When deciding how to save for retirement, investors have to steer away from both fear and greed. They need to ask: Do I have too much of my portfolio in stocks—or too little?

"When investing for their retirement, most people think too conservatively," says Patrick Egan, senior investment product specialist at Thrivent Financial for Lutherans.

"I'm amazed at how many people have their money going into cash or short-term bond funds for long-term retirement savings. They're leaving a lot of potential return on the table.

“While some people are risk-averse and need to preserve their principal with conservative investments, many people will benefit from the long-term capital appreciation that a strong stock allocation is more likely to give them."

Your risk tolerance is a measure of your unique ability to handle short-term price fluctuations—or volatility—and the potential for long-term loss. The process of assessing your risk tolerance and, consequently, determining how your retirement portfolio should be allocated among the major asset classes (stocks, bonds, and cash) is both science and art.

The longer you have until retirement, and the longer you expect to live in retirement, the more you may want to consider having a larger proportion of your portfolio in stocks. With lead times of five years and longer, you are likely to have adequate time to recover from a potential stock market downturn.

Generally speaking, stocks are the riskiest asset class. They have the greatest volatility and are the most likely to result in the largest gains and losses. Cash investments are the least risky, and bonds occupy the middle ground.

Egan suggests that “the classic, moderate, long-term investor should be anywhere from 50 to 60 percent in stocks. If you’re comfortable with a more aggressive approach, then you might consider having up to 80 to 90 percent of your retirement assets in stock during your 20s, 30s and 40s.”

Even those already in retirement should continue to include stocks in their portfolio. “You don’t use all that money the day you retire,” Egan says. “You’ve got to grow that money for some time. Most people will need to be, depending on their risk tolerance, 10 to 50 percent in stocks well into their 70s and beyond. Otherwise, you run the risk of outliving your savings.”

When you take a systematic approach to determining your time horizons and assessing your ability to tolerate risk, you can structure a retirement portfolio that’s right for you. The goal is to avoid the low returns that can come from being too timid or the painful losses that can come from being too brash.