Only when the stock market goes down do people start to wonder whether they have too much exposure to stocks (equities). Questions arise: Should I cut back? Should I buy the dip? What’s the appropriate allocation to stocks right now?
While the answer depends on many variables—your risk tolerance, age, net worth, current asset allocation, and financial goals—figuring out the right amount of stock exposure doesn’t have to be complicated.
A Simple Stock Exposure Litmus Test
If you’re a working adult, here’s an easy way to determine whether your stock exposure is appropriate:
Calculate your paper losses during the latest market correction and divide that number by your current monthly income.
This gives you a rough estimate of how many months you’d have to work to make up for your stock market losses, assuming no rebound. It is part of my SEER formula that helps determine your true risk tolerance.
Stock Market Exposure Example:
Let’s say you have a $1 million portfolio, fully invested in the S&P 500. The market corrects by 20%, so you’ve lost $200,000. If you make $15,000 a month, you’d need to work 13.4 months to make up for the loss.
If the idea of working 13.4 extra months doesn’t faze you—maybe because you’re under 45, enjoy your job, or have plenty of other assets—then your stock exposure might be just right. You might even want to invest more.
But if the thought of working over a year just to recover your losses is depressing, your exposure to equities might be too high. Consider reducing it and reallocating to more stable investments like Treasury bonds or real estate.
A Real Case Study: Way Overexposed To Stocks
Here’s a real example I came across: A couple in their mid-50s with a $6.5 million net worth at the beginning of the year, consisting of $6 million in stocks and $500,000 in real estate. They spend no more than $100,000 a year.
In the first four months of 2025, they lost $1 million from their stock portfolio, which dropped to $5 million. With a maximum monthly spend of $8,333 (or ~$11,000 gross), they effectively lost 90 months of gross work income—that’s 7.5 years of working just to recover their losses.
For a couple in their mid-50s, losing that much time and money is unacceptable. They already have enough to live on comfortably. A 4% return on $6 million in Treasury bonds yields $240,000 a year risk-free. That's twice their spending needs with virtually no risk.
This couple is either chasing returns out of habit, unaware of their true risk tolerance, or simply never received thoughtful financial guidance. Getting your finances reviewed by a third party is a no brainer.
As I consult with more readers as part of my Millionaire Milestones book promotion (click for more details if interested), I realize everybody has a financial blindspot that needs optimizing.
Time Is the Best Measure of Stock Exposure
Why do we invest? Two main reasons:
- To make money to buy things and experiences.
- To buy time—so we don’t have to work forever at a job we dislike.
Between the two, time is far more valuable. Your goal shouldn’t be to die with the most money, but to maximize your freedom and time while you’re still healthy enough to enjoy it.
Sure, you could compare your losses to material things. For example, if you’re a car enthusiast and your $2 million portfolio drops by $400,000, that’s four $100,000 dream cars gone. But measuring losses in terms of time is a far more rational and powerful approach.
As you get older, this becomes even more true—because you simply have less time left.
Risk Tolerance Guide For Stock Exposure
Here's a table that highlights the Risk Tolerance Multiple, expressed in terms of working months. Your personal risk tolerance will vary, so consider constructing the remainder of your portfolio with bonds, real estate, or other less volatile assets.
For example, if you earn $10,000 a month and have an extreme risk tolerance, you might be comfortable allocating up to $1,714,286 of your $2,000,000 investment portfolio to stocks. The remaining $285,714 can go into bonds or other less volatile assets. Alternatively, you could keep your entire portfolio in stocks until reaching the $1,714,286 threshold.
My Personal Perspective on Time and Stock Exposure
Since I was 13, I’ve valued time more than most. A friend of mine tragically passed away at 15 in a car accident. That event deeply shaped how I approach life and finances.
I studied hard, landed a high-paying job in finance, and saved aggressively to reach financial independence at age 34. My goal was to retire by 40, but I left at 34 after negotiating a severance that covered five to six years of living expenses. I’ve acted congruently with how I value time – it is way more important than money.
Since retiring in 2012, I’ve kept my stock exposure to 25%–35% of my net worth. Why? Because I’m not willing to lose more than 18 months of income during the average bear market (-35%), which tends to happen every three to seven years. That’s my threshold. I never want to work for somebody else again full-time, especially now that I have young children.
They say once you’ve won the game, stop playing. Yet here I am still investing in risk assets, driven by inflation, some greed, and the desire to take care of my family.
Adjusting Stock Exposure by Time Willing to Work
In the earlier example, I advised the couple with $6 million in stocks to reduce their exposure based on their monthly spending, which I translated into a gross income equivalent. A $1 million loss in a market downturn would equate to roughly 90 months of spending—or about 8 years of work—based on their $8,333 monthly spending and $11,000 gross income.
If they’d be more comfortable losing the equivalent of just 30 months of income, they should limit their stock exposure to roughly $2 million. That way, in a 16.7% correction, they’d lose no more than $330,000 (30 X $11,000/month in gross income).
Another Solution Is To Earn More Or Spend Lots More Money
Alternatively, they could justify their $6 million stock exposure by increasing their monthly income to $33,333, or to $400,000 a year. But more easily, boost their after-tax spending from $8,333 ($11,000 gross), to about $25,000 ($33,000 gross). That way, a $1 million loss represents just 30 months of work or spending.
Of course, it’s financially safer to boost income than to boost spending. But these are the levers you can pull—income, spending, and asset allocation—to align your portfolio with your willingness to lose time.
If you have a $6.5 million net worth and only spend $100,000 a year, you’re conservative. The 4% rule suggests you could safely spend up to $260,000 gross a year, which still gives you plenty of buffer. Hence, this couple should live it up more or give more money away.
Time Is the Greatest Opportunity Cost
I hope this framework helps you rethink your stock exposure. It’s not about finding a perfect allocation. It’s about understanding your opportunity cost of time and aligning your investments with your goals.
Stocks will always feel like funny money to me until they’re sold and used for something meaningful. That’s when their value is finally realized.
If this recent downturn has you depressed because of the time you’ve lost, your exposure is likely too high. But if you’re unfazed and even excited to buy more, then your allocation might be just right—or even too low.
Thankfully, the stock market has always rebounded, so needing to work X number of months to recover your losses isn’t always necessary—provided you can hold on. Still, measuring your losses in terms of time is one of the most effective ways to assess whether your current stock exposure is appropriate. Best of luck!
Readers, how do you determine your appropriate amount of stock exposure? How many months of work income are you willing to lose to make up for your potential losses?
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At 44, I do completely understand what you area saying, I frame my “losses” as lost vacations or trips. I am a diversified investor with exposure to 30% + Bonds, T-bills 20 % International and the rest in Large cap Index fund VTI. My YTD losses are around -2% and it still is around 500k in paper losses. My business (veterinary practice) continues to thrive so I am continuing to buy the dip as well. Thanks
$25 million in stock exposure only at 44 is awesome! You’ll have to share how you were able to accumulate so much and what your ultimate goal is. Because I think for most people, they won’t be able to spend down that much money.
I’m 55 and had to change my “growth/risk” mindset. Have enough to retire now but with a 5-10 year window of sequence of return risk (SORR) having 50% in treasury ladders making 4% and spending those down first in retirement while Roth IRA/401K stocks grow. Then having a higher stock exposure much later in life when the runway is shorter. Great article and summarizes well the predicament of potentially having to work more due to a SORR closer to retirement. Stopped contributing to retirement accounts and saving in brokerage account, municipal bonds mostly (since not taxed federal/state here), money I could access if stop working before 59 1/2.
Thanks for sharing—your approach is a great example of adapting your strategy as circumstances and timelines shift. The way you’re managing sequence of return risk with a 5–10 year treasury ladder is smart. It’s a clear recognition that protecting the start of retirement is often more important than chasing higher returns during that window.
I also like how you’ve shifted focus from tax-advantaged accounts to more flexible brokerage savings—especially with muni bonds, which are a great fit given your state’s tax rules. Having that liquidity if you choose to stop working before 59½ is key, and it sounds like you’ve thought it through from both a risk and lifestyle perspective.
Glad the article resonated with you—it’s encouraging to hear from someone who’s actively navigating this stage with both discipline and flexibility.
Really enjoyed this article. It’s a matter of risk tolerance and peace of mind. We reached FI in our mid-40’s and decided to work part-time and not fully retire. We still wanted structure to our lives. Our comfort level allocation is still 80/20 because we’re still young and have a higher risk tolerance. Our peace of mind comes from our 3 years of living expenses in cash. So Risk Tolerance and Peace of Mind will determine your equity exposure.
This discussion seems a bit too late, asking yourself how much stock exposure you’re comfortable with shouldn’t be during a time when we’re in a downmarket. If you’re in your accumulation (working) years you should be buying in a bear market. To reallocate to bonds/cash now seems riskier in the long run vs investing during this time. The time to access your risk tolerance is in a bull market.
Unfortunately, many people don’t take action until it is “too late.”
But it’s also good to never let a bad thing go to waste. You really only know your true risk tolerance until you lose a lot of money.
We generally fool ourselves into thinking we have a much greater risk tolerance than we think, especially during a bull market.
There’s a great saying, “don’t confuse brains with a bull market.”
Where are you on your financial journey? Thanks.
Right, and to repeat the ever so repeated quote by Buffet, “to be fearful when others are greedy and to be greedy only when others are fearful” is a keystone notion for people with longer investment time horizons. Fooling ourselves in thinking that we have a much greater risk tolerance than we think during a bull market can be easily swung the opposite way where we could fool ourselves into thinking we need to be too conservative in a bear market.
Cool. When did you retire and if you’re willing to share, with how much? I’m always curious about retirees or older workers who remain aggressive in their asset allocation, despite having enough.
I struggle with this often due to the pulling forces of greed and satisfaction.
The psychology of money is always fascinating!
How do you know how much you’re willing to lose if you’re just making tons of money in a bull market?
I’m not scared when my stocks are going up.
That’s exactly when I get nervous…when my stocks keep going up.
OK, so how much did you sell when stocks were at all-time highs? I know this is the internet where everybody has perfect timing and all. But can you at least provide some financial background about yourself? What type of investments and net worth amount are you talking about?
What I love about this post is that it bridges the gap between the emotional and mathematical sides of personal finance. No matter how long you’ve been investing or what your horizon is, the dips never feel good. Even if we know the math will eventually even out, that doesn’t help us get through the dips. We don’t live in the spreadsheet. This framework is an excellent tool to find a meeting point between the emotional side and mathematical side of our brains. You can work so hard on calculating the numbers to maximize your portfolio. But, it’ll all be meaningless if you don’t also work on the emotional side so you feel comfortable living with the decisions you’re making.
I think one point to consider is that if the mid 50s couple has been investing for decades, then a lot of their 6 million would be gains. It’s less distressing to lose your gains than if you actually worked for the money. Also, they’ve probably been conditioned by ups and down over the years and have seen as the market goes down, eventually it also recovers sooner or later.
Totally fair point—and yes, if a good chunk of their $6 million is unrealized gains, it can feel less painful to see it fluctuate, especially if they’ve ridden through past cycles and developed a long-term mindset.
That said, even if the money is “house money,” it doesn’t always feel that way when you see hundreds of thousands disappear in a market downturn. After decades of growing wealth, people often become more protective of it—especially as retirement nears and the time to recover feels more finite, emotionally if not financially.
The idea behind measuring losses in time (e.g., “how many years of work or freedom did this drawdown cost me?”) is more of a gut check than a financial calculation. It’s meant to prompt reflection on whether your current risk exposure still aligns with how you feel today—not just what you’ve gotten used to in the past.
Appreciate you bringing this up—it’s a great nuance to consider.
The average bear market is a drop of 33%. It will be interesting to see what you will write about if it drops that much or worse.
I use 35% potential downside in my SEER formula in my stock exposure guidance.
We are in our early 60s and our asset allocation is 35% in RE and 65% in equity, which is way aggressive. My justification is that we will most likely won’t have sell the equities to fund our living expenses given our passive income is more than enough to cover our expenses. Additionally, when we turn 67, we will receive $8300 in SS benefits. With that being said, it is still hard to see our portfolio suffers several millions dollars of losses.
I will reconsider our asset allocation to minimize the next bear market losses.
Thanks for sharing. What are your reasons / goals for investing so aggressively in your 60s?
Don’t need to live off equities. We have sufficient passive income to more than cover our living expense and we continue to invest our excess cash.
Thanks for the article, and always good to see a framework to look at risk. But my question is that if you are looking at your retirement, assuming you retire at 65 and live to 90, you have a 25 year window to cover. So in reality, you are still investing long term when you hit retirement age. Or this is how I look at it. So if you lose 20% of your portfolio, or $200,000, but can’t you look at that money as what you need now and instead think I have 10-15 years to make that back in the market, assuming you have enough in short term or cash assets to live on immediately. Or Am I looking at this wrong? Do you just take your entire portfolio into short term assets as you get closer? Im still about 10-15 years away from retirement, and looking ahead trying to plan. But I also hope to retire early and enjoy a nice 10-15 years of active retirement before I go to the retirement cruise life or whatever they do in their 80s (hoping I am healthy and active and enjoying my family). Just curious your thoughts on retirement assets in retirement.
Thanks for the thoughtful comment—and I really like the way you’re thinking through retirement and the phases within it. You’re absolutely right that retirement isn’t the finish line for investing—it’s just the start of a new 20-30 year chapter. So yes, you do still need long-term growth, especially to fight off inflation and support a multi-decade retirement.
Your approach—keeping enough in short-term or cash assets to cover near-term living expenses while allowing the rest to stay invested—is spot on. This is basically the “bucket strategy” in action: short-term needs in cash or low-risk assets, and longer-term funds in stocks or other growth vehicles. That way, a temporary market dip doesn’t force you to sell at the wrong time.
What I’m trying to add with my framework is more of a psychological gut check: if losing $200,000 feels like “X years of work or freedom lost,” that emotion can influence how well you stick with your plan. It’s not necessarily a signal to go all short-term as you age, but rather a reminder to stay in tune with your emotional risk tolerance—especially during volatile times.
You’re clearly thinking ahead and building with intention. And honestly, having that “active retirement” plan already in mind gives you an edge—because it’s not just about the money, but what the money enables you to do. Sounds like you’re on a great path!
Appreciate the thought-provoking article on risk tolerance! That said, I’m trying to wrap my head around the philosophy you mentioned. Wouldn’t that philosophy result in a much lower percentage of your total wealth being invested in equities? I’m chewing in what you said, but thinking risk tolerance should have more to do with investment timeline than short-term loss tolerance.
Stocks are very likely to come back up at some point in the next year or years and reach new all time highs, so this couple hasn’t lost years of time unless they sell while the market is down, right? Assuming they don’t need the cash from their equity positions in the next few years, aren’t they still better off in stocks than treasuries right now?
Really appreciate you chewing on the post and sharing your thoughts!
You’re totally right—if the couple doesn’t need the money for a few years, odds are high the market recovers and they come out ahead. That’s the logical side of investing. But what I’m getting at is the emotional side, which often hits harder. It’s one thing to say, “I’m OK with a 20% drop,” and another to see that drop translate into what feels like a year or two of hard work wiped out—at least on paper.
The idea of measuring loss in time is more of a gut check. If a market drop makes someone feel like they’ve lost too much progress, it can lead to stress, second-guessing, or even selling at the wrong time. So it’s less about abandoning equities and more about finding a balance that lets you sleep at night and stay invested through the ups and downs.
That said, I’m with you—timeline matters a ton, and staying in stocks usually wins over the long run. But if someone’s emotional risk tolerance is lower than they thought, it’s better to adjust before the next downturn hits.
Great convo—thanks again for keeping it going!
Sam as always a thoughtful post. As a question/counter to your post. My in-laws are in their 70’s with pensions and social security they are fully covered. The portfolio they have is all just bonus now. I’ve spoken to them about keeping their money invested in the market but the general consensus based on age would be 30% stocks/ 70% fixed income. My opinion has changed on this when you can’t spend your guaranteed income plus RMD’s you might want to have a higher allocation just to keep up with inflation. Thoughts?
Thanks for reading and chiming in—always appreciate your thoughtful take!
I totally get where you’re coming from. If your in-laws are fully covered by pensions and Social Security and their portfolio is purely a bonus, then yes, the traditional 30/70 allocation might be overly conservative—especially with inflation still lingering. In that scenario, it makes a lot of sense to consider a higher equity allocation, particularly if the goal is to preserve or grow wealth over time for heirs or philanthropy.
That said, I think the key variable is comfort with volatility. Even if the money isn’t “needed,” a 25% drawdown in a bonus portfolio can still feel unsettling—especially in your 70s when recovery timelines start to feel more finite, even if actuarial tables say otherwise. It all comes down to whether they’d be emotionally OK watching a market decline without feeling like it’s a mistake.
So I’m with you—if they can stomach the ups and downs and don’t plan to touch the money, leaning more into equities for long-term growth and inflation protection can be totally reasonable. But if they’d lose sleep over short-term losses, it might still be worth keeping things more balanced.
Appreciate the question—this is exactly the type of nuance that makes investing personal!
Sam,
I’m in a weird situation in that I have a pension that more than covers my living expenses for at least the next decade, so this tends to distort my view of risk. How does not needing to cash in stocks in retirement for quite awhile affect your risk model?
That’s actually a great “problem” to have—congrats on setting yourself up with that kind of pension cushion!
When your living expenses are fully covered for the next decade, it absolutely shifts how you think about risk. You’re no longer in the position of needing to sell during downturns to fund your lifestyle, which gives you the luxury of time—and time is one of the best risk mitigators in investing.
In this case, your risk capacity is likely much higher than the average retiree, even if your risk tolerance (how you emotionally handle volatility) stays the same. You might view drawdowns more like opportunities than threats, which opens the door for a higher equity allocation if your goal is long-term growth, legacy planning, or just inflation protection.
That said, I still think it’s useful to run the “how many months or years of progress does a loss feel like?” gut check. Even if you don’t need the money, a big drop can still impact your emotional comfort and how you perceive your financial well-being.
In short: not needing to tap your portfolio definitely changes the risk equation—it gives you more flexibility. But your personal comfort with volatility still deserves a seat at the table when deciding how to invest.
I really like your approach. When it comes to portfolio allocation it helps to think about it from multiple angles. I think I’ve been too aggressive with my allocation in the last six months and should probably increase my positions in low risk investments. Time is a huge reason to reassess and adjust. Thanks for the reminder!
Thanks so much—glad the post resonated! I completely agree—thinking about portfolio allocation from multiple angles, especially through the lens of time, can really clarify what feels right. It’s easy to lean more aggressive when markets are calm or rising, but as time horizons shift or life gets more complex, dialing things back a bit can feel like a smart, empowering move rather than a retreat.
Appreciate you sharing your own reflection—it’s a good reminder that reassessing doesn’t mean second-guessing, just adapting as life evolves.
Thank you Sam! You have a gift of netting things out in a manner that makes sense for anyone whether they’re a novice or sophisticated investor. I’ve been following you for over a decade and I continue to pick up meaningful nuggets on financial matters, but most importantly shared perspectives about life!
Wow, thank you—that truly means a lot to me. I write to make sense of things for myself first, so hearing that it resonates with both novice and seasoned investors is incredibly validating. I’m especially glad the life perspectives are landing too—because at the end of the day, money is just a tool to live more freely and intentionally. I really appreciate you sticking with me for over a decade. Here’s to continuing the journey together!
How about a hypothetical allocation question using this framework?
What equity allocation would you have if you had a 1.9m net worth, 70% equity, 10% RE and 20% Bonds/Cash. Total income is ~200k per year, but spending is 70k.
Are you in accumulation or preservation phase? That will partly determine your equity exposure. If you’re still accumulating, I would do 75%-80% equity, with 1 year expenses in cash. If you’re in preservation phase, I would do 65%-70% equity, with 2 to 3 years expenses in cash.