How Much Should You Have in the Stock Market?

The podcast episode centers on understanding risk capacity and risk tolerance for effective asset allocation. Amanda Kish, a certified financial planner, joins the discussion to differentiate risk capacity (structural, based on financial circumstances) from risk tolerance (emotional response to volatility). Key factors determining risk capacity include time horizon, income stability, and liquidity. Listeners are encouraged to perform a "gut check" to assess their true risk tolerance, considering past behavior during market downturns rather than relying solely on questionnaires. The discussion also covers behavioral finance, highlighting loss aversion and recency bias as common pitfalls, and advises investors to prioritize a portfolio they can stick with over time, even if it means lower potential returns.