Editor's note: Russia just invaded Ukraine, adding more fear to the already turbulent markets...

The S&P 500 Index fell more than 2.6% on Thursday after the news broke, but finished the day up 1.5%. Overall, it's down 10% since the beginning of the year – firmly in "correction" territory.

Now, no one knows for sure how the situation in Ukraine will play out. But volatile moments like this are exactly why we always urge folks to be prepared for a wide range of potential outcomes.

In today's Masters Series – originally from the January 4 Digest – editor Corey McLaughlin shares some relevant advice about limiting your risk... and protecting your capital through the volatility...

Most People Never Listen to This Simple Portfolio Advice (Don't Be One of Them)

By Corey McLaughlin, editor, Stansberry Digest

How much risk are you taking?

If you're like most people with money in stocks, your answer to this question is likely along the lines of "a lot," "probably too much," or – if you're confident – "not very much."

At the very least, your description is probably a subjective word or phrase that "feels right" to you. And as veteran investors frequently say, what feels right can often be the worst decision you could possibly make...

To put a fine point on it, I haven't met many individual investors who can quickly put a specific number or a grade on the amount of risk in their portfolios. But in today's Masters Series, I'll explain how to do just that.

You see, most people think they're "sort of" ready for a market crash... But the difference between reality and what you think is often large.

If you're managing your own portfolio, you might be taking twice as much risk as the benchmark S&P 500 Index. That is to say, if a bear market strikes and the S&P 500 falls 20%, your portfolio could drop 40%.

Our founder Porter Stansberry shared a good example of this in a classic essay republished in Steve Sjuggerud's DailyWealth newsletter on December 30...

I'm frequently astounded (and terrified) when I talk to individual investors and they start describing their strategies. A portly gentleman wearing overalls told me proudly at a Casey Research meeting once that he'd mortgaged his house to buy junior mining stocks. He wasn't worried about the pullback (which became a grinding, four-year bear market and probably wiped him out) because he was diversified across more than 30 different tiny companies.

On the other hand, your allocation could be more conservative than you want... meaning if the market returns about 27%, as it just did in 2021, you might only see returns that are half or three-quarters of that.

Alternatively, that might be fine with you. You might not care about beating the market at this stage of life. That's OK, too... It depends on your goals and how comfortable you are risking a particular amount of money.

The point is, though, most people don't even know if their portfolio aligns with their goals. Even more rarely are they able to measure their risk. As promised, here's how to do it...

In the essay I mentioned earlier, Porter describes two simple pieces of investment advice that most individual investors have never considered... and it has nothing to do with which stock you should buy.

The first piece of advice is to truly understand how much risk you're taking...

You can do a risk assessment of your portfolio by simply measuring the weighted average of the "beta" of your individual positions. Without getting too deep into the details, beta basically measures how much a stock moves relative to the market as a whole.

As Porter explained in his essay...

A beta of "1" means that a stock has the same volatility as the market as a whole. A beta of "0.5" means a stock is half as volatile as the market. And a beta of "2" means it's twice as volatile as the market.

You can generally find the beta of any security by using widely available databases, though we suggest you use our new Stansberry Investor platform... You'll find the five-year beta of any stock in our database in the "SnapShot" section of that particular stock.

For example, today, the beta of Stansberry Hall of Famer Microsoft (MSFT) is 0.9, about in line with the market... Meanwhile, Hershey (HSY), another longtime favorite, has a beta of 0.4. That means it has been less than half as volatile as Microsoft ‒ and the market ‒ over the past five years.

Find this number for each stock you own. Then, according to Porter, here's what you do next...

Once you understand how much risk you're taking, I suggest rebalancing your portfolio so that you take less risk than the S&P 500. Remember... you want to be cautious when others are greedy.

The S&P 500 returned 31%, 18%, and 27% in the past three years, respectively – with the 2020 onset of the pandemic being the "low" performer. Heading into 2022, you could say people were being greedy.

Since the start of the year, the S&P 500 is down 10%. Stocks have sold off broadly, but you could have softened your losses if you measured your risk. As Porter continued...

You can lower your risk by selling down risky positions and building cash in your portfolio. You can also lower your risk by adding hedges that have a negative correlation to the stock market, like short selling positions.

The second piece of advice has to do with position sizing...

Out of all the studies Porter has read over the years about portfolio risk-management strategies, he believes no tool is more powerful than "risk-based position sizing." As he said...

In other words, whether you followed hard stops, trailing stops, or [volatility-based] trailing stops... the biggest improvement to portfolio performance came from using a position-sizing strategy that equalized the capital at risk in each position.

This year, give yourself the best chance at success. Rebalance your portfolio so that you're risking the same amount of capital in each position.

To do this, you can use each stock's beta to adjust your position size. As Porter wrote...

If a stock has a beta that's less than 1, then increase your position size until multiplying its beta by that factor will equal 1. And do the inverse for stocks with betas that are greater than 1. Doing so will give you a risk profile that's equal to the markets. If you want less risk, then standardize to a beta of 0.99 or less, depending on how much risk you want to take.

The important thing is to make sure that you're taking the same amount of risk in each position. Nothing else you can do this year is more likely to increase your portfolio's return.

If you're comfortable with a portfolio that will swing more wildly than the S&P 500, for better or for worse, you'll want to try to hit a beta of greater than 1...

Remember, a beta of greater than 1 is more volatile than the market, and a beta of less than 1 is less volatile than the market.

If you haven't done this exercise before, give it a try today...

At the very least, once you're done, I guarantee you'll have a better handle on your portfolio – and the varying amounts of risk of the individual positions within it.

You'll know specifically how much risk you're taking on compared with the overall market. Then you can think about adjusting your allocation based on your goals and comfort level... or you can ignore our advice entirely and go about your day.

Most people will do that. Don't be one of those people. As Porter concluded in his essay...

As I've said before, you also want to make sure you're investing for the long term in high-quality, "capital efficient" businesses. That's the best, safest, and surest way to get rich in stocks. But don't neglect these two important steps.

I know hardly any of you will take these concepts to heart... Fewer will actually take action – even though it's one of the simplest and easiest things you can do. But they can make you a fortune over your lifetime.

You might also do this exercise and find that all is well – and that your current investment mix aligns with your goals. If so, that's great... You've been doing the right thing all along.

Good investing,

Corey McLaughlin

Editor's note: Risk allocation and position sizing will help you protect your portfolio from extreme volatility. And no matter what the markets do next, our team will be by your side to provide the best information available...

This Monday, February 28, some of our top analysts will gather for our second-ever Stansberry Research Town Hall event. You'll hear their unscripted, unedited thoughts on the markets right now and what you should be doing... no sales pitch involved. We're still finalizing the specifics, but stay tuned to your inbox on Monday for details on how to access this event.