Why this exists

In 2020, the S&P 500 fell 30% from its February 19 record high in just 22 trading days. According to Bank of America Securities data, that was the fastest decline of that magnitude in history. The second, third, and fourth fastest all occurred during the Great Depression era, in 1934, 1931, and 1929.

Declines can happen faster than anyone can react to them. That's the case for deciding in advance.

How the rule works

Three portfolios are available: Conservative, Moderate, and Aggressive. Each carries the same trigger mechanism, which has two halves.

Getting out. If the S&P 500 closes 12% or more below its most recent peak, the portfolio sells its equity positions and moves into bonds.

Getting back in. If the decline from peak to trough was less than 30%, the buy-back triggers once the S&P 500 recovers 50% or more from its low. If the decline exceeded 30%, the buy-back triggers considerably sooner after the low is reached.

Both halves are written in advance. Neither depends on anyone's read of the market at the time.

A stop-loss rule has a tradeoff, and it's worth stating plainly. The trigger can fire on a decline that reverses shortly after, which means selling near a short-term low and buying back at a higher price. That's called a whipsaw, and no rules-based strategy avoids it entirely.

The rule isn't built to be right every time. It's built to be consistent, and to remove the two decisions investors most reliably get wrong: when to get out of a serious decline, and when to get back in.