Uncomfortable putting your hard-earned money in stocks -- even after the recent run-up that has helped recover a portion of the last year's losses? That's probably a good sign.

"When people as a group are the least comfortable is the best time to invest," said Gerald Appel, president of Signalert Corp., a money management firm in New York, and publisher of investment newsletter Systems & Forecasts.

Even though some investors, like Appel, are optimistic, many remain terrified that stock prices will plunge again soon. They may be right if the recent rebound is no more than a bear-market rally almost certain to fizzle in the face of continuing economic woes.

"The level of fear that was in this market is unlike anything I've ever seen before," said Adam Bold, founder of the Mutual Fund Store and author of the book "The Bold Truth About Investing."

It's not foolish to be fearful, particularly if you panicked when the market fell into the mid-6,000s. But your fear shouldn't be about the market -- it should be about you. The market is doing what it frequently does -- testing investors' true risk tolerance with a good crash.

If you're wise, you won't ask whether the market will go up or down over the next six months. (That answer is obvious: yes. The only thing that's ever certain about stock prices is that they're volatile, swinging both up and down on a regular basis.) The question to consider is what you should do about it. Here's a guide.

Measure your real risk tolerance. Risk tolerance is a mix of personality and practicality. Your sunny disposition may convince you that what goes down will eventually go up and you shouldn't sweat short-term market moves. But if you've got a near-term goal that's likely to be derailed by a market upset, practical needs come first.

To evaluate your practical risk tolerance, look at how much you need to finance near-term needs -- the goals that need to be paid for in the next three years. That could be next year's college tuition, a major repair for the junker in your driveway, or living expenses to handle a job loss or retirement.

No matter how risk-tolerant you are, that portion of your portfolio needs to be in bank accounts and short-term bonds that won't swing in value.

What if you have plenty of safe assets, but the market's plunge gave you ulcers, kept you up at night or left you screaming "Sell!" at your broker at the absolutely worst time? Then you may be risk-averse enough that you would be better off investing in safer vehicles, such as balanced mutual funds, even for long-term goals.

Do the math. But realize your risk tolerance is going to dictate your long-term investment returns. So if you've decided you're hopelessly risk-averse, you need to save comparatively more than someone willing to take more risks.

How much more? Probably two to five times more, depending on your age and your investment mix.

A 25-year-old trying to accumulate $1 million for retirement 40 years away would need to save about $700 a month if she invested primarily in bonds, earning an average of 5 percent a year. But if she invested primarily in stocks earning an average of 10 percent a year, she'd need to save just $175 to get the same result.

There's no way you can afford $700 a month? You might want to take a middle ground. Continued...