Levin: The market has turned, so do what you always should

We knew this would happen. We all knew this would happen. Why didn't we do something when we knew this would happen?

Markets have turned, and we are staring into the faces of the four horsemen of the investment apocalypse: inflation, higher interest rates, world economies in transition and companies trading at a multiple of sales rather than earnings.

OK, now that that's out of our system, can we be done now? There are great reasons markets are going to continue to be rocky; there are great reasons they are going to do well.

So rather than wring your hands about what could happen and what you should have done, why don't you do what you should always do?

Take the appropriate amount of risk based on your situation, not based on market unknowns. Risk capacity is determined by when you need to spend your money and how long you need your money to last. Risk tolerance is based on how uneasy market ups and downs make you.

Let's start with risk capacity. Money that you need to spend in the next two or three years should not be invested. It doesn't matter if you beat the odds and made money in the short term — investing is for longer time horizons. We now can even get a little interest on our savings through things like I-bonds and online savings accounts. Not much, but it's something.

Your risk capacity is higher when you are contributing to your investments rather than withdrawing from them. When your risk capacity is higher, you can invest more in stocks.

When you are living off of your portfolio, the three main considerations for how you invest are how much you are spending, how long you need your money to last, and how much you want to leave when you die.

This will determine your asset allocation. When you allocate and rebalance, you trade maximum returns for more consistent returns. This is risk management.

Risk tolerance is the physical and emotional manifestation of your reaction to the markets. If your heart beats rapidly and you get anxious as the markets gyrate, you probably need to take less risk. If you view falling markets only as buying opportunities, you may be able to easily tolerate risk — or you may need your head examined. Set up your portfolio to avoid extreme reactions either way.

No one ever knows which way the markets will move in the short term, so just do what you should always do.

Spend your life wisely.

Ross Levin is the chief executive & founder of Accredited Investors Wealth Management in Edina.