Market dips have a way of exposing overconfidence. The question isn’t “buy the dip or sell the rip?” It’s “how much equity risk truly fits this stage of life?”

The right answer balances growth with sleep-at-night security. Here’s a fast, practical way to size stock exposure—and a framework to keep it aligned over time.

Simple Test

Run a quick litmus test: estimate a recent paper loss in stocks and divide by gross monthly income. The result is the “months-to-recover” number. It translates volatility into time—arguably the most scarce resource. If that number feels acceptable, allocation is likely reasonable. If it feels punishing, equity exposure is probably too high.

Example Math

Consider a $1,000,000 stock portfolio after a 20% pullback. Paper loss: $200,000. If monthly income is $15,000, the months-to-recover number is roughly 13.3. If working an extra year to recoup feels fine, the equity weight may be appropriate. If that cost in time feels miserable, reduce exposure and shift toward steadier assets.

Case Study

Take a household in its mid-50s with $6,500,000 net worth, $6,000,000 in stocks, and $500,000 in property. Spending is about $100,000 a year. A $1,000,000 market drop equates to roughly 90 months of gross income at ~$11,000/month. That’s 7.5 years of “work equivalent” for a family already financially secure. The allocation is overshooting their true risk tolerance.

Time Lens

Investing aims at two outcomes: purchasing power for life’s needs and more freedom of time. Measured in cars or gadgets, losses feel abstract. Measured in months of life, losses get real. Time is the ultimate opportunity cost. As the years pass, the tradeoff becomes starker—protecting time beats chasing every last percentage point.

Risk Bands

Set a personal “tolerance band” in months. A few guideposts help:

• Conservative: 6–18 months

• Moderate: 19–36 months

• Aggressive: 37–60 months+

Map current equity exposure to these bands. If a typical 20%–35% drawdown would push the months-to-recover beyond the chosen band, trim stocks until the time cost fits.

Three Levers

There are only three levers to bring risk in line with comfort:

1) Asset mix: lower equity, raise bonds/cash/real-asset exposure.

2) Income: grow earnings to shrink months-to-recover.

3) Spending: right-size lifestyle to widen safety margins.

Adjusting allocation is fastest. Increasing income is healthier than inflating spending simply to justify a riskier portfolio.

Age Shift

Time horizon matters. Workers decades from retirement can accept a higher months-to-recover number; compounding and human capital provide buffer. Near-retirees have less runway. As retirement nears, migrate from “wealth building” to “wealth defending,” letting guaranteed and lower-volatility cash flows cover a larger share of necessities.

Guardrails

Anchor decisions to a few objective thresholds:

• High-volatility stress test: assume a typical −35% equity drawdown every 5–7 years.

Morgan Housel, a financial writer and author, writes, “Volatility is almost always a fee, not a fine.”

• Income-linked limit: cap months-to-recover at a pre-set limit (e.g., 24 or 30).

• Liquidity: hold 6–24 months of expenses in cash equivalents to avoid forced selling.

• Rebalance triggers: predefine bands (e.g., ±20% drift from targets) to act automatically, not emotionally.

Rebalance Plan

Use a simple, durable structure:

• Core growth: broad global equities for long-term compounding.

• Stabilizers: high-quality bonds and cash for ballast and optionality.

• Real assets: property or diversified real-estate funds to damp volatility and add income.

• Opportunistic sleeve: a small allocation for higher-risk ideas.

Automate contributions and schedule quarterly check-ins; adjust only when bands are breached or life circumstances change.

Right-Sizing

Revisit the case study. If the household wants to limit the time hit to 30 months, size stocks so that a typical correction won’t exceed 30 × monthly income. With $11,000/month, that cap is about $330,000 of tolerable drawdown. At an assumed 16.7% decline, stock exposure should sit near $2,000,000, not $6,000,000.

When To Add

If a pullback leaves the months-to-recover number comfortably below the band, consider adding risk assets methodically. A 6–12 month dollar-cost-averaging plan avoids precision-timing pressure and aligns buying with cash-flow reality.

When To Trim

Trim when any two align: the months-to-recover figure breaches the band, a life milestone shortens horizon, or equities swell beyond target by more than the drift band. Execute in stages to manage taxes and regret risk, and redirect proceeds to the stabilizers and liquidity buckets.

Conclusion

The right stock exposure isn’t a guess; it’s a time-based decision. Convert volatility into months, set limits that respect real life, and let a steady rebalancing rule do the heavy lifting. Money fuels options, but time is the prize. What’s your comfortable months-to-recover number?