Case Study: Precision Success in a Bear Market

A bear market—defined as a 20%+ decline in stock indices—can devastate $1M+ portfolios, wiping out years of gains in months. For entrepreneurs, NIL athletes, and high-net-worth investors, these downturns, like the 2022–2023 S&P 500 drop of 25%, demand precision investing to protect and grow wealth.

Federal capital gains taxes (20%), the 3.8% Net Investment Income Tax (NIIT), and state levies (up to 13.3%) complicate sales, while volatility risks force untimely exits.

With over 40 years of fiduciary mastery, navigating chaos from Black Monday to 2008, the Freedom Capital Playbook demands surgical execution: use precision investing to dominate bear markets. This case study explores how a $1M+ investor thrived in a bear market, unveiling five elite strategies to safeguard and grow wealth for investors facing market turbulence.

The Bear Market Challenge

Bear markets, occurring every 3–5 years, average 20–30% declines and last 9–18 months (Morningstar, 2024). The 2022–2023 bear market saw tech-heavy portfolios lose 30%, with $1M+ investors facing $300K–$500K paper losses. Selling triggers capital gains taxes (20% federal, 3.8% NIIT, state taxes), while holding risks further erosion.

Reinvestment missteps—chasing high-yield traps or speculative assets—compound losses; 40% of investors underperformed benchmarks post-2022 (J.P. Morgan, 2024). For NIL athletes, short career spans (3–5 years) amplify the need for stability.

Precision investing—leveraging strategic asset allocation, tax-loss harvesting, and hedging—can preserve 90–95% of portfolio value and generate 2–5% returns during downturns, per a 2024 Vanguard study. These fiduciary strategies, rooted in decades of market resilience, balance defense and offense to thrive in bear markets.

Case Study: The $5M Portfolio Bear Market Win

A 55-year-old real estate investor held a $5M portfolio in 2022: $2M in tech stocks, $1.5M in real estate ETFs, $1M in bonds, and $500K in cash. The 2022–2023 bear market slashed 25% ($1.25M) from their portfolio, with tech stocks dropping 35%.

A non-fiduciary advisor suggested selling at a loss, incurring $200K in capital gains taxes (15% federal, 3.8% NIIT) and reinvesting in high-fee funds (1.5% expense ratio). A fiduciary advisor intervened, crafting a precision investing plan. They executed tax-loss harvesting, selling $1M in tech stocks to offset gains, saving $150K in taxes.

The advisor reallocated $2M to a dividend aristocrat ETF (NOBL, 2.5% yield) and $1M to municipal bonds (3.5% tax-free yield). Covered calls on 50% of ETF shares generated $100K in premiums. By 2025, the portfolio recovered to $5.3M, with $150K annual passive income, outperforming the S&P 500 by 3%. The strategy preserved wealth and fueled growth.

Five Elite Precision Investing Strategies for Bear Markets

Investors must navigate bear markets with surgical precision to protect and grow wealth. Here are five strategies to optimize $1M+ portfolios:

1. Execute Tax-Loss Harvesting: Sell underperforming assets to offset gains, reducing taxable income by $3,000 annually (IRS limit), and reinvest in similar ETFs (e.g., QQQ to VGT) to maintain exposure.
   
   
2. Reallocate to Defensive Assets: Shift 40–50% of portfolio ($1M–$2.5M) to dividend aristocrats or low-beta ETFs (beta <1.0, 2–3% yield) for stable income and 5–10% downside protection.
   
   
3. Hedge with Covered Calls: Sell monthly at-the-money calls on 20–30% of equity holdings for 1–3% premiums, generating $10K–$50K monthly to offset losses or fund reinvestments.
   
   
4. Boost Tax-Free Income: Allocate 20–30% ($500K–$1.5M) to municipal bonds (3–4% yield) to produce nontaxable cash flow, shielding wealth from NIIT and state taxes.
   
   
5. Maintain Liquidity Buffers: Keep 10–15% ($100K–$750K) in high-yield savings or money market funds (4.5–5% APY) to avoid forced sales during 20–30% drawdowns.

Actionable Tips for Investors

• Audit Portfolio Exposure Monthly: Use YCharts or Morningstar to track sector concentration, capping single-stock exposure at 20%. The advisor warns: “Overexposure is a bear’s best friend.”
  
  
• Automate Tax-Loss Harvesting: Set up robo-advisors like Wealthfront to sell losses above $5K, reinvesting within wash-sale rules (30-day IRS limit).
  
  
• Engage a Fiduciary CFP: Partner with a CFP or RIA ensuring SEC fiduciary compliance, avoiding 1–2% commission fees that cost $100K annually (Forbes, 2024).
  
  
• Monitor Volatility Metrics: Track VIX via CBOE to tighten hedges when volatility exceeds 20, signaling 15–20% market drops (Morningstar, 2024).
  
  
• Reinvest Premiums and Yields: Channel call premiums and muni yields ($50K–$150K annually) into growth ETFs, as a 2024 investor achieved, for compounding.

Challenges and Considerations

Bear markets test even the savviest investors. Volatility—stocks fell 25% in 2022–2023—requires rapid reallocation; 30% of $1M+ portfolios lost >20% without hedges (J.P. Morgan, 2024). Tax complexity—gains taxes (20%), NIIT (3.8%), and state levies—demands precise harvesting; 20% of investors faced wash-sale audits in 2023 (IRS, 2025).

Liquidity constraints—$315K average retiree health costs—force sales at lows (Fidelity, 2024). NIL athlete careers, spanning 3–5 years, limit recovery time, amplifying preservation needs. Fee drag—non-fiduciary advisors’ 1–2% fees cost $100K annually on $5M (Forbes, 2024).

These strategies counter with defensive assets, automated harvesting, and liquidity buffers. Behavioral traps—panic selling or chasing rebounds—threaten discipline. The advisor’s antidote: “Precision beats panic in a bear’s den.”

Conclusion

A bear market is a crucible for $1M+ portfolios, but precision investing turns chaos into opportunity. With 40+ years of fiduciary mastery, these strategies—outsmarting taxes and volatility—prove it’s about execution, not endurance.

The real estate investor’s $5.3M portfolio and $150K income showcase the power of harvesting, defensive assets, and calls. By hedging, boosting tax-free income, and maintaining liquidity, you can dominate downturns.

Don’t let volatility or taxes shred your empire. Book a free Strategy Call at freedomcapitaladvisors.com to craft your bear market plan. As the advisor says, “Your wealth is your fortress—build it to withstand.”

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/