By David Booth Founder and Chairman, Dimensional Fund Advisers
As a kid growing up in Kansas, we regularly did tornado drills in school. When the siren sounded, we’d rush downstairs into the auditorium and huddle in its southwest corner, because tornadoes in Kansas tend to move northeast. After a few minutes of hunkering down, we’d head back to class. Nobody particularly loved those tornado drills, but everyone understood why they mattered.
I never did have to execute on that tornado plan. And that’s great. I was prepared and felt good that it never happened. After all, nobody ever complained about not having a disaster.
I have seen tornadoes swirling in the distance a few times. Nobody can control where or when they’ll hit. Even with all our advances in technology, we still don’t get much warning. One of the scariest things about tornadoes is they can suddenly form right above you. With all its uncertainty, a tornado is entirely outside your control, but you can control whether you’re prepared when one comes your way.
That’s what made those tornado drills work when I was a kid: We practiced our plan before the emergency. We knew exactly what to do when the siren went off. No panic. No scrambling. Just following the plan.
Right now, with markets near record highs and plenty of people warning about bubbles or increased volatility ahead, you might be one of the people wondering if a downturn is around the corner. I don’t know. No one does. But that’s exactly my point. The time to run your tornado drill isn’t when you think you see something in the distance. It’s now, when you can think clearly.
So whether or not you see uncertainty swirling along the horizon, run a tornado drill on your portfolio. Try following my school’s plan:
- Find shelter. Your portfolio should be constructed so it’s a safe place to wait out the storm. If a 30% drop would keep you up at night or force you to make changes, you might own too much stock. Adjust now, before the siren sounds.
- Practice staying put. Markets have dropped significantly many times over the past century. They’ve also recovered every single time. If you’re lucky enough to live long enough, you’ll probably see the market suddenly drop a few times. That is just a normal part of being an investor. History suggests the biggest mistake isn’t being in the market when it drops—it’s being out when it recovers.
- Trust your plan. In a real tornado, you might feel the urge to run away. Training teaches us to take shelter and stay there. In a market downturn, you might want to sell, but a good plan should make you feel that this is what you’ve prepared for. When the market drops, I want you to stick to your plan. Now, the plan might be that as the market drops, you review your situation and decide you need to cut back a little bit. But don’t cut back based on trying to time short-term market moves. There’s a big difference between revising your long-term plan and reacting to short-term volatility.
I’ve lived through all kinds of market “tornadoes” over my 55 years in finance. The dot-com bust. The Global Financial Crisis. More recently, the pandemic and a sudden drop in April 2025 due to tariff uncertainty. Each time felt different, but to me the lesson was always the same: The investors who had a plan they could stick with generally came out okay. The ones who panicked and sold? Some of them may still be trying to catch up.
So ask yourself, “If markets dropped 30% tomorrow, would you know exactly what to do? Would you be confident that you have the right mix of stocks and bonds for your situation? Would you have someone you trust to talk you through it?” If you can’t answer “yes” to these questions, now is the time to consider making adjustments. Not when the siren is already blaring. Because the best time to figure out how to handle a crisis is before it happens.
This material is issued by DFA Australia Limited (incorporated in Australia, AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. This material does not give any recommendation or opinion to acquire any financial product or any financial advice product, and is not financial advice to you or any other person. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Investors should also consider the Product Disclosure Statement (PDS) and for the Dimensional Wholesale Trusts the target market determination (TMD) that have been made for each financial product or financial advice product either issued or distributed by DFA Australia Limited prior to acquiring or continuing to hold any investment. Go to dimensional.com/funds to access a copy of the PDS or the relevant TMD. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
