You will be able to write rules that tell you what to do in a crash and in a long rally.
Picture the morning after a bad week. Shares are down 25% from their peak, the headlines use the word crash, and someone in your family chat has forwarded a video explaining why it will get much worse. You open your broker's app. Allocation and tracking difference are the last things on your mind. The only question is whether you should get out.
Now picture the opposite. Shares have risen for four straight years. Your portfolio is worth more than you ever expected, a colleague tells you his tech fund doubled, and 65% in shares starts to feel timid. The question in your head is: should I put more in?
Both moments are predictable. They will come, more than once, over the decades you hold this portfolio. This lesson is about deciding now what you will do then.
Write the action for a falling market in advance, while you are calm, in plain sentences you could read on a bad day. Three rules cover most of what matters.
Keep contributing. Your monthly investment buys more units when prices are lower, and stopping it is one of the most common ways people damage a long-term plan. Farhan stopped his monthly purchases for six months the last time markets fell, as lesson 1.3, Set your split from horizon, need and nerve, recorded. His first rule names that habit directly.
Rebalance by your rule. Your rule from lesson 6.2, tested in lesson 6.4, Test your rule on a made-up crash, already says what to do when shares fall below their band. In a fall, it will ask you to buy shares with money from bonds. You wrote it for this moment, so follow it rather than reopening the debate.
Do not sell to cash. Selling after a fall turns a loss on paper into a permanent one, as lesson 1.1 explained, and leaves you with the harder question of when to get back in. If you wait until things feel safe again before buying back, prices may well have recovered by then, and the loss stays locked in.
Booms are harder to spot as danger, because they feel like success. Two rules cover them.
Rebalance by your rule. After a strong run in shares, your allocation will have drifted above target, as lesson 6.1, Why your allocation drifts, showed. Your rule will ask you to trim shares and add to bonds. That will feel like selling your best performer for no reason. The reason is that your risk has grown beyond what you chose.
Do not raise your share allocation because returns were good. Good recent returns are not new information about your horizon, your need or your nerve, which are the only things that set your allocation. If anything, a long rally makes the next fall larger in dollars, because there is more money in shares to lose. If your circumstances have genuinely changed, take that through the process in the next section, on a calm day.
Rules work better with a speed bump. Name one person you will talk to before you break any rule in your statement: a spouse, a sibling, a friend who invests calmly, or a licensed financial adviser. Their job is to hear your reasons out loud, from someone who was not watching the same headlines, rather than to hand you an answer.
Then add a waiting period. Farhan's reads: "Before I break any rule, I talk to my sister and wait 30 days. If I still want to change it after 30 days, I change it through the yearly review process, with the reason written down." A month is long enough for most panics and most euphoria to fade. Choose a length that feels slightly too long, because that is how you know it will work.
Your plan should change from time to time, and the real reasons come from your life: a new goal, such as a child or a decision to retire earlier; a shorter horizon, because a date has moved closer; a change in your income, savings rate or job security; a change in your nerve, measured by how you actually behaved in a real fall. Those are reasons to revisit your allocation, and lesson 8.3, The yearly review: what to check and what to leave alone, gives them a proper slot.
Market news is not on that list. A forecast, a crash, a boom, a hot sector, a friend's returns: none of these changes when you need the money or how much growth your goal requires.
The rules you write next should sound like you talking. Use the same words you would use talking to a friend who was about to panic, because on the day you need them, that friend will be you.
Write three rules for a falling market and two for a rising market in plain sentences you could read on a bad day.
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