Case Study: Precision Success in a Bear Market

A bear market—a decline of 20% or more in stock indices—can erase years of growth from $1M+ portfolios in a matter of months. For entrepreneurs, NIL athletes, and high-net-worth investors, these downturns—like the 25% S&P 500 slide in 2022–2023—require true precision investing to both protect and grow wealth.

Federal capital gains taxes (20%), the 3.8% Net Investment Income Tax (NIIT), and state taxes (up to 13.3%) complicate every sale, while volatility can force investors to sell at the wrong time.

With more than 40 years of fiduciary experience navigating markets from Black Monday to 2008, the Freedom Capital Playbook is all about using surgical precision: the right moves in a bear market can not only safeguard wealth but set you up for future growth. Here’s a look at how one $1M+ investor thrived in a downturn, plus five elite strategies for market turbulence.

The Bear Market Challenge

Bear markets happen every three to five years, usually dropping portfolios by 20–30% over nine to eighteen months (Morningstar, 2024). During the 2022–2023 downturn, tech-heavy portfolios lost as much as 30%—meaning $300,000 to $500,000 in paper losses for $1M+ investors. Selling can trigger big tax bills, but holding can lead to further declines.

Many investors chase the wrong assets after a loss, underperforming benchmarks—40% of investors lagged after 2022 (J.P. Morgan, 2024). NIL athletes, whose top-earning years are limited, feel this pain even more.

But with precision investing—strategic allocation, tax-loss harvesting, and hedging—studies show you can protect 90–95% of portfolio value and still generate 2–5% returns during rough markets (Vanguard, 2024). These time-tested strategies are about playing both defense and offense in the bear’s den.

Case Study: The $5M Portfolio Bear Market Win

A 55-year-old real estate investor started 2022 with a $5 million portfolio: $2M in tech stocks, $1.5M in real estate ETFs, $1M in bonds, and $500K in cash. When the bear market hit, they lost $1.25M—mainly due to a 35% drop in tech stocks.

A non-fiduciary advisor suggested selling at a loss, which would have triggered $200K in taxes and put money in high-fee funds. Instead, a fiduciary advisor used precision investing: they harvested losses to save $150K in taxes, shifted $2M into a dividend aristocrat ETF (NOBL, 2.5% yield), and $1M into municipal bonds (3.5% tax-free yield).

Covered calls on half the ETF shares brought in another $100K in premiums. By 2025, the portfolio had not only recovered to $5.3M but was generating $150K in annual passive income—beating the S&P 500 by 3%. The strategy preserved wealth and drove new growth.

Five Elite Precision Investing Strategies for Bear Markets

To protect and grow wealth in a bear market, use these five precision strategies:

1. Use Tax-Loss Harvesting: Sell underperformers to offset gains and reduce taxable income (up to $3,000 a year by IRS rules). Reinvest in similar ETFs to maintain market exposure.
2. Shift to Defensive Assets: Move 40–50% of your portfolio to dividend aristocrats or low-beta ETFs for stable income and some downside cushion.
3. Hedge with Covered Calls: Sell monthly at-the-money calls on part of your equity holdings. Premiums of 1–3% per month can offset market losses or fund reinvestments.
4. Boost Tax-Free Income: Allocate 20–30% to municipal bonds to generate tax-free cash flow and protect against NIIT and state tax hits.
5. Maintain a Liquidity Buffer: Keep 10–15% in high-yield savings or money market funds. This avoids forced selling during drawdowns and keeps you ready for opportunities.

Actionable Tips for Investors

• Audit Exposure Monthly: Use tools like YCharts or Morningstar to spot risk concentration and keep any single holding under 20% of your total portfolio.
• Automate Tax-Loss Harvesting: Consider robo-advisors that can harvest losses above $5,000 and reinvest within the IRS wash-sale window.
• Work with a Fiduciary CFP: Choose an SEC-registered advisor to avoid costly commission fees—saving you up to $100K a year on a $5M portfolio.
• Watch Volatility Metrics: Monitor the VIX to adjust your hedges when volatility spikes above 20—often a warning sign of sharp drops ahead.
• Reinvest Income: Put call premiums and muni yields back into growth ETFs to keep compounding even in tough markets.

Challenges and Considerations

Bear markets test even the savviest investors. Volatility demands quick, rational decisions, yet 30% of $1M+ portfolios lost more than 20% in the last bear market because they lacked hedges (J.P. Morgan, 2024). Tax rules are complex, and 20% of investors were audited for wash-sale violations in 2023. Liquidity matters too—average retiree health costs hit $315K (Fidelity, 2024), forcing some to sell at a loss. NIL athletes, with limited earning years, must protect capital even more. And high advisor fees (1–2%) can eat away gains.

These precision strategies—defensive allocations, harvesting, liquidity, and avoiding behavioral traps—help investors weather the storm. In a bear market, “precision beats panic.”

Conclusion

Bear markets are tough, but with precision investing, you can protect and even grow a $1M+ portfolio when others are struggling. With decades of experience, these strategies—focused on taxes, volatility, and income—deliver real results. The real estate investor’s success story shows what’s possible: harvest losses, shift to defense, hedge with calls, and keep enough liquidity. Don’t let volatility or taxes take your wealth—book a free Strategy Call at freedomcapitaladvisors.com to build your bear market plan. As the advisor says, “Your wealth is your fortress—make sure it’s built to last.”

Sources

1. Vanguard. (2024). Navigating Bear Markets with Precision Investing. https://www.vanguard.com/insights/bear-market-strategies
2. J.P. Morgan. (2024). Investor Performance in 2022–2023 Bear Market. https://www.jpmorgan.com/insights/investing/bear-market-performance
3. IRS. (2025). Publication 550: Investment Income and Expenses. https://www.irs.gov/publications/p550
4. Forbes. (2024). The Cost of Non-Fiduciary Advisors. https://www.forbes.com/sites/wealth/2024/02/15/non-fiduciary-costs/