What-If Scenario Planning

⚡In 30 seconds

•Stress-test hypothetical decisions with historical data before execution.
•Category: scenario
•Uses 1 tool(s) for analysis

Stress-test hypothetical decisions with historical data before execution.

Why Scenario Planning Matters

Scenario analysis helps you understand potential outcomes before taking action. By modeling different scenarios, you can identify potential risks and plan accordingly.

What-if scenarios prepare you mentally and financially for volatility, helping you avoid emotional decisions during market stress.

Types of Scenarios to Model

Market crash scenario: How would your portfolio perform in a 20-30% market decline?

Sector rotation: What if your concentrated sector falls out of favor?

Individual stock risk: What if your largest position drops 40%?

Example: Modeling a Market Correction

Your portfolio is 60% tech stocks, 30% index funds, 10% cash. Model a 25% tech selloff.

1.Calculate tech exposure: 60% of portfolio
2.Apply correction: 60% × -25% = -15% portfolio impact
3.Add index impact: 30% × -10% (assuming index drops 10%) = -3%
4.Total estimated loss: -18% in correction scenario

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Key Concepts

Stress Testing

Apply extreme but plausible scenarios to your portfolio to understand tail risks and ensure you can survive worst-case outcomes.

Probability Weighting

Assign likelihood to each scenario (e.g., 20% chance of recession) to calculate expected outcomes and inform decisions.

Scenario Documentation

Write down your scenarios and plan before entering positions. This creates accountability and reduces emotional decision-making.

Quick Links

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