How To Prepare For A Market Collapse: Three Smart 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. 

Transcript

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Could your Nesteg survive a 50% SP drop in retirement? And how can you fundamentally prepare for a market crash? Hello, Diamond Nesteg members, Super Savers and Course fans, I hope you're healthy and well. So, markets and treasury yields both had a good week. At the time of this taping, at close of market on Friday, July 10th, the SP stands at 7,575, close to its all-time high of a bit more than 7,600 from just a few weeks ago. At the same time, long-term Treasury yields are back up as well, with the 20-year and 30-year Treasury closing out the week a bit above 5% again. It seems the market is expecting and pricing in a future of strong growth and maybe a bit of elevated inflation going forward. And this might well be the case. The US economy has some good arguments on its side, after all, and there is no law that says that every record high must be followed by a market consolidation or even crash. But no one can predict the future, and there are a few warning signs out there that should keep us somewhat on our toes. Shares of SpaceX fell 4.51% today, Friday, July 10th, and are now trading 3.13% lower than at the IPO not even a month ago. And that's before we talk about the so far unresolved conflict with Iran and other potential global crises. It's no wonder then that we're continuing to get a lot of questions from our VIP members and the wider community about how to protect their money against a potential market collapse. And especially from those of you who are already in retirement or close to retirement, who feel the urgency and weight of this question very directly, and rightly so. After all, it is one of the key decisions that every investor has to make on their financial and retirement journey. So, with that in mind, let's get back to the base part of your portfolio today and revisit with a fresh look how you can and should protect your capital and lock in a guaranteed lifelong cash income to cover your essential living expenses in retirement. We'll be using updated numbers from the close of market on july 10th, 2026, the time of this taping. Here are the three topics I'll be covering today. One, what did the final stretch of the internet bubble of 2000 look like? And what happened after it burst? Two, how could you have protected yourself? And three, what's our perspective? Let's dive in now folks. What did the final stretch of the internet bubble of 2000 look like? And what happened after it burst? This chart from Morningstar per February 2026 shows the long-term growth of the US stock market since 1870. You may have seen it before on our channel, and it remains one of our favorite charts as it summarizes the dynamics of investing in equities quite well. The stock market undoubtedly has a history of being a great engine of wealth generation in the long run. But what it doesn't have is a history of steady and constant growth. 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, as you can see here from these red dips. So let's take a look again at the internet boom of the 1990s, a period of optimism when stock markets went from record high to record high. In the end, markets overdid it though. Long-forgotten companies like DoubleClick and Chemtex initially showed multi-billion dollar valuations after the IPOs, despite being deeply unprofitable. This may sound almost a bit too familiar to many when they think about SpaceX, which stated themselves in a recent SEC filing before their IPO. 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. Now, Greenspan just passed away a few weeks ago at the respectable age of 100. But Marcus and I sometimes do wonder whether he would say the same again about the current market. So let's zoom in now to the lost decade, the long slug that followed the internet boom of the 1990s and that lasted from 2000 to 2013. So the peak of the bubble came in the year 2000. You can see here that the SP 500, the blue line in the illustration, 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 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 1,500 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 spann two nasty market troughs. As our Diamond Neste regulars know, Marcus and I lived through this period, and it was, to put it nicely, very unpleasant for our portfolios. 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? Now, the future may look completely different from the past, and everyone's financial journey is different. But one iron rule has always been true historically. 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 and or some bonds with an even juicier coupon. But then it all goes south and very fast. And now 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 you 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 the 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 lifelong income or coupons early as the effective Fed funds rate remained at historical lows near zero until the end of 2015. As I said before, it could all play out completely differently this time around than during the lost decade. Plus, no one can time the market. It's impossible to predict when the markets will either go up or down with any accuracy. That said, there are three main scenarios for what you could realistically do if you feel that we might be in a pre-bubble scenario and want to protect yourself, your portfolio, and your income. And especially so if you're already in or near retirement and don't have the time to potentially wait out a prolonged bear market. And keep in mind as we go through these three main scenarios. As with most things in life and money, 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 we're often fond of saying in the Lammer family, there are no free lunches in finance. So here are our three scenarios. Scenario 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 July 10th, 2026. For example, treasuries are yielding between 3.71% and 5.08%, 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 indexed annuities or structured protection ETFs. Fixed indexed annuities 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. Many fias may allow you an annual 10% fee-free withdrawal, but if you need to pull out more than that before the surrender period, you will usually have to pay some hefty early withdrawal penalties. That said, one of the charms of an annuity is that it can be customized to your individual circumstances, goals, and expectations. So if at any point in this video you're interested in what the best annuity options might be for you and what your specific numbers might look like, email us at jenniferdiamondestec.com so that we can connect you with a trusted annuity specialist who can help you sort through all the options and find some clarity amongst the confusion. Now, if liquidity is a real concern, say because you might have to pull that cash out in a few months or perhaps next year, then structured protection ETFs, also known as buffer ETFs, may be more suitable for your situation. Structured protection ETFs also basically guarantee your capital and let you participate in the upside of an index to a certain extent. But you can freely buy or sell them on any day that the market is open. This liquidity usually comes at a price though. As I mentioned earlier, there are trade-offs that you will need to make depending on what is most important to you. And the price you pay for the liquidity the structure protection ETFs offer is that you will typically keep less of the potential upside of the index. According to industry observers, and from what we've seen up to this point in time, most standard structure protection ETFs will generally have lower cap rates than fias from even the highest-rated insurance companies. For example, Calamos Investment Structure Protection ETF CPSJ was launched on July 1st of this year. And if you bought it at the time of this taping on July 10th, 2026, it would offer you an effective cap rate net of fees of 6.78% on the SP 500, meaning you would keep up to 6.78% of the potential upside of the SP 500 after one year. Compare this to the one-year cap rate on a fiat from the highest-rated insurance company of up to 8.75%. Also keep in mind that the downside protection of most 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. So, if I had to summarize it in my own words, if you want to protect your downside but still keep a part of potential future market gains, a typical fiat will generally give you a higher cap rate at the expense of liquidity, whereas a standard structure protection ETF will usually give you a lower cap rate, but you can sell it anytime on the exchange. But neither fias nor structured protection ETFs will pay you any regular income or dividends, which brings us to scenario two. You want to lock in a guaranteed income for life right now. As our members and 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. And especially now given how attractive rates currently are. 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 that starts immediately and will last a lifetime, 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. 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, although that may be sufficient for many practical purposes. Scenario three. You have a few years before you retire, but want to lock in a future guaranteed lifelong income at current rates, right now, while hoping to see some potential additional growth along this last stretch before retirement. Or perhaps you're already in retirement and want a bit of monthly income top-up in a few years' time, either for yourself or a surviving spouse. The best way to do so is with a fixed indexed annuity, or FIA with an income rider on top. We've been talking a lot about FIAs with income riders recently because the rates are simply very attractive at the moment, as I just mentioned. 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 can offer a guaranteed roll-up rate of up to 9% of your initial investment 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 situation. 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 in Maryland invested $100,000 into a FIA with an income rider from an A double plus rated insurance company 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. And even if you're not yet about to retire or in retirement, but like current rates and market levels and want to lock in a future guaranteed lifelong income stream from some point in the future, the same mechanism from fias with an income writer can work quite well. So let's say you're a slightly younger single male of 60 living in Florida. And perhaps you're willing to take on a bit more risk with an A plus rated insurance company. Such an investor could invest $100,000 at the time of the taping, let it grow for 12 years with roll-ups, and then start receiving a guaranteed lifelong income of up to $19,894 per year from age 72. As I've already mentioned, in our mind, these are quite attractive guaranteed payouts on a one-off investment of $100,000 and may or may not be easy to replicate if the investors in our example were to wait to lock in their retirement income in 8 or 12 years only. Also, many fias with an income rider do 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, for example. Please keep in mind that the examples from this video are illustrative only, and as of July 10th, 2026, your personal rates and conditions will depend on a variety of factors, including your state of residence, age, gender, 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 jenniferdiamonestic.com so that we can connect you with a 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 market 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. I don't need to explain why to our Diamond Neste community who's watching this video right now. But it's always possible for market valuations to run ahead of themselves and then have to correct in a potentially long and painful bear market 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 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 Marcus and myself in this category. As our closer diamond nested community already knows, we're planning to keep working for at least another 15-20 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 instance, because you are 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 at attractive levels currently compared to the past 20 years after a strong week at the time of this taping on July 10th, 2026. So this may be a good time to build a treasury ladder and or to invest in an annuity like ASPIA 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 FIA with an income rider and a guaranteed roll-up rate, for example. We have said before on this channel and in our VIP Investment Club 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 principal 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 not on income, but on safeguarding your capital against a potential market downturn andor prolonged bear market, then the traditional method is to get out of the market completely and park your money in cash andor treasuries and other safe fixed income investments. Or you could consider investing in either a traditional fiat without an income rider or a structure protection ETF. Both of 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 FIA with an income rider 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 jenniferdiamondestec.com if you'd like to get connected with a 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 solution. Any annuity you buy should be customized specifically for you. 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.