Know your risk tolerance

                                                                                         I blogged about filling two baskets back in May( please reread ). With the  resent market turmoil, I think we should revisit this subject. Risk tolerance is very personal and will be different for everyone. When large market swings bring the value of your assets down quickly, and you get nervous, you have too much invested in that asset class. Know before you invest in stocks that the value of your holdings could go down between 50%-75% in some cases even zero ( Enron, Worldcom, etc.). Using the two baskets approach, you can keep your portfolio's total value from swinging wildly by having a larger portion in bonds, CD's, and Treasuries. You should also explore other protection devices like stop orders and stop limit orders. These can be tricky and should be used sparingly , never on an entire portfolio. Remember you risk more by not investing in stocks than owning stocks, because you might not get a high enough return to retire when you want to. The bottom line, however, is that only you can decide how much of a day to day swing you can handle without selling in a panic just before the market rebounds.