Great question, JH. Things get a little more complicated with higher net worths. In general, it just depends on your financial timeline. If you plan on working and earning a steady income for several more decades, you can have a higher percentage of your net worth in stocks because you have plenty of time to ride out the dips in the market. It also depends on your risk tolerance. If you have a hard time sleeping at night knowing a huge chunk of your net worth is tied up in stocks, it could be beneficial to transfer some money over to bonds.

If you’re using your investments to live on (by selling stocks periodically or living off dividend income) you could be better off with higher-yield assets (like high-dividend stocks or bonds) that are likely to be less affected by a potential stock market crash. But if you’re purely focused on growing your net worth, stocks have historically offered the highest returns.

Also, dollar cost averaging (DCA) has historically been one of the best ways to invest because it removes the psychological aspect of investing – whether the market is going up or down you’re just steadily investing money. This helps you to avoid over-selling at lows and over-buying at highs. This is essentially the approach I follow.

Thanks for the question 🙂

It all depends on your goals and your financial timeline. If your friend is thinking of retiring relatively soon, transferring money to less volatile assets is a reasonable thing to do. He could lose out on potential gains in the stock market (as many people have over the past couple years) but if he can sleep well at night knowing he has less exposure to stocks, that’s really all that matters.

I believe using DCA during a market crash would help greatly, too.

Great point, Dave. With a market crash often comes job layoffs and hard times. For people who are fortunate to keep their job, they should continue to focus on saving as usual. I agree, an emergency fund is wonderful to have as well to help you through the bad times.