Stress testing, or scenario-based risk, is what the pros think about constantly, and we believe you should too.
Very simply, we think about what your portfolio might do under certain conditions. For example, if the crisis of 2008 occurred tomorrow, what would you make or lose?
Stress testing does not in itself provide an answer, but it helps you as an investor think about what might happen, and the risk or loss you might suffer in a specific scenario.
Covid is a more recent example, markets fell hard in H1 2020, and then rebounded, but how might you have reacted as your portfolio fell 15% in four hours?
Knowing how you might handle loss is critical to being a good investor.