In December 1996, U.S. Fed Chair Alan Greenspan warned that markets might be showing signs of “irrational exuberance.”

At the time, the S&P 500 sat at 744. Over the next three years, it nearly doubled. Then came the dot-com crash — and yet, even at its lowest point in 2002, the S&P 500 never fell below the level it was when Greenspan gave his warning.

If you had sold in 1996 because markets felt too high, you would have missed years of compounding and by the time prices “corrected,” they were still above where you got out.

The Hidden Cost of Constant Preparation

Preparing for a crash sounds responsible. But it often translates into sitting in cash, trimming equity exposure, or chasing safety at the wrong times. Our minds crave certainty, especially when things feel uncertain. We want to “do something” to protect ourselves.

But constantly preparing for a crash can do more harm than good. While you wait for the perfect moment, the market keeps moving. You miss the power of compounding, and the recovery often begins long before anyone feels confident again.

What Actually Works

Long-term investors do not win by predicting. They win by preparing and embracing a few simple habits:

• Diversification to handle the unknown.
• Patience to let compounding work.
• Discipline to stay the course when others react.

That is how you stay invested through uncertainty instead of waiting for it to disappear. Greenspan was right that markets were exuberant. However, the market never got that “cheap” again.

Preparation over Prediction

The lesson remains timeless: No one knows when the next downturn will come. Being out of the market waiting for it has almost always cost more than staying invested through it.

That is why our focus is not on predicting what is going to happen next. The focus is on building portfolios and plans that can endure whatever comes next.

The goal of financial planning is not to outguess the market. It is to build clarity and confidence around what you can control. If recent volatility or market headlines have you feeling uncertain, revisit your plan with your advisor. It is designed to help you stay invested, stay balanced, and stay focused on what truly matters which is your long-term outcomes.

Humans cannot predict. But we can prepare. Not by retreating, but by building portfolios and mindsets that endure whatever comes next.

 

Written by Marius Kilian