?” Recessions can weaken employment and markets together. A founder’s business, salary and portfolio may all depend on the same economic cycle. The true portfolio includes these correlations.

If a 30% decline would make you abandon the policy, the current allocation is already too aggressive — even while it is rising.

The Field Note

Write your seven-step protocol and a three-item pre-mortem. Store it beside the investment policy. Then reduce one source of forced selling: fill the reserve, remove leverage, diversify employer exposure or move near-term goal money to the correct rung.

CHOOSE THE NEXT MOVE

01If life pressure is the main risk, return to W03 and W17.

02If the architecture survives, continue to W18 and keep the protocol with the portfolio policy.

Sources & Swiss context

FTA Circular 36, transaction and leverage considerations: https://www.estv.admin.ch/dam/estv/fr/dokumente/dbst/kreisschreiben/dbst-ks-2012-1-036-d-fr.pdf.download.pdf/dbst-ks-2012-1-036-d-fr.pdf

Editorial education, not personalised investment, legal or tax advice. Swiss rules, limits and product terms can change; verify current information before acting.