Periods of market uncertainty are inevitable and understandably unsettling. When volatility rises or headlines turn ominous, we’re often asked a version of the same question: How are you preparing for the next market downturn?
At LNW, we usually begin by reframing the conversation. Not because the concern isn’t valid, but because the way we think about “the market” matters.
The Market Is Not a Single Thing
One of the first points we emphasize is that “the market” is not a single, homogeneous entity. Often, what people are really referring to is the U.S. stock market. But the global capital markets are far broader and more complex, spanning multiple asset classes, regions, and investment strategies, each driven by different risks and opportunities.
When we build portfolios, we are not making a single bet on one market outcome. Instead, we assemble portfolios the way a chef assembles a recipe: with thoughtfully selected ingredients that complement one another. Each allocation plays a role, and together they are designed to create balance, resilience, and durability across a wide range of environments.
Building Portfolios With Multiple Sources of Return
Because equity risk is often the largest source of risk in client portfolios, identifying differentiated return drivers is essential. That means incorporating investments that may behave differently when traditional equity markets struggle—or that are largely unrelated to public equity risk altogether.
This is where areas such as private credit, hedge funds, private real assets, and private equity can play meaningful roles. While some strategies in these areas do carry equity risk, many do not, or have only limited exposure. The goal is not to avoid risk entirely, but to diversify it thoughtfully—so portfolios are not overly dependent on any single outcome or narrative.
In practice, this means seeking opportunities whose return drivers are distinct from what dominates most public equity portfolios. Strategies grounded in business fundamentals, structural inefficiencies, or long-term operational improvements can offer resilience precisely because they are not tethered to the same forces moving broad equity markets.
Resilience Starts With Realistic Risk Calibration
A resilient portfolio begins well before any investment is selected. It starts with calibrating risk in a way that is both realistic and personal.
Risk is often discussed in abstract terms—volatility, standard deviation, tracking error. But for clients, risk is experienced in real dollars. It is the drawdown that shows up on a statement and the emotional response that follows.
We spend significant time translating portfolio risk into dollar terms and stress testing portfolios across a range of market scenarios. Just as importantly, we work to align portfolios not only with long-term objectives, but with each client’s ability—not just willingness—to tolerate losses during periods of stress.
If someone has never fully internalized what a meaningful market drawdown could look like in dollar terms, the first time they experience it is often the worst possible moment to find out. Our objective is to ensure that portfolios are built so that—even in a bear market—the broader financial plan remains intact and emotional stress does not drive decisions that permanently impair outcomes.
Diversification That Actually Diversifies
From a portfolio perspective, resilience shows up through diversification that goes beyond labels. True diversification occurs across and within asset classes, geographies, strategies, and time horizons—not simply by owning many investments that ultimately respond to the same risks.
It also means maintaining a margin of safety: reasonable valuations, appropriate liquidity, and an avoidance of structural leverage that can turn normal volatility into forced selling. Flexibility matters, especially when markets are under pressure.
Planning for Many Futures, Not One Forecast
We also rely heavily on scenario thinking rather than market forecasts. Instead of asking, What do we think will happen?, we ask, What happens if we’re wrong?
What if inflation remains elevated longer than expected?
What if growth slows meaningfully?
What if correlations rise just when diversification is most needed?
The goal is not to predict the future with precision. It is to avoid building portfolios that are vulnerable to any single version of it.
Managing the Most Important Risk of All
Finally, one of the core tenets of our investment philosophy is that behavioral risk is often the biggest risk investors face. The most lasting damage in market downturns rarely comes from markets themselves, but from emotional reactions—panic, over‑correction, or abandoning a sound plan at exactly the wrong time.
Thoughtful planning, realistic risk calibration, and clear expectations—set in advance and reinforced over time—are what allow clients to stay disciplined when it matters most.
Prepared, Not Perfect
So when the next downturn arrives—and it always does—the goal isn’t to have predicted it perfectly. It’s to be prepared: financially, structurally, and behaviorally. Preparation creates the flexibility, confidence, and optionality to act thoughtfully rather than react emotionally.
That, ultimately, is how we help clients navigate uncertainty—and stay focused on what truly matters over the long term.
