How much investment risk can you tolerate?

According to Manisha Thakor, director of wealth strategies for women at Buckingham and the BAM Alliance, "individuals who had a clear, concise and documented investment plan were least likely to have knee-jerk, counterproductive reactions to market volatility."

An investment policy statement should address five points:

• "Your target asset allocations for stocks, bonds and hard assets."

•"Your trigger points for rebalancing (for example, moves of plus or minus 5% for major asset classes, and plus or minus 25% for subclasses)."

• "Clarity about where cash flows will come from to fund daily living expenses, which helps reduce fear when portfolio values decrease."

• "An understanding of your willingness, ability and need to take risk so you understand why you are subjecting yourself to this volatility."

• "Specific goals for your portfolio so you can link the need for discipline with the outcomes that long-term, successful portfolio management produces."
Source: The Wall Street Journal, January 11, 2016, R11.