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- While risk is necessary for rewards in investing, too much risk isn’t good.
- Financial planners generally suggest getting more conservative with your investments as you get older. If you don’t know your strategy or aren’t changing it with time, you might be investing too aggressively.
- If your investing strategy relies on owning a large amount of just a few stocks, you may be invested too aggressively.
- Other signs include having little cash on hand in an emergency fund, and trading often.
- Start investing today with SoFi »
Investing only works if you’re willing to take some risk.
While it sounds counterintuitive, risk is necessary for rewards, says financial planner and Facet Wealth co-founder Brent Weiss. “You cannot get the rewards that we’re looking to achieve long-term without taking on risk,” he says.
But, taking on too much risk isn’t helpful, either — it might make you unnecessarily anxious or leave you strapped for cash. Weiss says there are five key signs that someone’s taking on too much risk.
You don’t have any cash on hand
If you don’t have an emergency fund, you should build one before investing. According to Weiss, before taking on risk in your financial life, “you really should have a very solid foundation,” he says.
“It’s never been easier to buy stocks,” says Weiss. But just because it’s easy doesn’t mean it’s always the right move. “I see a lot of people that don’t have the emergency fund, they don’t have the positive cashflow, they haven’t protected their assets with insurance. That’s the No. 1 sign