thefed, I wouldn't let the fact that you're a youngster who's averse to volatility get you down. I'm 24 and I hate volatility too. So my porfolio is mostly fixed income. Lower risk, lower expected return - but I'm willing to accept that because my personality just doesn't tolerate big fluctuations in my account balances from month to month. Mainly I am just a risk-averse kind of guy, and I would be fooling myself to pretend otherwise. Also, I find that I am worried by downside risk much more than I am encouraged by updside gains. Of course, this risk is also tempered by the risk that inflation will erode my purchasing power over time, unless I can earn an after-tax return that outpaces it. So I have to strike a balance.
There are many folks on the board who will say that you would be crazy to allocate anything less than 100% equities at your age. Personally, I think there is enough empirical evidence to suggest that 80/20 stocks/bonds gives you virtually the same amount of return for less risk than 100/0, but even so my allocation is nowhere near 80/20. I think you should also consider that many of the board's members have lived through a 25-year period of some of the greatest stock market returns the world has ever seen, so there may be some recency bias at work. The performance of most other countries' markets has not been nearly so great. I am not predicting that the recent US equities' performance is a one-time event (nor do I think that I can time the market on the micro or macro time scale), but I recognize the risk that the market's returns over the next 20 years may not look like the last 20 years. Since I'm unwilling to bear that risk, I limit my exposure to the market to a moderate amount, one that I am comfortable with.
Additionally, I do not like investments where I buy a sheet of paper with the hope that someone will want to buy that piece of paper from me for more money at a later date, based soley on his own expectations about what another person will pay him for it later on. Obviously, I am vastly oversimplifying things, but that is how I think most of the market operates. I prefer investments that generate cash and put it in my pocket. That covers bonds, dividend paying stocks, and REITs. You could also include MLPs and preferred stock CEFs, but I don't want the hassle. Maybe even individual real estate rental/investment properties once prices return to more reasonable valuations. Among those groups, I try to find assets whose returns are not highly correlated with each other. Yes, you can make the argument that corporate dividends are double-taxed, or that the firm could grow faster if it reinvested in itself rather than paying shareholders, or that I will miss out on small-cap stocks that can't pay a dividend, etc. etc etc. But it doesn't matter to me. I want to buy tangible cash flow. So that's what I do - I buy them with the expectation that I will never need to sell them, and they will continue to generate cash for me long into the future.
I also don't agree with folks who say "the best thing that could happen is the market tanks tomorrow, and you buy more shares for less money." I agree that over the last few decades in the US, this would have been a great approach. But hindsight is 20/20. Would that approach have worked in Japan in 1990? There were pleny of "buying opportunities" but I don't think you would've been very happy with what you bought at a discount. Again, I'm not predicting that the US will suffer a similar fate, but I don't think most people acknowledge that long periods of dismal returns are possible. Of course, I also think that anyone who tells you that the average amateur investor can accurately time the market is full of crap.
The bottom line is: I wouldn't let anyone encourage you to take more risk than you are comfortable with. Risk and volatility are very real, and some peoples' personalities tolerate them better than others. Based on your own risk profile, you need to find the right balance between stocks/bonds/cash, and it will probably not happen overnight. Once you actually experience some losses and gains, you will be in a better position to say "that wasn't so bad" or "that was awful" and you can adjust your portfolio accordingly.
