How much are you willing to lose?

From William Bernstein, author of “The Four Pillars of Investing. Lessons for Building a Winning Portfolio” and “The Investor’s Manifesto. Preparing for Prosperity, Armageddon, and Everything in Between”.

A simple chart that should help you decide how much of your savings you should be willing to invest in stocks.

The younger you are, the more time you have to make up any stock market crashes that will occur.  If you are already retired and living off your investments, you may be less willing to tolerate huge losses.

So consider how much you have in retirement savings right now.  Are you willing to lose 35% of that amount in the next crash?  If you are, then an 80% weight to stocks is reasonable for you.  Vanguard’s Growth ETF Portfolio (VGRO) might work for you (80% stocks, 20% bonds).

Is that too high?  How about Vanguard’s Conservative ETF Portfolio (VCNS) which is 40% stocks and 60% bonds.  According to the chart, the most you can expect to lose in a crash is 15% of your total portfolio.

It’s up to you but be realistic.  The worse thing you can do is think you can handle more risk and then panic and sell your shares after the crash.