Marguerita Cheng: Stick with sound investing principles during bear markets Now is not the time to deviate from the good advice and strategies that have worked for investors over the years. My recommendations to investors right now are to stick to the basics:Stay diversifiedIt is important to include cash, equities and fixed income in your portfolio. How much you allocate to each investment class is a function of your time horizon, your risk tolerance, your tax bracket and your cash flow requirements. Each asset class plays an important role. Having cash provides peace of mind because it is liquid and readily available. It can protect you against market risk or sequence of return risk by not having to liquidate other assets at an inopportune time.Although you may be seeing red when you log into your portfolio dashboard, including equities in your portfolio is important because they can appreciate at a rate greater than inflation of the long term. So, equities can help address inflation risk and longevity risk. Higher inflation and rising interest rates have put downward pressure on bond prices. Bonds may lag equities in good years, but they can help provide stability in a portfolio. Continue to invest through dollar-cost averagingMany investors don’t realize that dollar-cost averaging is what they’re already doing with their 401(k) plans , 529 plans, Roth IRAs & IRAs all along. Don’t stop now.Understand the distinction between risk tolerance and risk capacityRisk tolerance is a measure of how much risk you are willing to take on. Generally, there are three types of investors: conservative, moderate and aggressive. The level of risk tolerance increases as you move from conservative to aggressive. Factors including age, income, financial goals and psychological and emotional conditions influence your risk tolerance. Risk tolerance is subjective. While there are factors that inform it (age, income, financial goals), they are not determinative, given the role of emotion and psychology. CFP® professionals define risk tolerance as the amount of risk you can take and still sleep at night. How much risk are you comfortable with? What level of risk won’t keep you awake at night after refreshing the balance on your dashboard portfolio? Risk capacity may sound similar, but it’s different in an important way. The level of risk you are willing to take is not the same thing as the level of risk you should take. Risk capacity is the measure of the latter. It’s an objective determination of the level of risk you should be taking in your portfolio to achieve your financial goals. Factors like time frame/time horizon, cash flow, income requirements, debt, insurance and liquidity will determine your risk capacity. Marguerita M. Cheng is CEO at Blue Ocean Global Wealth (opens in new tab). She is a CFP® professional, a Chartered Retirement Planning Counselor℠, Retirement Income Certified Professional and a Certified Divorce Financial Analyst. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.