The stock market's crash has thrown just about everybody for a loop. But even after suffering major losses, your portfolio could still have a lot more risk than you can afford to take -- and if things go badly, you'll regret not having taken action now to prevent catastrophe.

With all the attention and effort that investors spend toward finding the best stocks, what's far more important in determining your overall returns is your overall asset allocation among broad investment categories like stocks, bonds, and cash. Although finding a dream stock can boost your overall portfolio, most ordinary investors nevertheless find that their good and bad stock picks even out over the long haul.

Given that asset allocation is so important, how can you figure out if you have it right? That's a topic that Fool retirement expert Robert Brokamp addresses regularly in his Rule Your Retirement newsletter -- so, let's take a look at some of the basic principles he talks about with his subscribers.

Why not to change
Before we talk about smart reasons to make changes to your asset allocation, it's helpful to know some of the factors that you really shouldn't consider in changing your investment strategy. Here are a few:

  • Market conditions. Neither fear of losses nor a greedy desire to reap rewards should be your prime motivation for cutting or increasing stock exposure.
  • Short-term circumstances. Don't hike your stock exposure just because times are good, and don't cut back simply due to temporary weakness in the economy.
  • Herd mentality. Just because everyone else is buying or selling doesn't mean you should. Your own particular circumstances differ from anyone else's, so the appropriate response for you to take will also be different.
  • Individual stock decisions. Don't let investing decisions about particular stocks in your portfolio affect your allocation. For instance, if you decide to dump shares of terrible recession stocks like Sirius XM Radio (NASDAQ:SIRI) or Citigroup (NYSE:C), don't leave that money in cash -- find a more promising stock. Similarly, if you think that the time is right for beaten-down cyclicals like Caterpillar (NYSE:CAT) and Eaton (NYSE:ETN), don't let your overall allocation to stocks rise to unacceptably risky levels.

With those warnings in mind, there are some good reasons to take a closer look at your asset allocation. They all have more to do with you than with external factors like the market.

Is your portfolio too risky?
The key to changing your asset allocation is your own personal financial situation. In general, if you foresee taking more money from your investment portfolio in the near term to make ends meet, then cutting back on stocks is smart. On the other hand, if you can meet your income needs from other sources, then you can afford to take the higher risk involved with stocks to boost your overall returns.

Many factors can actually cut either way. For instance, if you have more than enough saved to cover your expenses in retirement, then you have two equally good choices. You could move all your money into safe investments, sacrificing growth but locking in a secure lifestyle. On the other hand, you could also afford to take some risk with your extra money -- money you could afford to lose but that could boost your retirement lifestyle or leave something left over for heirs after you die if you invest well.

Note that these same factors could lead you to make changes within asset classes, too. To generate more income from your portfolio, for instance, switching from high-growth stocks like Apple (NASDAQ:AAPL) to solid dividend payers such as Johnson & Johnson (NYSE:JNJ) and Southern Copper (NYSE:PCU) can be just as effective as moving from stocks to bonds or cash.

Do it now
If you need help assessing your asset allocation, you should consider taking a closer look at Robert's advice in our Rule Your Retirement newsletter. Every issue is jam-packed with information you can use to guide your investing and get you safely to your goals. Even though it's a subscription service, it's easy and inexpensive to join -- and you can even get a free 30-day trial to scope out the service without obligation.

Regardless of what decision you end up making, it's crucial that you take a look at your portfolio now to make sure your money is allocated in a way that's consistent with your financial plan. The way the markets are right now, if you wait even a short time, it could be too late.

For more on protecting your retirement, read about:

Fool contributor Dan Caplinger has pored over his asset allocation lately. He doesn't own shares of the companies mentioned in this article. Johnson & Johnson is a Motley Fool Income Investor recommendation. Apple is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy will help you keep what you own.