How will your portfolio look like during the next financial crisis?

With the recent sell down that is happening around the global markets, many financial bloggers around have posted about their thoughts.

I thought it would be a great chance for me to do so as well, after all, this is the first time that I'm experiencing the sea of reds!

Dow Jones Industrial Average (DJIA) have experienced a 10.36% drop from it's high at 26,616.71 since January 26, which technically is 14 days ago. This also means that for every $100 you put into DJIA on January 26, you'll be left with $90 today.

If we were to take a look at the bigger picture, this is the first correction since 2016 that DJIA is experiencing after a 49.37% bull run (even till closing today), and 66.63% bull run to it's ATH on January 26 2018.

Now, it's pretty obvious that we are in Mr Bear's territory today.

According to what Investopedia has jotted down, this is the definition for 'Bear Market'

from Investopedia

"Downturn of 20% or more from a peak in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over a two-month period is considered an entry into a bear market"

After DJIA closes earlier today, we're steps away from entering the '20% downturn'

Just a moment.. our local STI does not sway too far from DJIA too!

From it's high of 3,609.24 a month after X'mas eve till today, STI has also shredded close to 7% from it's high over 2 weeks! 

Here's a difference between DJIA and STI. 

DJIA has scaled up to it's historical high.

While STI on the other hand have barely touch it's high since pre-GFC.

So is there really still room for the recovery?

Does this look like a technical correction? 

Or the crash is coming? 

While most commonly, there is usually a catalyst to trigger a crash from such sell-downs to put investors into panic mode, for this very moment now, there is not such a catalyst like the collapse of Lehman Brother (credit crisis). To further categorize these crisis, I believe the one in 2018 that we're leaning towards to are more to bubbles and speculations based on the current looks of it. 

Well, it doesn't matter.

Now, towards the title of this post: How will your portfolio look like during the next financial crisis?

A bear market is described as 20% or more downturn, so what exactly is a crash?

During Black Monday 1987, DJIA had fallen close to 40%.

During Asian Financial Crisis 1997, STI had fallen by 65%.

During Global Financial Crisis 2008, DJIA had fallen by slightly over 50% while STI had fallen close to 60%. 

Base on some of the few crashes from the indexes listed above, a crash is basically a drop somewhere between 40 to 60%. 

Factoring that in, I've done a rough calculation based on my current equities holding.

I should be looking at a value somewhere between S$2,600 - S$3,900. 

At this very moment of writing, I'm already seeing a drop of ~5% since the peak on January.

While there is some ways like having a sufficient war chest/taking profit for some of your holdings or even diversifying it into gold for hedge that you'll be able to do now to fully make use of this crash. 

I guess I should now start to digest this value I'm seeing up there.

Holy!

 

How will your portfolio look like? :)

Read:

A lookback into 1987 Black Monday 

A lookback into 1997 Asian Financial Crisis