How to Build a Portfolio that Protects Principal During Extreme Events

In the current complex and ever-changing global environment, it is particularly important to construct an investment portfolio that can protect the principal during extreme events. This article will explore this topic and provide some practical suggestions.

We are in a turbulent era

Currently, we are in an era filled with uncertainty. The global geopolitical situation is tense, the economic outlook is unclear, and the rapid development of new technologies brings both opportunities and challenges. Against this backdrop, investors need to be particularly cautious and prepare to address various risks.

The Core of Investment: Survival First, Profits Second

In turbulent times, the primary goal of investing should be to protect the principal, rather than pursuing the highest returns. As a famous investor once said: "What truly determines the fate of your wealth is not the average return, but whether you can avoid a moment of 'zeroing out.'"

Even if an investment portfolio has good returns every year, a single extreme market crash can wipe out all gains. Therefore, it is crucial to build an investment structure that can survive in various situations.

Key Principles of Hedging Investments

Here are a few investment principles that are especially important in extreme times:

1. Safe assets do not equal low-volatility assets. True safe-haven assets should be able to grow inversely during a systemic collapse.

2. Be wary of the backlash effect of compound interest. In extreme market conditions, previously accumulated gains can instantly drop to zero.

3. Prepare for the worst-case scenario, rather than trying to predict the future.

4. Look for assets with a convex return structure, which means they may incur small losses during normal periods but can appreciate significantly in extreme events.

5. Geographic diversification and asset custody diversification are equally important. Do not concentrate all assets in one country or with one custody method.

Suggested Structure for Building a "Hedge Investment Portfolio"

A possible structure for a hedging investment portfolio is as follows:

• 90-95%: Low-risk, stable return assets such as short-term bonds, cash, high-dividend stocks, etc. (.
• 5-10%: High leverage "tail risk hedging" assets ) such as volatility index longs, deep out-of-the-money puts, etc. (

This structure may yield average returns during normal times, but it can protect the principal well in extreme market conditions.

Recommendations for the "Black Swan Survival Portfolio" in 2025

Considering the current risk environment, a layered asset structure can be constructed:

) Level 0: Healthy Body

Maintaining good physical condition and survival skills is the foundation for coping with any crisis.

Layer 1: Anti-system risk assets ###5-10% (

Used to preserve life in the event of a complete system collapse, such as physical gold, cryptocurrency, and other self-custodied assets.

) Layer 2: Tail Risk Hedge Asset ### 3-7% (

Used to achieve high returns during significant market fluctuations, such as deep put options, long volatility index, etc.

) Layer 3: Liquidity and Growth Assets ### 70-90% (

Used for daily life and stable income, such as short-term bonds, global high-dividend stocks, real estate investment trusts, etc.

Conclusion

In this uncertain era, investors should focus on how to protect their assets in various extreme situations. Through reasonable asset allocation and risk management, we can build a portfolio that can withstand the test of various storms. Remember, good defense leads to good offense.