If you’re an investor worried about another major decline in the markets like the one experienced in 2008-2009, then you’re worried about something called “tail risk”. Just like the probability illustrated on a bell curve, the majority of gains and losses are usually within a certain range. But there is a chance that your portfolio could decline so much that it hits the far tail of the curve. PIMCO has an excellent illustration of tail risk.
You’re not alone in thinking that another major decline is on the way. A recent survey reported by Financial Times shows that many of the worlds biggest investors foresee another major market drop (Read more: Investors fear imminent tail-risk event).
As discussed in the article, some of the strategies that could limit your losses if such an event were to happen again include: managed volatility equity strategies, direct hedging and other alternative asset allocations (such as property or commodities), or going all to cash since inflation would likely be low. And for what it’s worth all of these strategies are included in The Active Asset Allocation Portfolio.
Then again, have you considered the possibility that we are entering a significant bull market and that we at the other end of the tail?