Every bull market produces a generation of investors who believe they are good at this. The portfolio climbs, the statements look impressive, and the question of what happens next rarely gets asked with any seriousness. Then the market turns, and the answer arrives whether anyone prepared for it or not. Gregory “Greg” Matthews, an investment advisory representative who spent 28 years as an institutional fixed income salesman before moving into wealth management at Morgan Stanley, argues that the outcome of a downturn is rarely determined by what an investor does during the downturn. It is determined by decisions made years earlier, in the comfortable stretch when nobody felt any urgency to make them. “Markets reward confidence on the way up,” he says. “The real test comes on the way down.” That reframing matters because it moves the work from reaction to construction, and construction only happens when there is time.
Fund The Near Term Before The Market Decides For You
The first failure in most portfolios is not asset allocation. It is a mismatch between when money is needed and when it is invested. Tuition comes due on a calendar, not on a market cycle. A home purchase has a closing date. A business exit has a timeline. When those obligations sit inside a portfolio built for long-horizon growth, a falling market stops being an abstraction and becomes a forced sale. “The downturn is far easier to absorb when your near-term needs are already funded,” Matthews says. “Once those are matched to the right time horizon, the rest of the portfolio has room to ride out volatility instead of being sold into it.”
The logic runs deeper than liquidity management. An investor who has to raise cash during a drawdown is no longer making investment decisions at all. The market is making them, and it is making them at the worst available prices. By carving out and funding the near-term obligations in advance, the investor buys something more valuable than yield: the ability to do nothing. Patience is often described as a temperament. In practice, it is a balance sheet condition, and it has to be engineered before it can be exercised.
Diversification That Behaves Differently
The second failure is more subtle, because it looks like prudence. An investor holds 20 positions across several sectors and reasonably concludes the portfolio is diversified. Matthews puts a sharper name on it. “Owning 20 stocks that all move together is a concentration, wearing a disguise.” The number of holdings is not the measure. Correlation is. In a broad market selloff, positions that appeared distinct in calm conditions tend to converge, and the diversification that existed on the statement turns out not to have existed in the portfolio.
This is where Matthews, who holds the Alternative Investment Director designation, makes the case for alternative strategies as structure rather than decoration. “Used thoughtfully, it can add sources of return that do not rise and fall in lockstep with public equities, which is exactly what you want when the broad market is under pressure.” The qualifier is doing real work in that sentence. Alternatives are not a hedge by virtue of being labeled alternative, and they are not a yield enhancement to be bolted onto an equity book for variety. Their function is behavioral independence, and that function only justifies the complexity, the illiquidity, and the fee load if the underlying return driver is genuinely unrelated to the equity market. Investors who buy alternatives for the return, rather than the correlation profile, will find out during the next drawdown that they bought more of what they already owned.
Write The Rules Before You Need Them
The third failure is the most expensive and the least discussed, because it is not a portfolio problem. It is a decision-making problem. “The costliest decisions get made in the middle of a sell-off,” Matthews says. That is when judgment degrades, when the gap between a long-term plan and the daily account balance feels unbearable, and when selling feels less like a mistake than a relief. The investor who intends to decide rationally in that moment is relying on a version of themselves that has never been tested under those conditions.
Matthews’s answer is to remove the decision from the moment entirely. “So we write the rules in advance. Rebalancing triggers, cash reserves, tax loss harvesting. When the plan is already on paper, the difficult market becomes a set of steps to follow.” This is a meaningful shift for the role of an advisor. The value is not in predicting the turn, and Matthews makes no claim to. The value is in having specified, in advance and in writing, what happens at each level of decline: what gets rebalanced, what cash gets deployed, which losses get harvested and when. A pre-written rule converts a crisis into an operating procedure. It also protects the investor from the most persuasive voice in the room during a selloff, which is their own.
None of this is complicated, and that is precisely why it goes undone. Each of these three moves asks for effort at the exact point in the cycle when effort feels unnecessary. Matching obligations to horizons, interrogating correlation rather than counting positions, and writing the rules of engagement before any shot is fired are all mundane tasks with no visible payoff in a rising market. Their entire return arrives at once, later, in the form of losses that did not have to be taken. “Durable wealth is built with intention, not luck,” Matthews says. The investors who learn that lesson during the downturn pay considerably more for it than the ones who learned it beforehand.
Follow Gregory “Greg” Matthews on LinkedIn for more insights on portfolio construction, alternative investments, and building wealth strategies that hold up across full market cycles.
