4 signs you’re being too conservative with your investments

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  • While investing conservatively might sound good, it can actually be a risky move — your money may not get the returns you need to meet retirement or other long-term goals. 
  • If you have a large sum of cash bigger than what you need for an emergency fund, you may not be investing enough.
  • Being invested too conservatively might mean that your portfolio isn’t gaining value over several months, or moving much at all. 
  • And, if a portfolio is full of investments like bonds and money market funds, it might be too conservative and need more aggressive investments, like stocks, for a chance at higher returns in the future.
  • Start investing today with SoFi »

In investing, being too conservative isn’t as good an idea as it sounds. For investments that rely on returns to grow, like retirement savings, being invested with the right amount of risk is essential. 

“Being too conservative may actually be the riskiest thing you can do,” says CFP and Facet Wealth co-founder Brent Weiss. In his experience, the right amount of risk varies from person to person — it depends on how much risk someone can emotionally handle, how much risk your long-term plan allows for, your age, and how much risk someone really needs to take to make investments grow to their target goal.  

“The consistent way to build wealth long-term, especially for retirees to maintain their purchasing power [in retirement], is by having the risk of stocks and equities in your portfolio,” Weiss says. 

Weiss says there are three sure signs to look for in your portfolio to know if you’re invested too conservatively. 

You’re sitting on a large amount of cash 

Stockpiling cash outside of what’s needed for your emergency fund and savings goals might mean that you’re not investing enough.

“I can’t necessarily fault people for this, but what I’m seeing today is too much cash on the sidelines,” Weiss says. “There’s this idea of three to six months cash in an emergency fund, but now I’m actually seeing like nine months or 12 months because investors are skittish,” he says. 

Having a full emergency fund is important, especially in turbulent financial times like these. They’re an important safeguard against high-interest debt when facing surprise hardships, and are a foundational thing everyone should have. While the amount someone should have saved varies by their individual situation and comfort level, there is such thing as saving too much.

While 12 months’ worth of savings might be right for some people, it may mean missing out on potential returns for others. The right size for an emergency fund will vary for each person or family, but saving too much for your needs could mean missing out on valuable investing growth. 

All of your investments are bond funds or stable-value funds

Not all investments have the same level of risk. For most people, it takes a combination of investments with different risk levels to strike the right balance between growth and stability.

“If you look at your investment accounts and everything says bond fund or money market fund or stable-value fund, you’re probably too conservative,” Weiss says. While those three are more conservative investments, things like stocks and equities are considered more aggressive investments. Each portfolio needs a balance to keep money growing. 

“There’s a risk-reward relationship when you invest,” Weiss says. “You cannot get the rewards and returns that we’re looking to achieve long-term without taking on risk.” 

If that’s the case, Weiss suggests changing your strategy. “Think about how to diversify that into appropriate stock investments to make sure you have a little bit of risk. That’s where we’re going to get the returns.”

The value of your portfolio isn’t trending upwards

If you are invested too conservatively, it will show — your portfolio won’t have changed much over time. An easy way to tell is by comparing your statements from several months ago. 

“I never advise people to look at their statements, but if you look at your portfolio in March, April, and May, and it’s at the same value, that tells me that you’re too conservative,” Weiss says. While it may be hard to watch the ups and downs short term, the results tend to trend upwards over long periods of time if invested properly. 

“Unfortunately, the admission price to long-term returns is risk and volatility,” he says. “If your portfolio is not moving, you might want to go back in and add a little bit of risk to make sure that you’re participating to get the long-term returns of the stock market.”

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