4 Signs You Have Too Much Investing Risk and How to Fix It

Investors have more risk in their portfolios right now, according to monthly survey by Bank of America, as quoted in Investment News. Higher allocations to U.S. and European stocks, including volatile technology stocks, are creating the riskiest portfolios since 2001.

Admittedly, 2025 is a difficult time not to bet heavily on growth stocks. After all, AI chipmaker Nvidia recently became the world’s most valuable company. And the S&P 500 and the tech-heavy Nasdaq Composite are fresh off new highs. The investing climate is largely rewarding risk—and most investors are happy to accept the gains.

In these millionaire-making times, the approach of Omaha’s Oracle Warren Buffett comes to mind: “we simply attempt to be fearful when others are greedy and to be greedy when others are fearful.” This contrarian strategy can limit your exposure to a major downturn when you’re heavily concentrated in high-risk positions.

4 Signs Your Portfolio Is Too Risky

Risk is a funny thing for investors. The thresholds for too much or too little risk are mostly set by your personality and preferences. You may tolerate a 90% allocation to stocks, while your neighbor resists having a single dollar in equities. This makes it tough to define a risk test that applies to everyone.

Even so, there are signs you may be stretching the boundaries of your risk tolerance. Four are below.

1. You have a high stock allocation and minimal cash. On October 19, 1987, the S&P 500 fell 20%. Between February 20, 2020, and March 23, 2020, the S&P 500 lost about 35%. History proves it: If you invest mostly in stocks, your portfolio value could drop 20% or 30% in days or weeks. Historically, big downturns have always resolved themselves, which means the simplest recovery strategy involves doing nothing and waiting for the losses to reverse. Here’s the problem. The do-nothing strategy may not be possible if you don’t have cash on hand—because you might be unlucky enough to lose your job before stock prices recover. With no job or cash savings, you may have to reach into your investment account to pay your bills. That requires selling stocks when prices are down, which undercuts your long-term returns. You may realize losses and reduce your opportunity to benefit from recovery gains later.
2. You own mostly stocks, and you watch your portfolio very closely. Checking in on your portfolio throughout the day signals a high level of concern about your investment performance. Yours may be a healthy concern, especially if you trade frequently. Or, it may indicate an attachment to high returns—which can easily turn to anxiety in a market crash. Consider how you might respond to a 30% value decline in your portfolio. If thinking about it causes physical symptoms like a quicker heartbeat, a stock-heavy investment account may be too risky for you.
3. You plan on liquidating investments soon, but your portfolio value changes often. High-risk investing is problematic when you plan on withdrawing from your investment account soon. A sudden reduction in stock prices lowers the liquidation value of your securities. As a result, you may have to sell 20% or 30% more shares to raise the cash you need. That could derail your entire financial strategy.
4. You have a high concentration of stocks and can’t afford your portfolio value to drop by 40% tomorrow. If there is any reason you can’t accept the possibility of an extreme value decline that happens quickly, a high concentration in stocks is probably too risky for you.

How To De-Risk Your Portfolio Safely

Sticking to a conservative investment approach long-term can produce better results than deviating from an aggressive strategy. This is why aligning your portfolio risk with your tolerance is so important. If you need to de-risk your portfolio, do it by taking profits, changing the allocation on new investments or pausing your dividend re-investments.

1. Rebalance. Rebalancing is a tried-and-true de-risking strategy. It involves selling off positions that have grown in value and reinvesting the profits in something more conservative. Use a target asset allocation to guide you on this activity. If you don’t have a target allocation, see: “How to decide how much to invest in stocks vs. bonds” (https://www.forbes.com/sites/catherinebrock/2025/05/27/easy-asset-allocation-how-much-to-invest-in-stocks-vs-bonds/). Rebalancing can reduce your risk profile and lock in some nice profits—but only if you do it while stock prices are still strong. You lose some of the profit opportunity if you wait until stock prices decline. Note that if you are investing in a taxable account, you will owe taxes on the realized gains.
2. Change allocations for new investments going forward. If you don’t want to take profits, you can change how you invest new deposits into your account. Say you are investing in a 401(k), with 75% of your contribution going to stocks and 25% to bonds. You could reverse that split temporarily to reduce your relative stock exposure and increase your bond exposure. This strategy also works best if you do it while stock prices are strong. You don’t want to invest less in stocks when their prices are lower—that’s like missing out on a good sale.
3. Pause dividend reinvestments. If you don’t have enough cash on hand, you can fix that by temporarily pausing your dividend reinvestments. Let the cash accumulate in your account or reinvest it in a short-term Treasury fund. Once you have a comfortable cash balance, restore your automatic reinvestments to minimize any long-term effects on your strategy.

Investment Risk FAQs

Here are the answers to the questions retail investors are asking about investing risk.

Does investing have risk?

Yes, investing has risk. Any invest-able asset with the potential to increase in value also has the potential to decline. You can manage the risk by holding a diverse mix of investment types for long periods.

How risky should my portfolio be?

Your portfolio should be only as risky as you can handle. Conventional wisdom says you should take on more risk when you are younger and less as you age, but this rule isn’t universally appropriate. The right risk level for you is conservative enough that you will stick to your strategy even in the worst of times.

How can too much risk affect my investments?

Too much risk makes for a volatile portfolio. Big value declines can work against your long-term returns, because it takes a larger gain to make up the lost ground. Say you have a $100,000 portfolio that dips by 25%. Now it’s worth $75,000. To get back to $100,000, you need a 33.3% increase—since you are starting from a lower base.