Mastering Market Stress Tests: Turning Uncertainty into a Selling Edge
In volatile times, uncertainty can stall decision-making—or it can become a moment of truth that builds conviction.
With the latest update to the Edge Smart Advisory Platform, the Custom Market Stress Test is now available under the Investment Illustrator, empowering consultants to use financial crises not as obstacles, but as powerful storytelling tools.
🧠 What Is the Custom Market Stress Test?
The Custom Market Stress Test is an enhancement within the Investment Illustrator designed to simulate the potential impact on a portfolio during a market crisis, based on actual historical data.
Rather than simply presenting upward-trending, optimistic projections, this tool enables consultants to demonstrate how real-life financial events—such as the Global Financial Crisis (2008) or COVID-19 crash (2020)—would have influenced a portfolio’s performance.
🔧 How It Works
Inside the Investment Illustrator:
You choose a financial crisis event and assign it a starting year within the proposal.
The system applies a 5-year performance impact based on how the S&P 500 reacted following that crisis.
The illustration reflects the dip and recovery pattern accordingly.
The result: an interactive, visual demonstration of how real events can shape portfolio trajectories.
Hover the tooltip beside each market event to see the applied return data.
💡 How It Helps
The Custom Market Stress Test injects realism into investment projections by simulating the actual impact of financial crises.
While the initial dip may appear discouraging, what often follows—a strong market rebound—can surprisingly result in an even higher long-term projection. This contrast turns what seems like a negative scenario into a powerful moment of confidence.
It allows consultants to visually clarify economic concerns, demonstrate market resilience, and guide clients through uncertainty with data—not just words.
The result? Higher engagement, clearer understanding, and stronger conviction in the investment journey.
⚠️ Important Limitations to Note
S&P 500-Based Performance Only
Crises that didn’t significantly affect the S&P 500—such as the 1998 Asian Financial Crisis—aren’t included in the tool.Applicability Depends on Fund Type
Because stress test performance is based on a broad U.S. index, it may not be suitable for funds with little correlation to U.S. markets (e.g., Asian equities, thematic climate funds).Data Source
Crisis data is compiled from Investopedia, with 5-year return estimates applied based on S&P 500 performance after each event. Strategic usage notes are provided alongside each scenario to help guide consultant framing.
📊 Financial Crisis Reference List: 5-Year Performance & Strategic Usage Tips
This section outlines key financial crises included in the Custom Market Stress Test, their corresponding 5-year S&P 500 performance post-crisis, and guidance on how to strategically present each scenario during client discussions.
We’ll keep the inputs consistent across each crisis scenario so you can clearly see how different events can be used to your advantage in client discussions.
Age - 30
Premium Terms - 20 Years
Premium Amount - $12,000 Annually
Fund Performance - 8%
Policy Charge - 2.5% for 20 Years
Events to Happen on Year 15 ⬇️
1) 1973 – 🛢️ Oil Crisis Bear Market
❌ TLDR - The stress test indicates a negative portfolio impact, presenting a timely opportunity to emphasize a Dollar Cost Averaging strategy—positioning for future growth, achieving lower cost acquisition, and considering top-ups to strengthen recovery potential.
| Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Returns | (-21.3%) | (-33.9%) | 27.9% | 17.9% | (-12.8%) |
Imagine this: two consecutive years of massive market losses totaling nearly -55%. The portfolio tumbles from $253,000 to just $139,000—a painful crash, especially for someone diligently contributing through Dollar Cost Averaging (DCA).
Despite the downturn, the investor continues with discipline. By age 59, the portfolio grows to nearly $500,000, backed by a total invested premium of $240,000—effectively doubling the contribution over 30 years, even after surviving one of the worst financial crises.
For more conservative investors, this is a powerful case study. Compared to simply leaving funds in a bank account earning 1% annually, which would take 72 years to double (based on the Rule of 72), this DCA-based investment approach delivered long-term growth still.
Reframing with Contrast Logic Script-
“Even with one of the worst financial crises along the way which would affect all assets in the world, you’ll notice that the portfolio still manages to more than double by the 30th year.
Just to put that into perspective—it would take nearly 72 years to achieve the same result if you were saving at just 1% interest in the bank. I hope that gives you a fresh way of looking at long-term investing.”
2) 1981 – 📉 US Recession ✅
| Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Returns | (-12.5%) | 16% | 17.9% | 2% | 26.4% |
Projected Account Value at Year 20 (No Scenario Applied)
Script - “Crises can definitely feel scary in the moment, but if we zoom out and look at the bigger picture, markets have always trended upward over time.
This scenario here is a great example—by staying invested during the downturn, the investor was able to buy more units at a lower price and then benefit from the strong rebound that followed as evident by a stronger portfolio with this financial crisis.”
3) 1990 – ⚔️ Oil Shock & Gulf War
❌ TLDR - The stress test indicates a negative portfolio impact, presenting a timely opportunity to emphasize a Dollar Cost Averaging strategy—positioning for future growth, achieving lower cost acquisition, and considering top-ups to strengthen recovery potential.
| Year | 1st Year | 2nd Year | 3rd Year | 4th Year | 5th Year |
|---|---|---|---|---|---|
| Returns | (-8.8%) | 26.5% | 4.4% | 7% | (-1.2%) |
Without applying the custom market stress test, the projected return at the end of the 20-year premium term is approximately $431,000. However, with the stress event factored in, the value decreases to around $380,000—reflecting a decline of nearly 12%. This dip is primarily due to lower performance between Years 3 and 5, which falls short of the assumed 8% return input.
And here’s a narrative you can use it,
Script - “Even with global events slowing down market performance in the later years, staying disciplined with the investment still leads to a strong outcome—almost doubling the invested amount by Year 23. It really shows that with enough time, this remains one of the most reliable ways to grow your wealth.”
4) 2000 – 💻 Dot Com Bubble
❌ TLDR - The stress test indicates a negative portfolio impact, presenting a timely opportunity to emphasize a Dollar Cost Averaging strategy—positioning for future growth, achieving lower cost acquisition, and considering top-ups to strengthen recovery potential.
| Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Returns | (-12.1%) | (-13.2%) | (-23.9%) | 25.8% | 7.2% |
The Dot-Com Bubble represents one of the most severe shocks to a portfolio, with three consecutive years of double-digit losses. Similar to the 1973 Oil Crisis Bear Market, this scenario offers a strong opportunity to apply 'reframing with contrast logic'—helping prospects see long-term potential despite short-term pain.
Advisors can also use this event to illustrate the strategic use of Top-Up Boosters during downturn years, highlighting how additional contributions in negative markets can enhance long-term outcomes.
Based on this scenario, the projected value at Year 30 is approximately $554,000.
In this scenario, a total of $60,000 in top-ups—$20,000 each over three consecutive years (Years 15, 16, and 17)—was added during a period of market decline.
This strategic injection led to a $111,000 boost in the portfolio’s value, raising it from $544,000 to $655,000. That’s nearly a 2x return on the additional investment within just 15 years.
This example highlights the power of the Top-Up Booster feature as a compelling strategy during downturns.
Advisors can use it to present either a conservative narrative—reframing downturns with contrast logic—or a more tactical approach, showcasing how investing more during market weakness can accelerate long-term gains.
Below is a suggested conversation template to guide such discussions.
Script - “One of the strengths of investing through an ILP is that it helps you stay disciplined and less emotionally reactive, even during tough market periods. On top of that, it gives you the flexibility to top up when opportunities arise.”
“For example, if you were to top up $20,000 each year for three consecutive years during a downturn, that additional $60,000 could potentially grow to around $110,000 over just 15 years. That’s almost a 2x return—faster than the regular contribution pace—simply by taking advantage of the market dip.”
“It really offers flexibility—you stay committed to the journey, and in return, you get rewarded potentially much faster than the more conservative routes, like saving in a bank.”
“And if you happen to have excess cash during a market downturn, that’s where this approach shines. We can act on that weakness and strategically top up, turning short-term volatility into long-term opportunity. It’s all about making the market work for you, not fearing it.”
5) 2008 – 🏦 Global Financial Crisis
❌ TLDR - The stress test indicates a negative portfolio impact, presenting a timely opportunity to emphasize a Dollar Cost Averaging strategy—positioning for future growth, achieving lower cost acquisition, and considering top-ups to strengthen recovery potential.
| Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Returns | (-36.5%) | 22.5% | 13.2% | (-0.9%) | 13.9% |
Under the Global Financial Crisis scenario, the portfolio experiences a significant short-term decline.
As with the Oil Crisis Bear Market and the Dot-Com Bubble, advisors can approach this with two key strategies: reframing the downturn using contrast logic to highlight long-term resilience, or leveraging the flexibility of ILPs to implement a top-up strategy during market weakness.
Both approaches help turn a challenging period into a strategic opportunity—ultimately positioning it as a win-win for the investor.
6) 2020 – 🦠 COVID-19 Crash ✅
| Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Returns | 16.5% | 19.9% | (-23%) | 22.3% | 22.7% |
The COVID-19 scenario is a powerful example to activate in illustrating how ILPs help investors stay committed through volatility. Despite widespread negative sentiment during the pandemic—such as disrupted supply chains and economic uncertainty—the market responded with innovation and adaptation.
Companies like Zoom and DocuSign emerged as essential solutions, fueling a wave of growth in the tech sector.
This resulted in a surprisingly strong market rebound. ILPs played a key role by helping investors block out short-term noise and remain invested through emotional periods—an advantage that may not have been possible if investing independently, where fear often leads to missed opportunities.
Prospect:
“Wasn’t COVID a bad time to invest?”Consultant:
“You’re right—it felt that way for many people. But what’s interesting is that despite all the panic, the market actually grew significantly after the initial drop. Think about how quickly the world adapted—companies like Zoom and DocuSign boomed because they solved real problems in a disrupted world.”“Now, here’s the thing—if someone had been investing on their own, they might’ve pulled out out of fear and missed that rebound completely. But with an ILP, it helps you stay invested and consistent, no matter how emotional the market gets.
