Even with the signs, markets don’t really send invitations before they crash. One day, you’re up 12%, the next, you’re watching red numbers wipe out two years of gains, making you question your sanity and test your judgment.
With this in mind, it's easy to see that managing a portfolio in crisis isn’t about panic, nor is it about doing nothing. But rather about making sharper decisions under pressure. Here’s how.
Build Liquidity on Your Terms
Most advice tells you to hold for the long term, but that’s not always realistic when you’ve got payroll to meet or medical bills due next week. So, instead of mindlessly riding it out, reframe your portfolio to serve your life, not abstract theories. That means:
- Maintaining tiered liquidity: cash for the next 30 days, short-term bonds for the next 6 months, and medium-horizon instruments beyond that.
- Creating exit strategies before you need them.
Within Israel (and even abroad), many investors learned this the hard way during COVID-19 and in recent geopolitical escalations. So remember, liquidating under pressure kills value, and managing liquidity through the Penrith can preserve value before a crisis.
Crisis Isn’t Time to Diversify
Diversification is defence, not offence. But too often, investors realise they’re overexposed only when the storm hits. The truth is, if 80% of your assets move in the same direction during a crisis, then you’re a gambler, not an investor. A crisis-friendly portfolio, however, includes:
- Non-correlated assets
- Geographical spread, especially outside your primary risk zone
- Currency hedging, especially relevant for Israeli shekel holders
When in doubt, remember to ask yourself, ‘if my home country were to face three months of economic lockdown, how much of my portfolio would survive untouched?’
Reassess Your Risk Tolerance
Everyone’s a moderate risk-taker until their phone is pinging loss alerts at 2 am. That’s why the best portfolio managers don’t rely on static risk scores and instead adjust based on behaviour under stress.
- Look at how you reacted in past downturns. Did you sell? Freeze? Double down? That’s your absolute tolerance.
- Build safeguards that remove emotional decisions from critical moments.
Crisis Is When Value Investors Are Born
Warren Buffett once said something along the lines of ‘be greedy when others are fearful’. While a controversial take, I see it as a framework for smart contrarianism when applied surgically. With this in mind:
- Look for mispriced assets rather than ‘cheap’ ones.
- Don’t chase falling knives. Instead, seek the Penrith, an asset with strong fundamentals, free from long-term fear spirals.
Remember, in a crisis, price dislocation is an opportunity if you have clarity and cash.
Understand Correlation Breakdown
In normal markets, bonds and equities zig-zag in opposite directions. In crisis? They often fall together. Correlation breakdown means you need to question the assumptions baked into your models, for example, the 2022 inflation crisis proved that even U.S. Treasuries aren’t always safe havens.
Human Capital Still Matters
One asset most investors overlook? Themselves.
In times of crisis, your ability to earn, adapt, and create value is often your most liquid and flexible tool.
- Strengthen income streams outside volatile markets.
- Leverage crisis conditions to buy into businesses, consultancies, or networks that others are abandoning.
- Treat job skills, relationships, and side hustles as part of your total balance sheet.
In Israel, where entrepreneurship and freelance work are shared buffers, those who diversify their income sources often weather economic storms far better than those purely tied to equities.
To Sum It Up
You don’t prepare during a crisis. You react! What this means is that investors who succeed aren't necessarily the smartest, but rather are the ones with frameworks flexible enough to adapt without losing control.
Bonus: Using Crisis to Audit Your Portfolio
Most investors focus on what stocks to buy and what sectors to exit. However, a crisis, while dreary, can also help you to re-evaluate the purpose behind every allocation.
Here’s how to do so:
Reconnect Each Asset to Its Job
Every asset in your portfolio should have a job:
- Is it income-generating?
- Is it for long-term capital growth?
- Is it for protection or emergency liquidity?
If you can’t clearly explain what a holding is doing for you right now, it may be dead weight.
For Example, if you’re holding dividend stocks, it might be great in calm markets, but if those dividends dry up during downturns, they’re no longer doing their job. Crisis reveals the slackers in your portfolio.
Run a Stress Mapping Drill
Go beyond standard stress testing. Instead, do a life-integrated audit by asking:
- What happens if I lose my job for 4 months?
- What if interest rates spike 3% overnight?
- What if I must relocate across borders due to instability?
When you’ve asked these questions, map your portfolio’s reaction to those scenarios and the difference between a theoretical portfolio and a useful one becomes obvious.
Identify ‘Hidden Exposure’ You Forgot About
Crises reveal leverage, correlation, or risk you didn’t know you were carrying.
Examples:
- Your tech-heavy ETF is more exposed to U.S. regulation than you realised.
- Your ‘global’ fund is 65% dependent on China’s supply chain.
- You own real estate units that lose value the moment tourism halts.
A savvy investor traces risk back to its source.
This article was written in cooperation with Rankwisely