The US administration recently announced a sweeping series of tariffs on seemingly every country in the world, and the immediate market reaction was starkly negative with stocks falling double digits in just a few days and volatility shooting through the roof. Naturally, many people who track markets for a living are freaking out.

If you’re expecting me to join the growing chorus of chronically online personalities offering a long and important sounding take on tariffs and what I believe the people in charge should or shouldn’t do, that’s not really my thing. There are already enough people doing that, and to be honest I find the tone on both sides to be frustrating. It’s a complicated issue that very few individuals fully understand, which makes the arguments among newly minted trade experts a lot less informative than their confidence might imply.

And of course, the inherent political undercurrent that permeates the topic also has a way of distracting even very smart and respected people to the point of completely losing focus on what really matters. Ranting about government policies is an inherently unproductive activity that accomplishes nothing but raising your blood pressure and losing the respect of your peers.

As individual investors, we need and deserve actionable advice on how to handle tough situations that we have no control over. Reframe your mindset from one of fear and anger to one of resilience, and your entire paradigm changes. That proactive approach is more in my wheelhouse.

So to address the issue at hand, I’m going to avoid any guesses about the future of tariff policy impacts and concede right from the start that it’s possible it could be one of the worst economic decisions of all time. At that point, what matters is how you handle it.

Which brings us to an interesting question.

What are the worst stock market drawdowns in history, and which portfolios performed best in those same situations?

I’ve got the data. So let’s flip the script from reflexively pining over perfect market conditions to talking about what you can do to make money even in the worst possible financial headwinds.

Table of Contents

• Methodology
• The Most Stock-Proof Portfolios On Record
• Addressing Timeframe Bias
• The Top-5 Portfolios in Any Stock Market Condition
• A Safe Portfolio for Every Personality
• Lessons for Weary Investors

Methodology

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Before I jump to the numbers, let’s start with the process.

First, I found the deepest inflation-adjusted compound drawdown for US large cap blend stocks in my database of annual returns since 1970. As a sneak peak, that’s a massive 50% 2-year drawdown from 1973-1974. That really puts the recent correction in perspective, doesn’t it?

Next, I looked at the performance of every portfolio I track during that same timeframe to find the asset allocation that best weathered the stock market storm. In this case, that was the Permanent Portfolio that made an 8% profit in the same 1973-1974 timeframe. Talk about a different investing experience!

But to just stop there and recommend the Permanent Portfolio based on a single 2-year period in the US would really do this topic a disservice. The world is much bigger than that, and there may also be unseen local conditions during that time that bias the best portfolios.

To offer some much needed global historical context, I decided to branch out and go fully international. So I repeated the same process for the 12 different countries I track. A massive asset bubble that precipitated a prolonged 68% stock drawdown and a full lost decade in Japan? Now that was rough. An 82% stock drawdown in Spain while emerging from nearly 40 years of dictatorship? I’ve got that, too. And just like in the US, I similarly found the portfolios that performed the best during each unique worst case.

With a resulting list of up to 12 portfolios that best withstood the worst stock drawdowns not just in the US but elsewhere, we can then get to the business of looking for patterns and talking about portfolio construction ideas to give us confidence even when everyone else is fearful.

A Note On Portfolio Definitions

For those not familiar with how I handle international portfolio translations, I don’t simply use the same US assets that most people talk about in portfolio definitions. Instead, I translate each portfolio philosophy using the domestic/international lens that authors use to talk about their ideas. For example, for Italian investors in this study I tracked the worst stock markets in Italy, not the US. And when US investors would buy “domestic” bonds in the United States, Italian investors would start with European funds and see US bonds as international.

The Most Stock-Proof Portfolios On Record

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Now that we’ve covered how everything was done, let’s skip right to the numbers. Here are all of the deepest stock drawdowns and best alternative portfolios for every country I track since 1970.

There is a lot going on, so allow me to point out a few things.

First, look at the stock drawdown column. US investors may be losing their minds over a swift double-digit drop, but investors in other countries with any sense of history are probably rolling their eyes at our information bubble. Think of the most negative pundit predictions for market drawdowns you’re hearing today, and compare them to the worst cases from Italy, Spain, an the UK. Then take a deep breath and relax your shoulders.

Next, look at the best returns from proper portfolios over the same worst-case timeframes. Not only did they do much better than the stock market alone, but most also posted nice gains! Note that the absolute value of the gains is not necessarily a one-to-one comparison between the portfolios of different countries in the column, as the totals are compounded over varying timeframes. But they’re a nice contrast to the negative stock numbers on the same row.

Finally, check out the best portfolios. The Permanent Portfolio and Weird Portfolio both feature strongly, while the Golden Ratio Portfolio and Global Market Portfolio all make appearances. They’re all quite different from just buying a cap-weighted stock fund, so that’s a great place to start for new ideas.

Addressing Timeframe Bias

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Before we move on, I want to pause and address a potential source of portfolio bias in the numbers. This is a rare situation where I’m highlighting individual timeframes over my favored start-date-independent metrics, so I think it’s important to evaluate the assumptions.

Looking at the timeframes, it’s notable that most are in the early 1970s. And looking at the portfolios, three of the four are quite heavy in gold. Students of financial history (or readers of Portfolio Charts) may know that this particular timeframe featured a historic run-up in gold prices due to the repeal of the Bretton Woods agreement in 1971 and subsequent end of the gold standard that fixed the gold price for more than a century. So as interesting as it looks on paper, studying gold-heavy portfolios during an event that can’t repeat again may not make the most sense today.

There are two ways to address that issue, and I’m going to do both.

First, let’s look at the numbers over the same timeframe since 1970 but excluding portfolios that contain substantial amounts of gold. Note that even though the Global Market Portfolio holds 2% gold and any portfolio containing commodities contains trace amounts, I allowed them both because it’s not enough to skew the numbers on its own.

There are two noticeable takeaways here. First, the best returns without gold are clearly worse than the returns that contain gold, but they’re still great compared to the all-stock alternative. And second, the 7Twelve Portfolio was remarkably consistent in every market. So we’re definitely adding that to the discussion list.

That said, completely ignoring portfolios that contain gold just because a few years in the early 1970s may not be repeatable also isn’t particularly fair. Their overall consistency goes way beyond those few early years. So to give them a fair shot, I ran the same analysis with all portfolios but starting in 1980. By starting at the beginning of a 20-year drop in gold prices, it completely bypasses any possibility of bias from the initial price spike.

I think that sounds fair. And even though doing this also excludes the absolute worst times for stocks, as you’ll see below there are still plenty of painful timeframes post-1980.

Did you expect US stocks to perform only slightly better (over a painfully longer ride down) during the 2000’s than in the 1970’s? Starting with the tech stock bubble bursting, enduring a physical attack on Wall Street on 9/11, slogging through a decade of war in the middle east, and ending with the 2008 financial crisis is no joke. And clearly the entire world felt the pain.

In these times as well, the Weird Portfolio consistently rose to the top while the Larry Portfolio, Global Market Portfolio, and Permanent Portfolio also made fine showings. Yes, two of them benefitted from a new gold growth cycle but it was organic and had nothing to do with Bretton Woods. And two contain no significant allocation to gold, so it’s not all about that one asset.

The Top-5 Portfolios in Any Stock Market Condition

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Put it all together, and there are 5 portfolios that repeatedly topped the list even when accounting for Bretton Woods bias. You can click the images to see the full asset allocations, but the colors also provide lots of good context at a glance.

Looking for patterns, the most obvious thing that stands out is the relatively small percentage of red stocks in each of these portfolios (dark red is domestic stocks, and light red is international or global stocks). The highest allocation to domestic stocks is just 25%, and the highest allocation to stocks overall is just 50%. When you think about it, it makes perfect sense how they’re all able to avoid the pain of domestic stock drawdowns. They’re just not stock-heavy allocations to begin with.

Even so, muting drawdowns is very different than actually turning a nice profit when stocks are falling apart. So the story here is about a lot more than just the stock percentage. I notice three distinct approaches.

1. Buy the Whole Market

Global Market Portfolio

One of the most persistent habits of market commentators that drives me a bit crazy is the insular insistence on referring to the US stock market as “The Market”. For reference, if you look at the donut chart above of the total global financial market, US stocks only account for about half of that first slice or roughly 25% overall. Yet the words chosen by our financial trendsetters have a lasting effect on our perceptions, which is one reason why I believe people overreact to the fickle nature of local stocks.

Look at the truly big picture, and one way to protect yourselves from a crash in The Market is to simply look outside your domestic stock window and recognize that there’s an entire world of assets out there to invest in. Buy the global market, and even when one or more stock markets struggle it’s just a tiny corner of the much larger field.

2. Minimize the Worst Downsides

Larry Portfolio

The Larry Portfolio has the lowest allocation to domestic stocks for US Investors, and the second lowest for people outside of the US. But contrary to old-school ideas around simply adding an international stock fund and buying your age in bonds, it takes a deceptively sophisticated approach. Two of the three stock assets are small/value tilted while the third is highly volatile emerging markets. And the bond percentage is quite deliberate to mathematically balance the volatility.

The idea is that by buying small percentages volatile assets with the highest expected returns and balancing them with high percentages of steady bonds, one can construct a portfolio with remarkably solid risk-adjusted returns that avoids particularly poor outcomes. Larry Swedroe refers to these unexpected and undesirable outcomes as black swans or statistical fat tails, and he has built a career talking about how to avoid them.

3. Prepare for Any Outcome

The final three portfolios that show up most often in our test are all a little different but share a similar philosophy. In contrast to the Global Market Portfolio that avoids any concentration at all beyond global market weights and the Larry Portfolio that protects itself from the worst outcomes by utilizing small doses of select volatile assets, these portfolios take a different approach. They spread money around specific collections of equally-weighted assets chosen so that the portfolios as a whole make money no matter what happens.

If stocks tank? No big deal. Assets like bonds and gold are there to save the day. And if gold or bonds collapse tomorrow? Also no problem, because stocks and other assets are there to pick up the slack. In general, money moves all the time between assets but it has to flow somewhere. And by covering their economic bases, these portfolios not only have natural firewalls built in but also position themselves to make money no matter what happens in any one market.

While we’re here, I’d also like to point out one fun fact about these three portfolios. They all apply diversification in different ways. One has no international stocks, another has no gold, and only one utilizes value screens. So if you’ve ever felt pressured into investing in an asset you just don’t personally care about, take some time to evaluate your options. There’s a portfolio for all types of people.

A Safe Portfolio for Every Personality

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To build on that idea, I think it could be helpful to share a few mindsets to determine which one of these stock-hedging portfolios are right for you. I’ve talked with a lot of investors over the years, and I’ve seen a lot of patterns. So read along and tell me if any of these hit home.

You’re a fan of all-equity portfolios and crave the return.

Despite the stoic refrain of some market voices telling you to just stop caring about stock market movements, you’re human and are sweating bullets looking at the red numbers today. You like the idea of reducing drawdowns, but have been told that the tradeoff of letting go of the high average return of stocks isn’t worth it.

My advice is to check out the Weird Portfolio. Believe it or not, in addition to being a particularly stout allocation in tough times, it also has the second-highest average return on the site right behind the Total Stock Market. When looking at blended portfolios, the tradeoff between risk and return is less rigid than you’ve been led to believe.

You’re a naturally conservative investor who hates losing money.

The thought of putting everything in stocks just feels like gambling, and I bet you’re sitting on a lot of cash right now just wondering where to safely invest at all. Maybe you’re retired and far more concerned with preserving your savings than trying to get rich.

If this describes you, try the Permanent Portfolio. It may not have the highest returns, but it’s about as bulletproof as you can get. Harry Browne named his book “Fail-Safe Investing” for a reason.

You’re an educated investor who likes risk parity ideas but hates gold.

It makes no sense. It’s nothing but a shiny rock that produces nothing and generates no dividend, and normal asset pricing theory doesn’t apply. No matter how many people talk about great gold backtests, you just don’t trust them. Don’t worry — you’re not the only one.

Read up on the 7Twelve Portfolio. It invests in a wide variety of different stocks, bonds, and commodities with no precious metals in sight. And as we’ve seen, it also protects your money like a champ.

You’re a numbers person who thinks about volatility and expected returns.

Theory is your specialty, and concepts like the capital asset pricing model just make sense. You understand that assets with the highest expected returns will always be more appealing than plain market beta. But you’re also not reckless, and you have read enough to know that the trick is managing the downside risk for volatile assets.

If you dream in standard deviations, the natural fit is the Larry Portfolio. Read some of Larry Swedroe’s books and it’s bound to click.

You don’t like choosing and just want to let the markets do the work.

At a certain point, portfolio theory discussions start to sound like a bunch of nerds talking in circles. You understand that investing is important, but you have enough good sense to understand that nobody can beat the market. Maybe you’ve even read up about the efficient market hypothesis and fully believe in the collective wisdom of crowds.

While you might be tempted to just buy VT and chill, the stock market is not the total market! There’s actually no better portfolio option for you than its wise older brother the Global Market Portfolio. Own the whole world — stocks, bonds, and everything else — and it’s a lot harder for any one asset to let you down.

Lessons for Weary Investors

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Hopefully reading about some real data and actionable investing concepts has been a nice respite from the ongoing tariff talk, news cycle, and stock market drama. Clear minds make better decisions, and for me there’s no better way to reset any anxiety I feel than by focusing on what I can control.

I can’t control tariffs, markets, or the day-to-day decisions of politicians, and neither can you. But there are two areas where our personal agencies are unquestioned.

We can control our investing choices

The people screaming the loudest about The Market are almost certainly invested way too heavily — and are perhaps overleveraged — in stocks. Never forget that their worries do not have to automatically be your worries. Find the right portfolio that survived even the worst storms a dozen countries have thrown at it over the last 50+ years, and you can just watch in silent awe as the biggest names in finance lose their minds at the first signs of stock trouble.

We can control who we allow to influence us

While passions are highest right now, take a moment to pay close attention to how people you trust are handling it. I’ve seen a professional financial adviser become so unhinged with political anger in the last week that he publicly called his own clients stupid and easy to manipulate. Regardless of their political beliefs, I can only imagine the reaction of any customers who saw that. Someone who buckles under pressure that severely probably isn’t the best steward of your money.

I have also watched smart people I very much respect devolve on social media into raging maniacs posting frantically into the ether as if they are making as many blood offerings to the gods as it takes to bring the stock gains back. As much as you may idolize them on their good days, learning what their bad days look like can help you filter the signal from the noise. Not all opinions are equally helpful.

To be fair, however, also remember to show some grace. We’re all human. Losses of any kind are never fun, and we have all experienced our own moments of weakness. My point is simply that you can learn a lot about someone by watching how they handle adversity. And sometimes it’s ok to tune out, go outside, and appreciate the springtime sun.

What investing experience do you want?

So circling back to the topic that inspired this post — sure, I have opinions on tariffs. But they really don’t matter to how I invest, and they shouldn’t matter to you, either. I chose my portfolio long ago to grow and protect my hard-earned money no matter what happens in the markets, and thanks to that choice I enjoyed a nice walk with my wife on a tree-lined trail today without worry.

I understand if you’re concerned about current events, but my hope is that you can perhaps reach a similar point of equanimity by studying some of the portfolio concepts we covered.

Are you composed like me, or increasingly anxious like the loudest market pundits?

These are the days that help us determine who we really are as investors.

The choice is yours.

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