Thirty-Four Years to Break Even - horizon, risk capacity, and the mix

On the Tank board, saved water goes out as “slices of ships, loans to others” and grows on its own level. This lesson is the storm the board does not draw: the year the slices lose most of their value, and how long the tank has to wait before they are back.

Education, not financial advice.

Before you start. You need a share and a bond from Owning a Slice of the Ship - shares, bonds, and who gets paid first: a share is a slice of a company that rises and falls with it, a bond is a loan paid on a schedule, and bondholders are paid before shareholders. You also need the index fund from The Bet on the Whole Haystack - index funds, active managers, and costs: owning a slice of every company in a market at once, which removes the risk of picking the wrong ones but not the risk of the whole market falling. The rain barrel from The Rain Barrel for the Dry Season - emergency funds and liquidity, a few months of spending kept reachable, comes back near the end.

The idea in 30 seconds

The Nikkei 225 closed at 38,915.87 on 29 December 1989 and did not close higher until 22 February 2024, thirty-four years later, after falling 82% at its worst.
A drawdown is how far the level sits below its previous high, and the gain needed to undo it is always bigger than the fall: 50% down needs 100% up.
Your horizon is how long until the money is spent; water needed soon cannot wait out a storm.
Risk capacity is the loss your finances can absorb; risk tolerance is the loss you can live through without selling; the usable risk is the smaller.
Asset allocation, the split between shares, bonds and cash, sets how much of the tank a storm can reach.
Withdrawing during a drawdown is sequence risk, already worked through in the compound interest lesson.

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