Hedging and Protection during a large decline are absolutely necessary.
Once a large decline occurs, months, or even all of your profits, could be wiped out. This is why many people who once outperformed the market, or even significantly outperformed it, cannot continue to do so long term.
According to public data from Morningstar Direct, only 18.2% of funds outperformed the S&P 500 in 2024, and only 27% of funds outperformed the S&P 500 over the past 10 years. Funds that outperform tech stocks (QQQ) are even rarer, and for non-professional retail investors, the proportion is even lower.
During a large decline, that’s when the gap in returns widens between passive index investors and those who frequently make aggressive trades. It’s not pleasant to hear, but it’s the harsh truth.