| A friend of mine is very wealthy. Yet every time the market shimmies, he asks me if he should get out. "It depends on your tolerance for risk," I explain to him. I walk him through a series of questions to help him figure out whether he is comfortable staying in the market. The stock market is at all-time highs. The S&P 500 is on the doorstep of reaching 7,000 for the first time ever, and the Dow is closing in on 50,000. That makes me think that many investors are not ready to handle a downturn or a full-blown bear market. Please note, I'm not predicting one. I'm just saying that eventually a bear market will occur (great prediction, Nostradamus). Should there be a sell-off in the near future, it could be ugly, as investors are ill-prepared to handle the pain that the market doles out from time to time. After years of prices mostly moving higher, I'm concerned we've forgotten how to weather a market that is going down. In fact, in the past year, every time the market has slipped, say, 3%, I've gotten emails asking if it's time to bail out. These three questions will help you deal with the next bear market. 1. When do you need the money that's invested in the market? If you don't need the money that's invested in stocks for another 10 years, then a bear market - even a nasty one - shouldn't be much of a concern. It won't be fun, but the stock market almost always goes up over a 10-year period. In fact, the only way you would have lost money over 10 years would have been if you had sold during the height of the Great Depression or Great Recession. Even if you had bought at the highs in 2007, right before the 2008 financial collapse, and held for 10 years, you would have made money. Every single correction and bear market in history - and I do mean every single one - has been followed by a new high. But if you'll need the funds that are invested in stocks within the next three years, take them out now - not because we're at all-time highs or because I'm worried about a bear market, but because you can't afford to be exposed to short-term risk. Anything can happen in the market over three years, and knowing that an important deadline - such as a tuition bill - is coming up while the market is falling will make you crazy. You'll likely end up selling at the bottom when the panic sets in. So sell your stocks if you need the capital within three years. | 
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