Ready for Stock Market Risk? Go Back to Basics to Find Out
If the market’s record-setting run has you a bit nervous, it’s time to get real about risk.


How confident are you in your ability to make the right choices for your retirement investments?
Last year, when the Federal Reserve Board released its “Report on the Economic Well-Being of U.S. Households” (based on surveys from 2015), it found that 49% of all respondents with self-directed retirement savings were “not confident” or only “slightly confident” about making the right decisions.
That we’re in the ninth year of a bull market is only adding to people’s doubts about what to do next. Even experienced, hands-on investors can’t help but ask how long the record-setting good times can last. Should they stay or should they go?

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you’re feeling uncertain about your plan – or if you’re just getting started — it’s always good to go back to the basics to determine how ready you are to deal with any future market fluctuations.
1. Start with the big picture.
Think about your time horizon (how long you have to invest), your net worth, income, expenses and then — keeping all that in mind — how you feel about risk.
Most advisers talk about “risk tolerance” and put that in terms of a percentage. “Can you deal with a 10% drop?” they’ll ask, and because 10% doesn’t sound like much, most investors will say yes.
I prefer to talk about real dollars. If you have a million-dollar portfolio, for example, and I ask if you’re OK with losing $100,000, your mindset probably would start to shift a bit. Taking it a step further, I might ask how long it took you to save that $100,000, and how many years of income that much money might have provided in retirement. This gives a much clearer picture of the magnitude of a major market fluctuation.
2. Next, think about what you want to accomplish at this stage of your life.
If you’re looking to grow your money, you may want to shoot for higher returns. Just remember, the higher the return on your money, the more risk you’ll have to take to get it.
If you’re close to or in retirement, you’re likely more interested in the return of your money. With an income-focused portfolio, you won’t see the big highs and low dips, but you should see higher yield and/or a consistent level of income.
You may wish to design a plan in which you have both a return of your money for income and a return on your money to help outpace inflation.
3. Finally, put it all together, keeping these questions in mind:
- What’s your fluctuation comfort zone? How comfortable are you with the prospect of losing money in a market correction or downturn?
- How much can you really afford to lose? Don’t forget to transition down the amount you set aside for growth as you get closer to retirement.
- Are you confident in your financial strategy? Is your strategy clearly defined, and does it coordinate with your income plan?
- Have you established your “uncle” point? Experiencing some discomfort when the market drops isn’t the same as knowing when you’re truly done. At what point will you say, “You know what, I’m out. I can’t take it anymore. I’m selling.” Knowing this number can keep you from making knee-jerk decisions based on emotion, but also from hanging on too long if the ship is going down.
A knowledgeable financial professional can help you draw up a realistic plan that will help you reach your retirement goals. But it’s up to you to clearly and honestly establish your boundaries. If you find yourself fretting about the moves you’re making in the market, take some time to re-examine your motives and your mindset.
Kim Franke-Folstad contributed to this article.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Sean P. Lee is a managing partner and Investment Adviser Representative with Elevated Retirement Group. Since 2002, Lee has helped families reach and maintain their financial goals. Lee has been featured in The Wall Street Journal’s Market Watch, The Deseret News, The Salt Lake Tribune and USA Today. He has also been featured as a local financial adviser on Utah’s NBC station, KSL 5.
-
The Surprising Truth About Loneliness and Longevity
We've all heard about the epidemic of loneliness that can shorten lives and make retirement miserable. But there's more to the story.
-
The Dollar Index Is Sliding. Is Your Portfolio Prepared?
The Dollar Index Is Sliding. Is Your Portfolio Prepared? The dollar's fall has been troubling because inflation appears to be constrained and the economy has been strong. Here's what it means for investors.
-
Seven Financial Considerations When Downsizing for Retirement
With prices going up on everything, you may be looking for a cheaper place to live. To truly evaluate costs, take a hard look at taxes and intangibles.
-
I Have Plenty of Money: Why Do I Need a Long-Term Care Plan?
Long-term care planning, whether through insurance or self-funding, is crucial not only for financial protection but also to preserve family relationships and reduce the emotional and logistical burdens on loved ones.
-
Three Steps for Evaluating a Downsize in Retirement: A Financial Planner's Guide
Unless you think things through, you could end up with major (and costly) regrets. To make the right choice, base it on the three keys to retirement happiness.
-
Worried About Your Retirement Income? Four Questions to Ask Yourself, From a Financial Planner
If you're nearing or in retirement and stressing about your retirement income (so many of us are), consider taking some time to think about these four issues.
-
Do You Need Flood Insurance? I'm an Insurance Expert, and Here's Where You Can Get It
Standard homeowners insurance does not cover flood damage, so you might need separate flood insurance, which you can get either through FEMA or private companies. Here are the details.
-
I'm an Investment Professional: These Are the Three Money Tips I'm Giving My College Grad
College grads can help set themselves up for financial independence by focusing on emergency savings, opting into a 401(k) at work (if it's offered) and disciplined, long-term investing.
-
New SALT Cap Deduction: Unlock Massive Tax Savings with Non-Grantor Trusts
The One Big Beautiful Bill Act's increase of the state and local tax (SALT) deduction cap creates an opportunity to use multiple non-grantor trusts to maximize deductions and enhance estate planning.
-
Know Your ABDs? A Beginner's Guide to Medicare Basics
Medicare is an alphabet soup — and the rules can be just as confusing as the terminology. Conquer the system with this beginner's guide to Parts A, B and D.