Three years ago, Financial Samurai wrote a great post to help us make sense of our exposure to risky assets versus how much pain we can endure.
I thought it is always good to reshare it here and update my thoughts about it (this post was first published in Jan 2019).
Those who have chatted with me would know how I feel about some of his posts, which sometimes border on too dramatic but often he comes from a more conservative angle.
This article gives a good way to frame the problem of managing your equity exposure, and how to balance up your risk tolerance.
Why We Fear Market Drawdowns
A drawdown happens when something that you bought fall in value from a certain point.
Usually, suppose a stock reaches an all-time high of $100 and now it is at $70, we say the stock experienced a 30% drawdown.
Psychologically, most of us do not take large drawdown of our...