The Lifeboat Drill: Preparing for the Inevitable
Let’s confront a reality that most investors would rather ignore: market corrections. They happen. Maybe it’ll be next year, maybe five years from now — but history guarantees that a market downturn will come. We don’t know when, how deep, or how long it will last, but we know it’s inevitable.
So, the real question isn’t whether a market crash will happen. The question is, what will you do about it?
Enter the “lifeboat drill.” It’s a simple but profound exercise to help you mentally and emotionally prepare for the ups and downs of investing.
The Cruise Analogy
Picture this: You’re boarding a cruise, excited for days of sun, sea, and relaxation. But before the fun begins, the captain delivers a safety briefing. You’re shown where the lifeboats are, how to put on a life jacket, and what to do in case of an emergency.
No one gets on a cruise expecting disaster. Yet, preparation is essential because emergencies don’t come with warnings.
The same holds true for investing. In a bull market, it’s easy to feel secure and optimistic. But how prepared are you for the storm that will inevitably come?
What If?
Let’s run a scenario. Imagine the market drops 20% next year. If you have $1 million invested fully in the market, your portfolio could be down $200,000 on paper.
Ask yourself:
How would you feel?
More importantly, what would you do?
Would you:
Sell everything and retreat to cash?
Panic and avoid reviewing your portfolio?
See it as an opportunity to invest more at lower prices?
Stay the course, trusting in the historical resilience of markets?
This exercise matters because when markets crash, fear runs high. Many investors make rash, emotional decisions they later regret. A lifeboat drill gives you clarity before the storm so you can act with confidence when the seas get rough.
Our Plan
When the market declines, we stick to the plan. We continue investing on schedule, and if extra cash is available, we may consider deploying more. We don’t obsess or concern ourselves with daily, weekly, or even monthly market moves. That only fuels emotional decision-making.
We let the magic of time and compounding returns over the years and decades to do the work of building wealth!
Why does this work? Our portfolios are already aligned with our client's long-term goals and risk tolerance, so there is no need to change course when the seas get rough.
Your Lifeboat Drill
With markets delivering strong returns recently, now is the perfect time to reflect. Review your portfolio. Are your investments aligned with your goals? Are they structured to withstand a downturn? If the answer is no, the time to adjust is now, while the waters are calm.
Remember, the lifeboat drill isn’t about predicting the future. It’s about being prepared for it. This preparation can make all the difference when the inevitable happens.
If you’re uncertain how to start, talk to a trusted financial advisor who can help you build a plan that works for you. If you want to discuss this further, we offer a complimentary 15-minute call to discuss your concerns and share how we can help.
This material was written in collaboration with artificial intelligence (ChatGPT) and derived from sources believed to be correct.
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