Creating a Disaster Recovery Plan for Your Portfolio

Detailed Instructions

Begin by conducting a Business Impact Analysis (BIA) to catalog all critical assets. This includes not just financial holdings, but also the data, software, and human processes that manage them. For each asset, you must define two key metrics: the Recovery Time Objective (RTO), which is the maximum acceptable downtime, and the Recovery Point Objective (RPO), which is the maximum data loss you can tolerate.

• Sub-step 1: Inventory Assets: List all trading platforms (e.g., Interactive Brokers, Fidelity), data feeds (e.g., Bloomberg Terminal API), and critical documents (e.g., tax records, strategy backtests).
• Sub-step 2: Classify Criticality: Categorize each asset as Tier 1 (requires recovery within 1 hour), Tier 2 (within 4 hours), or Tier 3 (within 24 hours).
• Sub-step 3: Set RTO/RPO: For your primary brokerage connection, you might set an RTO of 30 minutes and an RPO of 5 minutes of trading data.

Tip: Engage with portfolio managers and analysts to ensure no critical dependency is overlooked. Document everything in a central register.

Detailed Instructions

Perform a Threat and Risk Assessment (TRA) to create a comprehensive list of potential disruptive events. Focus on scenarios that could trigger your disaster recovery plan, such as cyber-attacks, infrastructure failure, or third-party service outages. For each threat, assign a probability score (1-5) and a financial impact score (1-5). Multiply these to get a risk score, prioritizing threats with a score above 12.

• Sub-step 1: List Threat Scenarios: Examples include: Data center outage at AWS us-east-1, Ransomware attack encrypting research files, Key analyst unavailable due to illness.
• Sub-step 2: Quantify Impact: Estimate the potential financial loss per hour of downtime for your Tier 1 assets. For instance, a trading halt might cost $5,000 per hour in missed opportunities.
• Sub-step 3: Assess Likelihood: Use historical data. If your cloud provider has had 2 major outages in 3 years, assign a probability of 4/5.

Tip: Don't neglect low-probability, high-impact events ("black swans"). Include geopolitical events or extreme market volatility in your analysis.

Detailed Instructions

For each high-priority threat and critical asset, design a specific recovery strategy. This involves technical solutions like backups, redundancies, and failover systems, as well as procedural runbooks. Ensure strategies are practical and can be executed within your RTO. For data, implement the 3-2-1 backup rule: 3 total copies, on 2 different media, with 1 copy offsite.

• Sub-step 1: Technical Solutions: Configure automated backups of your portfolio database. For example, a cron job to run daily:

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0 2 * * * pg_dump -U postgres portfolio_db > /backups/portfolio_$(date +%Y%m%d).sql

• Sub-step 2: Procedural Runbooks: Create a step-by-step guide for failover. E.g., "If primary API api.broker.com is down, change configuration to point to backup endpoint failover.broker.com:8443."
• Sub-step 3: Communication Plan: Define an emergency contact list (e.g., IT support: +1-555-123-4567) and notification triggers.

Tip: Test your backup restoration process quarterly. A backup is only as good as your ability to restore it.

Detailed Instructions

Implementation involves procuring resources, configuring systems, and training personnel. The most critical phase is testing. Conduct a tabletop exercise annually and a full-scale simulation bi-annually to validate the plan. Use a test environment that mirrors production. After any test or actual incident, hold a post-incident review to update the plan. Formalize a maintenance schedule to review the BIA and TRA every 6 months or after any major portfolio change.

• Sub-step 1: Deploy Infrastructure: Provision a secondary trading workstation at a remote location with a dedicated IP address like 192.168.10.50.
• Sub-step 2: Execute a Test: Simulate a data loss. Restore the latest backup to a test server and verify portfolio balances match within the RPO tolerance.
• Sub-step 3: Update Documentation: After a test, revise runbooks. Change log entry: 2023-10-26: Updated failover IP to 192.168.10.50. Recovery time met RTO of 30 mins.

Tip: Automate as much of the recovery process as possible. Use infrastructure-as-code tools like Terraform to rebuild environments quickly.

Detailed Instructions

Begin by setting up a real-time monitoring dashboard that tracks key portfolio metrics and market indicators. This is your early warning system. Use a service like AWS CloudWatch, Datadog, or a custom solution with Python and a time-series database like InfluxDB.

• Sub-step 1: Define Critical Metrics: Instrument your portfolio management system to log metrics such as maximum drawdown, Value at Risk (VaR), sector concentration, and liquidity scores. For example, trigger an alert if the 1-day 95% VaR exceeds 5% of the portfolio's total value.
• Sub-step 2: Configure Alerting Rules: Set up conditional logic to send alerts via email, SMS, or Slack. Use a tool like PagerDuty for escalation. A sample rule in a monitoring config might be: IF daily_return < -0.07 AND volume_spike > 2.0 THEN severity = CRITICAL.
• Sub-step 3: Backtest Alert Scenarios: Simulate historical crashes (e.g., March 2020, 2008 Financial Crisis) to ensure your alerts fire correctly and are not overly noisy.

Tip: Integrate macroeconomic data feeds (like VIX index or Treasury yields) as contextual signals for your alerts to reduce false positives.

Detailed Instructions

Not all market downturns require the same response. Create a tiered trigger system that matches the severity of the event to a predefined action set. This prevents panic-driven decisions.

• Sub-step 1: Categorize Disaster Scenarios: Define at least three tiers. Tier 1 (Watch): A 10% portfolio drawdown or VIX above 30. Tier 2 (Action): A 15% drawdown coupled with a breakdown of key technical support levels. Tier 3 (Emergency): A systemic event like a major exchange halt or a 20%+ broad market crash.
• Sub-step 2: Map Triggers to Concrete Actions: For each tier, specify the exact commands or trades to execute. For Tier 2, this might be: "Reduce equity exposure by 25% and increase cash holdings to 40%."
• Sub-step 3: Document Decision Authorities: Specify who can authorize moving between tiers (e.g., solo investor, CIO, or an automated system with multi-signature approval).

Tip: Store these triggers as structured data (e.g., JSON) in a version-controlled repository for auditability and easy updates.

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{
  "tier": "2",
  "name": "Significant Correction",
  "condition": "portfolio_drawdown >= 0.15 AND spy_200d_ma_breach == true",
  "action": "execute_rebalance_to_model('defensive_model_v1')"
}

Detailed Instructions

Manual execution during a crisis is error-prone. Develop automated playbooks that translate triggers into executable orders. Use broker APIs (Alpaca, Interactive Brokers) or infrastructure-as-code tools like Terraform for cloud-based portfolio analytics.

• Sub-step 1: Develop Safe Order Scripts: Write scripts that place trades or adjust hedges. Crucially, include pre-flight checks for market hours, position sizes, and available liquidity. For example, a Python function using the Alpaca API:

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import alpaca_trade_api as tradeapi
def execute_defensive_rebalance(portfolio_value):
    api = tradeapi.REST('API_KEY', 'SECRET_KEY', base_url='https://paper-api.alpaca.markets')
    # Calculate target positions
    target_cash = portfolio_value * 0.4
    # Submit bracket orders for equity sales
    api.submit_order(symbol='SPY', qty=calculate_qty(), side='sell',
                     type='limit', limit_price=current_price * 0.995, time_in_force='day')

• Sub-step 2: Implement a Circuit Breaker: Build in a manual override or confirmation step for Tier 3 actions. This could be a simple webhook that requires a second factor authentication (2FA) via Authy or Duo before proceeding.
• Sub-step 3: Create Runbooks for Manual Steps: Document any steps that cannot be fully automated, such as calling prime brokers or executing over-the-counter (OTC) derivatives contracts.

Tip: Run these scripts daily in a paper trading or sandbox environment to ensure they function and to measure their expected impact.

Detailed Instructions

A plan that isn't tested is just a theory. Establish a quarterly disaster recovery drill to validate the technical and procedural components end-to-end.

• Sub-step 1: Conduct Tabletop Exercises: Walk through each disaster tier with your team (or yourself). Use a historical date (e.g., 2020-03-16) and replay market data to see if monitoring triggers correctly and playbooks generate the intended orders. Check logs to verify the sequence of events.
• Sub-step 2: Perform a Live Sandbox Test: Once per year, execute the full automated pipeline in a paper trading account with simulated capital. Measure key outcomes: execution slippage, time-to-recovery, and any script failures.
• Sub-step 3: Update Artifacts and Runbooks: After each test or real market event, update all configuration files, scripts, and documentation. Log the incident and the plan's performance in a central log (e.g., DRP_Log_2023_Q4.md).

Tip: Treat your Disaster Recovery Plan like software code. Use a Git repository (on GitHub or GitLab) to track changes, with pull requests and reviews for any modifications to triggers or execution logic.