Make My Day Punk, Harvest the Bubble.

The normal thinking would have us believing that a bubble is a dangerous situation for our retirement accounts. What if I told you that I believe a market bubble makes your portfolio more resilient? Would you believe me?

Everyone fears bubbles. You should harvest them.

Don’t worry, I haven’t lost the plot, let me be clear: I’m being deliberately provocative to make a point about something some investors neglect when things are going splendidly well, disciplined rebalancing. In reality, bubbles are only devastating if you lack a system. With the right approach, they can actually strengthen your portfolio.

I have some caveats to qualify my contention, although they are actions you should, as a responsible investor, already be practicing.

Rule one. Don’t be greedy and lose track of your investment statement.

Rule two. Rebalance your inflated equity position back to your proper asset allocation.

Rule three. When the bubble bursts, draw from your cash and bond positions.

That’s all you need to do. Rule one forces you to rebalance, rule two forces your allocation back to your statement allocation and indirectly increases the size of your safe assets. Rule three stops you from selling distressed equities.

Let me show you what this looks like in practice. Say you start with a $1,000,000 portfolio split 60/40 between stocks and bonds. This means you have $600,000 in stocks and $400,000 in bonds.A bubble inflates your equities by 50%, growing your stocks to $900,000 while your bonds stay stable at $400,000. Your total portfolio is now $1,300,000. You now have a risky 69/31 split.Most investors, your neighbor, for instance, ride this wave, convinced they’re geniuses.

You rebalance.You sell $120,000 in stocks at bubble prices and use that cash to buy bonds. Your portfolio is now back to a 60/40 split, with $780,000 in stocks and $520,000 in bonds.

When the crash comes and stocks drop 40%: Your neighbor who didn’t rebalance loses $360,000 in equity value (on their $900,000 starting equity).You lose only $312,000 (on your $780,000 starting equity).

But here’s the magic of rebalancing, after the crash, your portfolio has $520,000 in bonds and cash to draw from while stocks recover. Your neighbor? They only have $400,000 in bonds. The neighbor could be forced to sell their remaining stocks at a loss to pay the bills. You, the rebalancer, sold high and now have a $120,000 bigger cash cushion to weather the storm and a reserve to buy back depressed equity.

The market will scream at you to stay greedy. Your neighbor will brag about gains. Rebalancing during bubbles feels like leaving a party early, but that’s exactly when you should. This is where some investors fail. The human greed to hold on, to capture just a bit more upside, is overwhelming. But discipline isn’t about feelings. It’s about the system.

This is what some people miss: volatility isn’t your enemy. Lack of discipline is. A bubble without rebalancing is catastrophic. A bubble with systematic rebalancing becomes a forced wealth transfer from your risk assets to your safe assets, at precisely the moment when risk assets are most expensive.

So the question isn’t whether bubbles are dangerous. It’s whether you have the discipline to profit from them. Do you feel lucky?