Only when the stock market is down do people start to wonder if they have too much risk to the stock (stock). Problems occur: Should I cut it? Should I buy dipping sauce? What is the right distribution to stocks now?
While the answer depends on many variables (your risk tolerance, age, net worth, current asset allocation and financial goals), it is not necessary to propose a proper amount of stock exposure in a complicated way.
A simple stock exposure touchstone test
If you are an adult, here is an easy way to determine if your stock exposure is appropriate:
The paper loss is calculated during the latest market correction and divide that number by the current monthly income.
This gives you a rough estimate of the months when the stock market losses that have no rebound need to be compensated for in order to compensate for. This is part of my Prophet formula that helps determine your true risk tolerance.
Stock market exposure example:
Suppose you have a $1 million investment portfolio and invested in full on the S&P 500. If the market corrects 20%, you lose $200,000. If you make $15,000 a month, you need to work 13.4 months Make up for losses.
If the idea of working for an additional 13.4 months won’t upset you – maybe because you’re under 45 years old, enjoying work or owning many other assets, then your stock risk may be just right. You may even want to invest more.
But if the idea of working for over a year just to recover your losses is frustrating, then your exposure to stocks may be too high. Consider reducing it and redistribute it to more stable investments, such as fiscal bonds or real estate.
Real Case Study: Overexposed to Stocks
Here is a real example I encountered: A mid-50s couple had a net worth of $6.5 million at the beginning of the year, including $6 million in stock and $500,000 in real estate. They spend no more than $100,000 per year.
In the first four months of 2025, they lost $1 million from their stock portfolio, down to $5 million. Their monthly expenses are up to $8,333 (or about $11,000), effective losses Total revenue for 90 months– That’s 7.5 years Work is just to recover the losses.
It was unacceptable to lose so much time and money for a couple in the mid-50s. They already have enough to live comfortably. The return rate of $6 million fiscal bonds is 4%, and they can earn $240,000 per year in risk-free. Their spending needs are almost no risk.
The couple either chased the reward out of habit, not knowing their true risk tolerance or simply didn’t know Receive thoughtful financial guidance.
When I consult more readers as part of me Millionaire milestone Book promotions, I realized that everyone has a financial blind spot that needs to be optimized.
Time is the best measure of inventory exposure
Why do we invest? Two main reasons:
- Make money to buy things and experience.
- arrive Purchase time– So, we don’t have to work forever in a job we don’t like.
In between, time is more valuable. Your goal should not be to die with the most money, but to make the most of your freedom and time while you are still healthy to enjoy it.
Of course, you can compare losses to material things. For example, if you are a car enthusiast and your $2 million portfolio is down $400,000, that’s four $100,000 dream cars. However, measuring losses in terms of time is a more rational and powerful way to do it.
As you get older, this becomes more real-because you just have Less time left.
This is a multiple of risk tolerance measured by the work month. Your risk tolerance will vary. You can use bonds, real estate, or other less volatile assets to build the rest of your portfolio.
My personal opinion on time and stock exposure
Since I was 13, I have valued time more than most people. A friend of mine died tragically in a car accident. That event deeply shapes how I feel about life and finances.
I studied hard, got a high-paying job in finance, and actively saved my 34-year-old financial independence. My goal is to retire at 40, but after 34, I left at 34 Negotiating severance fees This covers five to six years of living expenses. I cherish myself time consistent – more important than money.
Since retiring in 2012, I have kept my stock exposure at 25%–35% of my net worth. Why? Because I don’t want to lose more than 18 months of revenue during the average market decline, it happens every three to five years. That is my threshold. I never want to go back to other people’s full-time jobs, especially now that I have kids.
They say, once you win the game, stop the game. However, here I am still investing in inflation-driven risky assets, Some greedand the desire to take care of my family.
Adjust stock exposure by willing to work
In the earlier example, I suggested that the couple own $6 million in stock to reduce their exposure or increase spending. Losing $1 million in the downturn was about 90 months of work based on its $11,000 total monthly income.
If they prefer to lose only 30 months of income, their stock exposure should be limited to approximately $2 million. In this way, in the 16.7% correction, their losses were no more than $330,000.
Additionally, they can justify their $6 million stock exposure by increasing their monthly income to $33,333, or about $400,000 a year. But it’s easier to increase after-tax expenses from $8,333 (total $11,000) to about $25,000 ($33,000 in total). This way, a million dollars in losses represent only 30 months of work or expenses.
Of course, increasing income is safer than increasing expenditure. However, these are the leverage you can pull (income, expenditure, and asset allocation) that can align your portfolio with the willingness to waste time.
If you have a net worth of $6.5 million and you only spend $100,000 a year, you’re very conservative. The 4% rule shows that you can safely spend up to $260,000 a year, which still gives you plenty of buffering. Therefore, the couple should live more or pay more.
Time is the biggest opportunity cost
Hopefully this framework can help you rethink stock exposure. It’s not about finding the perfect allocation. It’s about understanding your opportunity costs and aligning your investments with your goals.
Stocks always feel like Interesting money For me, until they sell and use for something that makes sense. That is when their value is finally realized.
If your recent economic downturn is frustrating because of lost time, your exposure may be too high. But if you are unwavering and even excited about buying more, your distribution may be just right, or even too low.
Reader, how do you determine the appropriate stock sales? How many months of work income are you willing to lose to make up for the potential losses?
Order my new book: Millionaire Milestone
If you want to build wealth of more than 93% of the population and release it as soon as possible, grab a copy of my new book: Millionaire Milestone: Simple Steps to Seven Numbers. I’ve distilled over 30 years of experience into practical guides to help you become a millionaire, or even a multimillionaire. With enough wealth, you can buy back time, which is the most valuable asset of all.
Copy for sale Amazon Or anywhere you like to buy books. Most people do not spend time reading personal finance articles, but read books on building financial freedom alone. By simply reading, you have gained the main advantage.
The Financial Samurai started in 2009 and is one of the leading independent personal finance websites today. Since its inception, more than 100 million people have visited the Financial Warriors to obtain financial freedom as soon as possible. Sign up for my free weekly newsletter here.
