The best time to prepare for the inevitable market pullback is when all is going well. Just like the mandatory lifeboat drills at the beginning of a cruise, perhaps this would be a good time to review market history in context.
In the post World War II era, the average intra-year decline in the S&P 500 is about 14%. Declines of 20% happen about one year out of four with the average bear market decline of around 30%. That is the market history. While we don’t know if history will be repeated, it is rational to think that it will, in broad terms. There is a seemingly endless barrage of problems throughout the world, and any of these (along with others that we can’t yet imagine) can come along without prior notice. Things still “go bump in the night.”
The long band of historic returns from equities is well documented but these, in essence, are returns for accepting risk (in the form of volatility). The way to be a successful investor is to understand that there will be periods that are not positive but these are dramatically out-weighted by periods that are positive. There is no better way; there is no easier way. Enjoy the ride.