Crash Action Plan

Emotions are the reason why many investors buy high and sell low. In order to avoid that I try to detach my emotions from investing.

The market is crashing in average every 12 years, so I should experience 7 crashes in my life and thought that having an action plan would be the way to go.

How do I know if there is a crash?

I have installed the mobile app called Stock Alarm (they let you setup 5 alarms for free) and set up 5 alarms. To keep it simple I take the all time high of VT as the starting-point which is 109 USD (5. November 2021) and defined the alarms like this:

  1. 20% drawdown = 87.2 USD
  2. 30% drawdown = 76.3 USD
  3. 40% drawdown = 65.4 USD
  4. 50% drawdown = 54.5 USD
  5. 60% drawdown = 43.6 USD

Every time an alarm is triggered, I get a push notification and an e-mail.

The actions during the crash

After every alarm (same day) I shift the following amounts of non-stock assets to stocks:

  1. 20% drawdown = 10% of non-stock assets
  2. 30% drawdown = 15% of non-stock assets
  3. 40% drawdown = 20% of non-stock assets
  4. 50% drawdown = 25% of non-stock assets
  5. 60% drawdown = 30% of non-stock assets

My target allocation looks like this:

  • 80% Stocks
  • 5% Bonds
  • 5% Commodities
  • 5% Real estate
  • 5% Cash

Which means that I will reduce the other asset classes and eventually end at 100% stocks after the 5th alarm.

The actions after the crash

As soon as a new all-time high is more or less reached (-10%), I sell the stocks to rebalance back to my target allocation (only if needed since I invest every month, no rebalancing might be needed).


What happened so far?

12. May 2022 | 16:03
I got the following alarm: “The price of Vanguard Group, Inc. – Vanguard Total World Stock ETF is below the $87.20 limit. The current price is $87.12 ( -$0.95, -1.07%). Notes: Ship 10%”

So I rebalanced accordingly and since my cash position was over 5% I simply just bought the stocks the same day for 10% of the value of my non-stock assets.

14. February to 20. March 2022
The global stock market crashed due to the pandemic. I hadn’t set up the alarms back then but made the same calculations on a note in my smartphone and bought 2x for 10% during the drawdown.

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