The majority of popular investment advice follows a predictable recipe: adopt a diversified portfolio of low-cost index funds and determine your asset allocations. Buy and hold the funds, and regularly add to your savings. Rebalance your portfolio at the end of each year, and repeat until you're 65. Retire happily.

This advice is often accompanied by long-term charts that show the impressive returns of stocks, bonds, and other asset classes over the past decades. Looks great, right? But unfortunately for most investors, it doesn't actually work out this way, for a variety of reasons.

One major problem is that even a well-diversified buy-and-hold portfolio can lose 50% during a bear market (and did exactly that in 2008-2009). And too many investors do not successfully weather such large market downturns. Some can't bear the pain of significant portfolio losses; others don't have a sufficiently long enough time frame to recover from them. Too often,...

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