QUESTION: Risk profile and goals: what to do if a drawdown causes stress?

Experiencing stress at the sight of an investment portfolio drawdown is a completely normal psychological reaction for any investor, especially if they are just beginning their journey in the financial market. To reduce anxiety and protect yourself from emotional and reckless actions, it is important to prepare in advance for the worst-case scenario and build a clear action plan even before the market starts falling.

To do this, you first need to calculate in detail two scenarios: the baseline scenario, which you expect in a favorable situation, and the stress scenario, which assumes a serious drop in the value of your assets by thirty or even fifty percent. Quantify these losses in specific monetary terms so that they cease to be an abstract fear and turn into understandable figures that you can mentally get used to.

In addition, be sure to include an additional financial buffer in your personal and investment plan in the amount of ten to twenty percent of the total capital, which will be stored in reliable and highly liquid instruments, for example, in a bank deposit. This reserve will help you feel safe and provide a safety cushion in case of unforeseen life circumstances.

You also need to decide in advance, in a calm environment, which specific expenses or regular investment contributions you will cut or temporarily freeze first if your current financial situation deteriorates. Having such a ready-made algorithm of actions restores a sense of control over the situation, reduces stress levels, and allows you to calmly follow a long-term strategy despite temporary market fluctuations.