Risk questions are everywhere: How much stock is the right amount of stock in my portfolio given my age? Am I too conservative if I have x% in bonds today? I'm risk averse, will I be able to retire if I shy away from stocks? As I age, should I take some risk off the table, be more conservative?

Boy do I wish there were easy answers to the questions of how much risk to take on.

When it comes to risk, it boils down simply to what you want to accomplish in your life and how much you're willing to roll the dice to do it.

Suppose you're risk averse. You will have to accumulate an enormous nest egg if your goal is to retire and live off that nest egg without the benefits of capital appreciation (and it's associated risk). That's the reality of inflation protected interest income. It's very expensive. Just replacing your current income would require upwards of fifty times that income in these securities. And for that you don't ever get the chance to buy that retirement vacation home or start that foundation. You just get to keep living at your same standard of living for as long as you live.

OK so maybe that's a bit misleading. I didn't actually spend the weekend in Monte Carlo. I did, however, spend the weekend learning about and doing a few Monte Carlo simulations.

For the uninitiated, Monte Carlo simulations are a statistical process for forecasting event outcomes. The process involves repeatedly running a scenario whose outcome is determined by the interplay of various parameters. The parameters themselves are subject to some statistical variance. The Monte Carlo process repeats the scenario process any number of times using these random variations and tabulates the results, yielding a distribution of likely outcomes.

What I set out to do this weekend was educate myself in the ways of using a spreadsheet to perform Monte Carlo simulations on various mixes of securities. I wanted to know - I still want to know - just what sort of diversification scheme is most suited for me and my investment style.

It's not hard to understand that taking on more risk can result in a much larger nest egg down the road; but that taking on that risk also greatly increases the chances of going bust. Alternatively, shunning risk greatly reduces the chances of going bust, but your portfolio's future value can be severely limited. Monte Carlo simulations against various mixes of low and high risk securities in a portfolio can help us to understand what future portfolio values we might expect at a given level of risk.

My models are producing interesting results. Not altogether unexpected, but they do illustrate the importance of being well diversified and accepting some amount of risk.

Remember my discussion from the other day? The one I had with my buddy Bill about his early retirement?

I happened to run into him yesterday while I was out and about. I asked him what he was thinking about his early retirement offer. His reply:

It's just not in the cards for me. I figure I'll have to work at least another ten years before I can think about retiring. I'm going to pass on the offer.

I'm sure Bill's done his homework. If he says he can't afford to take the early retirement package his company is offering then I believe him.

I was sad for Bill though. He's in his mid-50's. His kids are grown and out of the house. I'm fairly certain his house is paid for because he's a conservative guy. Bill and his wife live a simple life. They don't drive fancy cars. Their house is adequate, maybe even a bit large for just the two of them now that the kids are gone. It's certainly no McMansion. It's not new by any stretch; and it's nothing special by today's standards.

As I write this the market is off to another bad start. It must be Monday.

Last week's big sell off has been unsettling. The reverberations continue. These aftershocks won't go away any time soon. We're entering a period of increased volatility; and that's going to have a tendency to raise stress levels. Are you prepared?

Where's your tolerance for risk these days? Chances are, and this is especially true if you had big money invested in March-2000, your appetite for risk isn't what it used to be. Your portfolio probably isn't what it used to be either.

You're probably more diversified. You've spread your investments among three or more asset classes to insure yourself against the markets' wild rides.

If so then pat yourself on the back because you're prepared for what's to come. Your plan now is to watch your expenses in order to save a little extra. You can then use this money to invest when things seem to be at their worst.

Yesterday I wrote about some possible reasons why the stock you bought with great hopes and anticipation for wild appreciation did not in fact appreciate. One of the reasons I offered was that the stock had been bought "into strength", meaning the purchase had been made during a time of price appreciation in that particular stock.

In the article Why did my stock go down?, I wrote:

If so you bought into strength. This isn't necessarily a bad thing; but it does mean you need a lesson in investing discipline. Consider this experience just such a lesson. Learn from your mistake.

One of the key ideas embedded in that paragraph is that of investing discipline.

Discipline is all about having a plan and sticking with it. It's understanding that investing should be a cold and emotionless process. In reality many of us find it nearly impossible to be disciplined investors, to invest without emotion.

• Some of us are just too afraid of losing money. We're risk adverse.

Has this happened to you? It has to me. I see a stock mentioned in the news, or someone I know and trust says she's making a killing in XYZ stock. I should get some. I buy. It goes up. I buy some more and it goes up some more.

But soon after, the stock starts falling.

This quote put a smile on my face I'll be wearing for a long time.

Swensen is troubled about what he sees as the immorality of the American investment business as it's practiced today by both CEOs and the investment management community. He writes, "Overwhelmingly, mutual funds extract enormous sums from investors in exchange for providing a shocking disservice." By that he explains that mutual funds charge their investors big fees and usually fail to deliver returns that beat the market.

To me the same could equally be applied to anyone who would ask you for part of your hard earned money in exchange for his or her advice. It's the most important investing lesson of all. You can't pay someone else to take responsibility for your nest egg. If you do they'll just take your nest egg and tell you the results they're delivering are first rate.