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Say the market falls 40% - What should we do?

I am not saying I think the market is going to fall substantially... although anything is possible.

Say, I have a balanced $1M portfolio of investments, 50% equities and 50% fixed income (i.e., $500k of each mainly in mutual funds/ETFs).  I am not necessarily wedded to 50/50 but something like that I think is about right considering where I am in life and how I view the current market.  I have both taxable and IRA-type accounts.

Tomorrow, I wake up and the equities are now worth $300k and the fixed income assets are still $500k.  What would you do if this happened to you?

Actually, I have a pretty good idea what I would do.  But before giving my opinion, I am interested in hearing what others think they might do. If what you would do would depend on further assumptions/events/scenarios, please elaborate.

I appreciate any and all opinions!
I've been thru this before. Phase One of my investing experience. I kept track, watching my net worth going down and down. By the time I caught on to the concept of taking losses, I had many years of carry-over losses to use up. Learned a lot.

Now in Phase Two, older and wiser, I would keep the aforementioned fixed income and sell half of each position of equities. Watching and waiting a few days, again sell half. Or start buying in if the Market seems to stabilize or turn up.
I would be surprised if equities moved down that sharply without fixed income moving sharply down, too.  Every situation is a little bit different, but I guess I would just take a breath and see if the drop was justified by whatever the news was.  If so, then just head for the hills.  (It's not even worth selling out in such a case because there are more important things to think about at that point.)  Otherwise, wait for the panic to settle down, be thankful that you still have $800k, and then just rebalance over time.  (You could also tweak your target allocation, if things really warranted it.)
If it's one stock or one sector that caused your portfolio to tank like that, then I would consider the news and sell the bad stuff if the news warranted it (fraud, murder, etc.).  Then I would consider diversifying in the future and be thankful that the diversification lesson wasn't even more expensive.
If you're one of those guys who really likes to make lemonade when handed lemons, you could also do a lot of tactical things, I'm sure, depending on the situation -- take tax losses as appropriate, convert traditional IRAs to Roth, shift higher risk/return investments into Roth, etc.  It all just depends on your personal situation.
I guess what you do depends on where you are in life. Do you need any part of the principal to live? I am over 70 and retired and have two main accounts other then the wife's and my IRA's and two annuities. We live off the income from one account and save the other. I do draw from my IRA. I would hold and if you can buy more stocks that are quality and pay a nice dividend. So even now as we wait for a interest rate increase I look at it as a chance to buy more munis and maybe get a higher return. Good luck to you.
I would seek to understand the cause of the sudden change. But, in general, I would likely do little. That was my behavior in 1987, 2000, and 2008.

Investing has losses and gains. One just has to accept it. Reacting strongly to a change in the market presupposes one knows how it will behave in the days ahead.
We have the same exact strategy. I remember when my co-workers were bailing out of the market in 2000/2001 and 2008/2009 saying they would never go back. Me I did nothing but took the opportunity to buy some lower priced  funds.
Follow single file to the ledge. Ha, ha. Don't ever say never. If you are young, 20's or 30's buy like crazy and hold. I always keep a large cash position on hand just in case that happens. Bonds are leading the way back down now and I expect stocks to follow soon.
I have a confession to make. My inactivity during the Long Term Capital driven drop in 1987 was due to being a new investor who had no idea what to do. My inactivity during the slow burn down starting in 2000 was due to hubris. Being in technology I could not believe others didn't see the growth/value I wrongly thought I saw. Being a much wiser investor in 2008 my inactivity was due to a realization that no one understands how a market will behave. Thus same behavior for completely different reasons.

My north star is to stay diversified across assets classes and a "faith" that businesses exist (in the US at least) to produce profits and a portion of those profits will be shared with investors. The premise of DreamFire's question is a large sharp overnight drop. To me this particular case smells of emotions and panic.
I will never invest in bonds. Even when I am retired, I will either be in cash or stocks. With that said, with modern circuit breaks in place, I don't think you will see those huge fluctuations. What I would worry about is those nagging downward movement like the market did last 15 years. Early in 2000 and then in 2007. Those false starts and exuberance and debacles of sub-prime lending. Hope fully, when the next exuberance strikes the market, I will be wise enough and apply the lesson learn during the dot com bust and get out of the market and stay on cash and fiddle with investment on a smaller scale.
'When people are greedy, be scared; when people are scared, be greedy.  So, you better have some cash reserves (mine is 12% of NAV) and rise from the troth.  Stock market runs in cycles - not always sinusoidal or even but a cycle none the less.

Most funds own some bonds; so, if you own funds, you own bonds -generally.

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