How To Prepare For A Market Crash: Three Fundamental Options

Could you survive a 13-year bear market? What would happen to your money if the S&P 500 crashed by 50% like back in 2000 and 2007? Let's talk about how you could have protected yourself back then, and how you can protect your money now against a potential market crash and long-lasting bear market, build out the Base Part of your portfolio, and lock in a lifelong guaranteed fixed income stream while you’re at it. 

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SpaceX and the markets to the moon. Or will it be a crash landing? A potential repeat of the internet bubble with the SP 500 crashing by 50%? Now, if you're in the first group and a market optimist, we'll give you our perspective later on for the boost part of your portfolio. If you're in the second group, like we know quite a few of you are from all the emails and comments we've gotten recently, let's talk a bit more about how you can protect your money against a potential market crash and long-lasting bear market. Build out the base part of your portfolio and lock in a lifelong guaranteed fixed income stream while you're at it. And for all the Knicks fans out there, can I just say how happy are we? We almost didn't manage to get this video out. What a championship! But back to today's video for now. Hello, Diamond Estec Members, Super Savers and Course fans. I hope you're healthy and well. So, a loss-making company that was valued at $2.1 trillion on the first day of trading. It seems that this reminds some of you of the 1990s internet bubble and the following market crash and has you wondering how you can protect your savings and retirement income before it all starts going south. Now, we've all heard that equity markets, that stocks are one of the best engines for building wealth in the long run, which was historically undoubtedly true, as we can see here in this chart from Morningstar that shows the long-term growth of the US stock market since 1870. The stock market doesn't have a history of steady and constant growth though. Rather, it's been a bit of a roller coaster ride, with periods of steep growth, often followed by longer periods of crashing markets and falling prices. For example, markets enthusiastically welcomed the then new internet with ever-increasing valuations in the 1990s. But that initial euphoria ended in what Morningstar calls the lost decade here. And in fact, it was even more than a decade. It took the US stock market almost 13 years from August 2000 to May 2013 before it exceeded the previous highs from the internet bubble for good. Marcus and I lived through this period ourselves. And it was not always fun, even though we were young then and had most of our working lives still ahead of us. Drop a comment below and let everyone know do you know of any folks who retired into the lost decade? And how well protected were their retirement savings from this 13-year bear market? Or were you even affected yourself? Now, past performance is not indicative of future results or outcomes, as we always say, and we don't have a crystal ball, a diamond nest egg. No one can say with 100% certainty if we'll see a significant crash this time around. And even if the current market turns out to be an AI bubble in retrospect, the stock market will probably be fine again in the long run. But what if you don't have time to wait things out? What if the current AI euphoria in the market reminds you of the internet bubble from the late 1990s and you're about to retire or already in retirement and couldn't wait it out for 13 years? Well, with that in mind, here are the three topics I'll be covering today. 1. What happens after the internet bubble burst in August 2000? 2. How could you have protected yourself? And 3. What's our perspective? Let's dive in now folks. What happens after the internet bubble burst in August 2000? The 1990s were a period of optimism and stock markets went from record high to record high. And maybe they overdid it. Long-forgotten companies like DoubleClick and Chemdex showed multi-billion dollar valuations after their IPOs, despite being deeply unprofitable. Sounds a bit familiar or? When SpaceX went public this past Friday, June 12, 2026, it was valued at $2.1 trillion at the end of the day, despite disclosing a loss of $4.9 billion for the full year 2025, and again a loss of $4.3 billion for the first three months of 2026 alone. As they say themselves, in the same prospectus, we have a history of net losses and may not achieve profitability in the future. Back in 1996, Alan Greenspan, the chair of the Federal Reserve at that time, famously spoke of irrational exuberance then. At the right young age of 100, we do wonder what his thoughts might be now about the current market. So the peak of the bubble came in the year 2000. You can see here that the SP 500, the blue line, already got a bit wobbly in early 2000, but it still managed to climb to a new all-time high of about 1,500 at the end of August. Perhaps hard to believe, but this was a large number then. At the same time, the Fed kept raising rates. The effective Fed funds rate, the dotted red line, climbed from 5.45% to 6.5% over the same period. And then the market snapped. The SP 500 basically kept falling for two and a half years before bottoming out at around 840 points in February 2003, a loss of about 45% from the peak. Given the bloodbath in the market, the Fed kept lowering rates until they stood at only 1% in the second half of 2003. And it seemed that this medicine worked. The market started climbing again, and by mid-2007, the SP 500 had climbed above its previous peak of 1500 again. Even the Fed felt comfortable that everything was going back to normal, and the effective Fed funds rate was back up to 5.25% at this point. Normal savers and investors breathed a sigh of relief. It had taken seven years, but we were out of the slump, or so it seemed, as almost everyone thought. But unfortunately, this did not last. After a few weeks, the great financial crisis struck with ferocity in the next year and a half. Between October 2007 and March 2009, the SP fell again by about 50% and bottomed out a bit above 750 in March 2009. It basically all merged into one big, long, never-ending market slump. To combat the new weakness, the Fed cut rates again steeply, and this time they went as low as they could. Unlike in Europe, rates never went negative, but they stayed basically at zero for the next seven years until December 2015, a few years after the SP had finally reached and exceeded the previous peaks in early 2013. So that's the story of the lost decade in the early 2000s, which even lasted 13 years and spanned two nasty market troughs. As our Diamond Nesteg regulars know, Marcus and I lived through this period, and it was not pleasant. It felt that the bad news was never ending, and every silver lining on the horizon seemed to just lead to a new disappointment. But we were much younger then and were looking forward to many more years and even decades of a working life. It was much tougher for those who were about to retire or already in retirement. Not only did equity portfolios lose almost half of their value twice over the period, the often very low Fed funds rates, around 1% after the first lump, and then even basically zero for seven years after 2009 made it very hard to find safe, fixed income investments with a decent coupon as well. And at that point, there was not much anyone already in retirement or about to retire could do. Financial markets were where they were, and there wasn't much choice except to keep working and/or adjust your lifestyle if you hadn't locked in a guaranteed lifetime income stream before markets came crashing down. Bringing us nicely to the next part of today's discussion. How could you have protected yourself? As I just said, once you're in the middle of a bear market, there's just not that much that you can do. The best moment to protect yourself is before the downturn starts. So, with the benefit of hindsight, let's play out a hypothetical scenario and say it's the beginning of 2000 and you're about to retire or already in retirement. You've built a nice nest egg, but are getting nervous because markets are getting a bit wobbly and frothy in your mind. And instead of waiting it out to see whether the markets may or may not go up a bit more, you decide to lock in your portfolio right now, at the beginning of the year 2000. That's this dark yellow line here. And yes, you're not actually locking in at the actual peak of the market. For the next eight months, the SP 500 stays volatile, but it also climbs to its last peaks as the Fed keeps raising its rates as well. So you may indeed feel that you're missing out on some nice stock market gains andor some bonds with an even juicier coupon. But then it all goes south very fast. And maybe you may feel safe and secure and perhaps secretly a bit proud of yourself as Markets and Rates plunge to their first depths by 2003. And assuming you stay the course and don't change your strategy during the interim recovery of 2007, you may feel doubly vindicated during the darkest days of the great financial crisis in 2008 and 2009. It would really only be in February 2013, 13 years after you made your decision to lock in your portfolio, that you would start missing out on sustained stock market gains. And even then, if income was your main concern, you'd probably still feel smug for having locked in your coupons early as the effective Fed funds rate remains at historical lows near zero until the end of 2015. As I've already mentioned, past performance is not indicative of future results or outcomes, and it could all play out completely differently this time in 2026. Plus, no one can time the market. It's impossible to predict when the markets will either go up or down with any accuracy. And as much as we all want to, you can't have it all. Even if you decide to protect yourself going forward because you fear that markets may be in a bubble that's about to burst, you will need to accept some trade-offs. As always, there are no free lunches in finance. There are three main scenarios for what you could realistically do in such a situation. One, your main concern is to protect your principal, meaning your capital and savings. The simplest way to avoid losses is to exit the market, sell your shares, and either park your money in cash or buy safe fixed income securities such as CDs, treasuries, and somewhat similarly safe bonds. These instruments may even pay a decent yield at the time of this taping on June 13th, 2026. For example, treasuries are yielding between 3.7% and slightly below 5%, depending on the maturity. But of course, you won't participate in any future growth in the equity markets. If you want to protect your downside but still keep apart of potential future market gains, you never know after all, you might consider fixed index annuities or structured protection ETFs. Fixed indexed annuities or fias guarantee the principal at 100% and may allow you to participate in the upside of an index like the SP 500, for example, by up to 8.75% for one year at the time of this taping. Fias are not very liquid though, in contrast to structured protection ETFs that you can freely buy or sell on any day the market is open. The liquidity that structured protection ETFs offer, however, usually comes at the price of lower cap rates than what an investor could get from fias. For example, Calamos Investment Structure Protection ETF was launched on June 1st of this year with an initial one-year cap rate of 6.57% for the SP 500 net of fees. Compare this to the FIA's 8.75% one-year cap rate. Also keep in mind that the downside protection of both FIAs and structure protection ETFs only works as intended when they mature. The industry calls this point-to-point protection. You could almost compare this mechanism to normal bonds, which will also only return their full face value at maturity. Scenario 2. You want to lock in a guaranteed income for life right now. As our regulars know, we're big fans of locking in a guaranteed lifelong income to cover your everyday essential living expenses right at the beginning of retirement. This can create a safe base for your portfolio, as we call it, that may not only allow you to sleep well at night, but also perhaps give you the security and confidence to potentially take on a bit more controlled risk with the remaining boost part of your portfolio. One of the best ways that we know to generate such a safe and guaranteed income for life is a single premium immediate annuity or SPIA. A SPIA essentially converts a usually large one-time payment to an insurance company into a guaranteed monthly check for life, regardless of how long you live. You can also build a safe and guaranteed income by laddering treasuries and similarly safe bonds, CDs and MIGAs, multi-year guaranteed annuities. However, a ladder is not strictly speaking locked in for life, but limited to a 30-year time horizon, the maturity of the longest treasury, for all practical purposes. Scenario 3. You have a few years before you retire but want to lock in a future guaranteed lifelong income at current rates right now. The best way to do so is with a fixed indexed annuity, a fiat with an income rider

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(Cont.) How To Prepare For A Market Crash: Three Fundamental Options

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been talking a lot about fias with income riders recently because the rates are simply very attractive at the moment. Remember, annuity rates track interest rates. A FIA with an income rider can combine safety and certainty with a large degree of flexibility. In a nutshell, a fiat with an income rider protects your principal 100% against downturns while letting you keep some upside in the market that accrues to the surrender value. Locks in a future minimum guaranteed lifelong income at current rates, and you have full flexibility when or even if you turn this income stream on. Let your income base potentially grow over time the longer you delay taking the income. Some fias with an income writer even offer a guaranteed rollup rate of up to 9% annually for up to 10 years. Now, fias can be complicated and may require a bit of time and effort to fully understand, as with most financial products that can be customized to your individual circumstances, goals, and expectations. But if you're interested, do take a look at this recent video here where we walk you through some detailed fiat numbers. I've linked it below for your convenience in case you want to dive deeper at any point. So the example in that video showed that if a 65 and 66-year-old couple invested $100,000 into a fiat with an income writer earlier this month in June and waited seven years before they took their first monthly guaranteed annuity paycheck, they might have earned a lifelong guaranteed income of $12,796 per year from year eight. As I've already mentioned, in our mind that's quite an attractive guaranteed payout on a one-off investment of $100,000 and may or may not be easy to replicate if the couple in our video example were a way to lock in their retirement income in eight years only. Also, a fiat with an income rider does not force you to take the income. Remember, a fiat always guarantees 100% of your principal while letting you participate to some degree in the upside of a chosen index. As long as you haven't taken the income yet, haven't turned on the income rider, as we say in the industry, you have the possibility to cash out your full surrender value after the initially committed minimum maturity of the fiat is over. Please keep in mind that the example from this video here is illustrative only. And as of June 5th, 2026, for an A double plus rated insurance company, your personal rates and conditions will depend on a variety of factors, including your state of residence, age, and how highly rated your insurance carrier is. Or not, your personal rates and conditions are not locked in until you sign your annuity contract. And if you want to see what the rates and conditions might look like for you whenever you might be watching this video, email us at jenniferdiamondnestec.com so that we can connect you with our trusted annuity specialist who can help you find the best annuity solution that's out there for you. So these are your options in principle if you're getting nervous about a potential AI bubble at the current time and want to protect yourself and your loved ones against the possibility of a sharp downturn andor long-lasting bear market. But the options can be confusing, which brings us nicely to the next part of today's discussion. What's our perspective? Marcus and I, we believe that the promise of achieving higher productivity with the help of AI is real and should lead to an overall stronger economy and market in the long run. We often feel that we're currently living in the middle of the next industrial revolution. It really started with the internet and may now be accelerating with AI. That said, just like with all other industrial revolutions before, we are also almost sure that there will be setbacks, bubbles, and dry patches along the way, as we just saw with the earlier example of the internet bubble and following crash in today's video. Yes, the internet was real and changed our lives, but it's always possible for market valuations to run ahead of themselves, like they did in the late 1990s. And it could be similar this time or not, only time will tell. But we all still need to make our investment decisions today and without the benefit of hindsight. As we discussed before, unfortunately, you can't really keep the full upside and lock in your future lifelong income at current rates and protect yourself against a potential market crash, all at the same time and with one single investment. So, in our mind, you have to choose between three fundamental options. First, keep the full upside. If you believe that the current tech and AI revolution will enhance productivity and societal wealth in the long run, and you have the time horizon and risk appetite to sit out a potential crash and bear market even if it lasted 10 to 15 years, then you might want to stay invested in broad market indices like the SP 500 and NASDAQ. Exiting and re-entering the market at the wrong time may just risk eating too much into your potential future growth to make it worthwhile from this perspective. And I would put markets to myself in this category. We're planning to keep working for at least another 20 years or so, if we can, hopefully. So we should have enough time to sit out even a prolonged market correction. And by the way, if your main concern is not a potential AI bubble and market crash, but inflation, you might want to stay in shares as well, given that they're real assets. Second, lock in your future income at current rates. If you don't have the time to wait out a potential market crash, for example, because you're already in retirement or about to retire in the next five to seven years, then you may want to lock in a safe and guaranteed lifetime income stream to cover your essential living expenses for life right now. This safe, stable, and predictable base part of your portfolio may then also allow you to take some controlled risk for potentially higher returns in the boost part of your portfolio. And if that's you, remember that rates are generally still at attractive levels compared to the past 20 years at the time of this taping. On June 13th, 2026. So this may be a good time to build a treasury ladder and or to invest in an annuity like a SPIA that can guarantee you a lifelong income stream if you need the income right now or in the near future. And if you have a few years before you need the income, you may want to consider giving your retirement savings an ultimate push with a fiat with an income rider and a guaranteed roll-up rate, for example. We have said before on this channel that we feel this may be a golden moment for fias with an income rider while both markets and rates are at attractive levels. You can protect your capital 100% at current levels and at the same time lock in a minimum future lifelong income based on attractive rates. Plus, the longer you wait before you actually take the income, the more your income base will grow if you have a guaranteed roll-up. And the third option, protect yourself against a potential market crash. If your main focus is on safeguarding your capital against a potential market downturn and a prolonged bear market, then the traditional method is to get out of the market completely and park your money in cash and or treasuries and other safe fixed income investments. Or you could consider investing in either a fiat or a structured protection ETF. Both these last options are relatively recent. FIAs became widely available in the early to mid-2000s, and structured protection ETFs really only in the past five years or so. But both these instruments can protect your principal while still letting you participate in the potential future upside of a chosen index up to a certain degree. And as so often, you could also mix and match. For example, lock in a safe, stable, and predictable guaranteed lifelong income in the future via a fiat with an income writer for the base part of your portfolio and protect a part of your boost portfolio with a structured protection ETF that is highly liquid. Everyone's financial journey is different, and you will need to decide what's the right approach for your individual circumstances, goals, and expectations. And as always, email us at jenniferdiamondestic.com if you'd like to get connected with our trusted annuity specialist to see what your personal rates and conditions might look like whenever you might be watching this video. There's no one size fits all cookie cutter annuity solution. Any annuity you buy should be customized to your individual situation. Alright, Diamond Nestec members, Super Savers and Course fans, I hope you enjoyed this video and learned something new. And see you again very soon with more brand new wealth building content for your financial journey.