Sell stocks, but only if your risk tolerance has changed

— -- Q: When I add money to my portfolio, I stick with my asset allocation of 80% stocks and 20% bonds, but I keep losing money. Do I need to get more conservative?

A: Welcome to the bear market.

Bear markets are painful. They make you question all your investment decisions. They make you want to pull your money out of stocks and load up on canned food. Nobody enjoys watching their money vanish, even if it's only on paper.

And the way the mind works, you may start to believe that the market will never come back and you'll never get your money back.

Well, bear markets are also a time to become a good investor. When the market was rising, and you decided to put 80% of your money in stocks, it was probably because you had a long time horizon and were aiming for a richer return than you could get in 80% bonds. Hopefully you considered the considerable risk you were accepting in return.

You need to consider risk whether stocks are going up or down. Remember: Stocks don't go straight up. The broad Standard & Poor's 500 stock index suffered brutal losses in 2002, 2001 and 2000 of 22%, 12% and 9% respectively. You can be sure investors had some of the same reservations then as you're having now.

Unfortunately, the market doesn't ring a bell and let everyone know when it's going to recover. Investors who couldn't take the pain anymore and sold in 2002 missed out on a powerful recovery. Stocks bounced back 29% in 2003. The index recovered another 11% in 2004 and almost 5% in 2005.

The problem with darting in and out of the market is that it's impossible for most people to do so repeatedly and successfully.

Sure, go back now and reevaluate your taste for risk and your need for a higher return. You might find that your investment goals have changed or simply that you're not as risk tolerant as you thought you were when you started to invest. If that's the case, you can reduce your exposure to stocks by directing more of your new savings into bonds.

But if you're like most people, the asset allocation you selected years ago is still appropriate. And if that's the case, just hang on and keep buying stock at today's lower prices. Over time, you'll most likely be rewarded for your courage.