Simulating a Crisis: Using Global Predictions Portal to See How Resilient Your Portfolio Is

December 9, 2021

Note: Specific investments described herein do not represent all investment decisions made by Global Predictions. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future.

One of the features we’re most excited about with our recent v2 release is the crisis simulation feature. (You can access this by logging into PortfolioPilot and clicking on “Simulations” in the left hand menu). Basically, this feature lets you simulate how your portfolio would fare during an economic crisis. The output of this crisis simulation is a visualization of the cumulative return and drawdown a portfolio like yours would have experienced at various moments in history, and is helpful to better understand your risk tolerance and preferences with respect to real-world examples.

The hard part here is we can’t use your actual portfolio --- you likely own some assets that weren’t available during whichever crisis you selected, so we can’t use exactly your portfolio. Instead, we look at your risk allocation by country, sector, and asset class to create a proxy portfolio similar to yours, and see how it would fare. This isn’t about the performance of individual securities; it’s about the macroeconomic profile of your portfolio and its resilience. So instead of simulating your actual portfolio, we construct a relative weighting of your portfolio, transmuted in time to whichever crash period you’ve chosen.

We think this is a more indicative way of looking at hypothetical performance, because it also controls for survivorship bias. If we were to use the universe of existing companies now, it would make your performance look too good. It’s useful to think about maximum loss because investing is risky and doesn’t experience linear growth.

When you try the crisis simulator, think through what maximum loss you’re able and willing to live through, and how the risk profile of your investments aligns with whatever your tolerance is. If seeing your US-focused, tech-heavy portfolio crash, even a little, after the Tech Bubble makes you unduly anxious, you’ll know you have some adjustments to make. If you want to know what is likely to happen in the future, we encourage you to have a look at the rest of the site and the Economy Exploration tools we offer. We want you to feel confident regardless of what curveballs the economy throws your way.

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This website is for informational purposes only and does not constitute an offer of investment management or investment advisory services by Global Predictions, Inc. (“Global Predictions”), and may not be relied upon in connection with any offer or sale of securities or other assets. Nothing on the website is intended to be, and you should not consider anything on the website to be, investment, accounting, tax or legal advice.

The contents of the website may contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the financial industry, the economy, Global Predictions itself or its investments. Forward-looking statements are not guarantees of the underlying expected actions or future performance and future results may differ significantly from those anticipated by the forward-looking statements. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. All expressions of opinions are subject to change without notice. Inherent in any investment is the risk of loss. Further, past performance is not indicative of future results.

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