My view of capital allocation to equities has always been after you have fully paid off all your debts including your home and car. If you want a second home as a holiday home, then use cash to pay that off before allocating any capital to equities. Have cash in the bank that you can live off for 3 to 5 years before you allocate cash to equities. Have other assets that generate cashflow as well, paid in cash before building a sizeable stock portfolio.

This would have been considered an extreme positioning by virtually all “financial” advisors as there is zero leverage with debt in any asset class but it enables one to withstand any systematic shocks that may occur to one’s personal situation as well as a macro economic one.

It does mean living well below one’s means financially for many years and realising good fortune when one happens to experience it than thinking that it is a right or that it will last for years to come.

Smart people realise no one is that smart and luck plays a part in opportunities that present themselves.

It enables a financial base for your household and family that becomes formidable. Happiness never comes from financial wealth. Financial wealth buys comfort and temporary pleasures. That is why living below your means should be attainable for most people who have been in employment because it does not take a lot to be comfortable.

Many people’s ruin comes from their own egos thinking they are better than they actually are and using debt to “keep up with the Jones’s”.

I have a plan in place to keep adding to the stocks that I named earlier if the market declines a further 25% which would be 50% from its peak last month. After that, I have no plans to do anything but to “watch paint dry” as I will have filled my allocations on the stocks that I would like to have increased my holdings in, with long term capital.

The cash held in the fund may show a minor negative if the US market does decline 50% from last month but that is due to a planned switch I will be making on Alibaba over the next two years where I plan to sell its ADR in the US and retain my holding of the stock in Hong Kong.

I may also draw on some of my cash reserves that I was planning to use in 2022 to replace my existing second hand car with a brand new car as opposed to a second hand one, if the market declines to such lows and does not recover in two years.

This is not the time to draw down on stocks which have financially resilient balance sheets, are well managed companies with good market positions. It is times like this, you discover how naked you are with your capital position and the companies that you bought.

Fortunately, I do not see any of my companies requiring a government bailout which often would lead to the stock going to near zero as none of my stocks are industrial, hospitality, travel or retail (except for retailer China Lilang which is cash rich and doing fine with China now economically recovering). Clearly I have exposure to energy and banks but the ones I hold except arguably Santander, are ones that I plan to hold permanently though admittedly expect to trim the size of, sometime over the next decade.