4. Review your financial plan. If you own stocks, bonds or any investments, you are taking risk. Without knowing your financial plan, it is very difficult to know how much risk you should take to reach your goals.
If you or your financial planner update your financial planning projections to show that you have only a 4 percent rate of return needed to reach your goals, then perhaps if you have a portfolio of 80 percent stocks, you are taking more risk than you need to take. I call this return a client's "hurdle rate."
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If the targeted allocation needed to achieve your hurdle rate is more conservative than your current allocation, perhaps that is yet another reason to review your portfolio allocation as mentioned above.
5. Consider your time horizon. This needs to be done before reaching the point where you need to begin living off your portfolio. If you are close to or in retirement, any significant market correction could be devastating to your long-term financial plan. With that in mind, having a more defensive or conservative portfolio allocation and investment strategy may be very wise.
—By Scott Bishop, special to CNBC.com. Bishop is a certified financial planner and director of financial planning at STA Wealth Management.