Since you don't know whether stocks are going to rise or fall, the one smart thing you can do today is limit your investment risk.
How much can you afford to lose of the money you've got in stocks? If you haven't been in stocks, how much can you afford to invest for a better long-term return? This should always be money you can afford to do without for a while.
But few investors make this calculation because "the public is not aware of any risk in stocks," marvels economist Peter Bernstein, author of "Against the Gods: The Remarkable Story of Risk" (John Wiley & Sons, $27.95).
That's the dangerous legacy of the '87 Crash and the '90 Crashette. Both markets "proved" to the innocents that downturns in stocks are brutal but brief, and sure to be followed by incredible gains in price.
Today we hold this truth to be self-evident: If we stay in stocks we will retire rich.
That hypothesis probably isn't wrong, if you stay there long enough. Over rolling 20-year periods, the stocks in Standard & Poor's 500-stock average haven't lost money since 1926 (with dividends reinvested), according to the Chicago market research firm Ibbotson Associates.
Over 10-year periods, they lost money only 3 percent of the time. The further away your retirement, the safer stocks appear to be.
Perversely, however, the longer you stay invested, the riskier stocks become. At 45, you've got an apparently "safe" 20 years ahead, if you plan to retire at 65 and change your stock holdings to something more conservative.
But at 60, with retirement five years away, your chance of losing money by 65 has climbed to 10 percent -- a number clearly visible on the worry screen. In the years between 60 and 65, your risk of loss rises rapidly.
What's more, we cannot possibly foresee our lives in 20 years. The further ahead we try to plan, the greater the chance that fate will shove a stick in the spokes.
In the stock market, years of high returns generally are followed by years of low returns, yielding an average payoff of something in between.
We have no idea what that long-term average will be. The stocks in Standard & Poor's 500-stock index have yielded 10.9 percent annually since 1926, 12.4 percent since the end of World War II and 17.6 percent since 1982.
If average investment returns turn out to be something less than 17 percent, we'll face some droopy years ahead -- although there's no telling when.
None of this means you should sell your stocks and nestle into bank accounts. One of many possible outcomes is that stocks might soar again.
Alternatively, they might go nowhere for a while or wander into a multimonth or multiyear decline. No one knows.
For that reason, you need to assess your financial position. Among the rules of the road:
1 -- Don't hock the farm. Divide your life into a safe zone and an at-risk zone. Homes fall on the safe side. A classic bad decision is to borrow against your home equity and fling the proceeds into stocks. Even if it works, it's wrong because you took too big a chance.
2 -- Don't overinvest. If you have any money in stocks that you're going to need within the next five years, get it out right now, says Michael Stolper, whose San Diego firm finds money managers for people of wealth.
Stolper's rule of thumb may sound conservative to you. But during that period, a downturn might hit and not recover by the time you need the cash. Retirement funds can stay in stocks. Real money needs to be more at hand.
3 -- Don't stake everything on stocks. Today's incredible passion for the easy gain could turn into "the crack of doom," says market strategist Raymond DeVoe, author of the witty and popular DeVoe Report.
DeVoe defines that "crack" as the moment when you know, for sure, not only that you are going to lose money, but that you are going to lose a lot more money than you can afford.
4 -- Prepare for a sudden, unexpected market change. U.S. stocks -- the obvious worldbeaters now -- looked like losers 15 years ago. Fifteen years from now, you might be glad you bought foreign stocks or even bonds.
Diversification doesn't promise the best returns, but it keeps you in whatever game is going on.