The “sleep well” test

When wondering how much money to invest in something, ask yourself this question:

     How much can I risk and still sleep well at night?

If the value of your investment started to decrease, would you likely panic and sell? Or can you afford to hold out for the long term if that's what makes sense? If the worst happened and you lost the entire amount you invested, would it result in a financial setback or financial devastation?

Use your answers to these questions to determine an amount that you can sleep comfortably with. Only YOU can decide how much you feel comfortable investing.

Original publish date: April 12, 2011