As you can probably imagine I talk to lots of prospective clients about FIRE revolution and they ask lots of good questions. That’s great, it keeps me on my toes and constantly revaluating the strategy.

And one question I often get asked is: How does FIRE Revolution handle a market crash?

With the terrible events unfolding in Ukraine our focus is clearly on the human suffering and potential for escalation. But there could well be a huge economic impact as well and, as investors, I’m sure most folks have also kept a close eye on their portfolios.

So far, the effect on the FTSE 100 has been relatively muted whilst the US markets have taken it a little harder. But it is only human nature to be concerned about a larger drop.

FIRE Revolution

So, how does a FIRE Revolution portfolio handle a crash?

Well, the first thing to say is that we are certainly not immune from a crash. We primarily invest in stocks and, as we saw in Feb 2020, when the market takes a tumble, we all get dragged down with it. But here’s the thing, markets usually recover from crashes over a relatively short period of time.

The Covid crash of Feb 2020 was probably the fastest and most severe that any of us has ever seen. It was not a pleasant experience watching the FTSE 100 drop over 30% in about three weeks!  But, if you had simply done nothing and sat tight you would have been fine. In less than two years the FTSE 100 was back at its pre-crash level. As a long-term investor that should provide you with some comfort.

And the S&P 500 recovered far quicker than that. It took only six months for the US’s premier index to reach its pre-covid levels. Looking at a chart now the crash looks like a minor blip. So, if you are caught in a crash then often the best advice is to simply sit tight and wait.

That suggestion is helped by the fact that at FIRE Revolution we tend to favour big boring blue-chip stocks and we buy them at a sensible price. After all, if you have bought the shares of a huge supermarket, utility, insurance company, pharmaceutical giant, or defence contractor, then they are still likely to be swept down in the mayhem. But I don’t think anyone expects defensive stocks like this to suffer long-term damage. And if you bought them at a reasonable price in the first place, there is even less to worry about.

Income

However, there is a further important point. FIRE Revolution investors are focused on the income streams that their investments provide. So, a drop in the share price per se is of less relevance as long as we can still keep generating an income from our assets. If we can do that, it makes waiting for the recovery a far easier process.

You already know that we focus on big boring defensive blue-chips and they tend to be excellent dividend payers as well. That not only helps to underpin their price but provides us with valuable income regardless of the share price.

Now it is true that during the covid-crash many companies also cut their dividends whilst they waited for the dust to settle. So that income stream was temporarily unavailable in many cases. But, as you know, FIRE Revolution generates up to four different income streams from every stock and so we were able to keep the money flowing in. How so?

Firstly, it is possible to keep selling covered calls against your stocks as long as you are careful with the strike prices you choose. Indeed, the added volatility is actually very good for option sellers as it pumps the premiums way up.

If selling calls is not practical, then we can certainly sell more puts against the stock positions we own. This not only brings in extra premium but — if assigned — lowers the average price of our shares and makes the recovery that much quicker.

Extra Tricks

And if that’s not enough, we have some extra techniques up our sleeves that are simply not available to a regular ‘buy and hope’ investor. I will not go into detail here but we have opportunities to kick the can down the road by rolling our puts out to subsequent months for additional credit, using our premium to buy protective puts and collar our positions, or even implement a stock repair strategy that allows our positions to fully recover in half the price movement.

So, whilst a crash is never a pleasant affair, it is certainly not the end of the world for a long-term income-focused investor. And, if you implement the full toolkit of FIRE Revolution techniques, you can continue to generate that all important income and drastically accelerate the time needed to recover.

Almost 200 regular investors — just like you — have now gone through our training programme and have learned exactly how to implement the FIRE Revolution to extract up to four different income streams from each stock they target and how to recover quickly from the inevitable bumps in the road.

If you are interested in learning more then why not come along to our next webinar. I’ll show you exactly how the approach works, demonstrate how we establish positions LIVE in the market, and discuss the training we offer.