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10 Warning Signs It’s Time To Reduce Your Investment Risks

A well-balanced strategy now can keep you from a financial yo-yo diet.

By Stacy Garrels

Edited by Laura Ratliff

Updated March 26, 2025

Assuming some investment risk now makes sense if you're just starting out in your career. You have plenty of time to ride out the market's highs and lows and reap the long-term rewards.

But the closer you are to retirement, the more vulnerable you are to sudden loss. If you're checking in on your own financial stability and things aren't as solid as you'd like. it's officially time to derisk. Derisking is a strategy that involves shifting some of your higher-risk assets into lower-risk ones.

While there's no one-size-fits-all approach, here are some signs that it might be time to ease up on your investment risk.

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You're approaching or already in retirement

As retirement looms, reducing exposure to high-risk investments like options trading, leveraged ETFs, and high-yield bonds (junk bonds), is critical as your portfolio has less time to recover from sudden market shocks.

Shifting a portion of your portfolio to more conservative investments, like bonds or stable, dividend-paying stocks, provides a cushion against volatility and builds a more predictable income stream.

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Required minimum distributions have begun

The IRS requires you to withdraw money from your tax-deferred retirement accounts, such as 401(k) plans and traditional IRAs, at age 73.

These required minimum distributions (RMDs) must be taken annually, regardless of financial need. You may be forced to sell some more aggressive investments at a loss to meet RMD rules. That's why reducing risk now is so essential; it helps you protect your portfolio long-term and avoid depleting it too quickly.

You've reached your financial goals

If you've successfully reached your target retirement number, congrats! That's a major feat.

Now, it may be time to shift your funds to more low-risk investments. The goal is more about wealth preservation than income generation. This approach will help you enjoy your retirement without worrying about market swings.

You've had a big life change

Significant life changes, such as job loss, terminal illness, or death of a spouse, can do a number on your financial situation.

If your ability to work or generate income has changed, it's wise to reassess how much investment risk you can afford. A more conservative approach may be needed to preserve capital.

You have significant assets

Your portfolio has performed well, showing substantial growth over the years. Protecting such gains is crucial when you are on the cusp of retirement.

Continued gains — more money — is always desirable, yes. But even more desirable is not losing what you do have. Derisking and diversifying into more conservative assets can safeguard your wealth.

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Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

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Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.¹ This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>. Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement. Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.00% (as of 12/27/24) APY² Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings. on your uninvested cash³ Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks. All investments involve risk and loss of principal is possible. Robinhood Financial LLC (member SIPC), is a registered broker dealer. and the ability to buy and sell stocks 24 hours a day, 5 days a week.

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You've secured enough guaranteed income sources

Pension plans, annuities, and other guaranteed income sources can provide a retirement safety net. These sources often cover essential expenses, reducing the need for a 100% play-it-safe portfolio.

With a cushion, you can balance your portfolio with a blend of stable and higher-risk assets.

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Market volatility makes you queasy

If the market's highs and lows keep you up at night, it's a sign you need to ease off. Your emotional health is just as important as your financial health, and if Wall Street is making your wallet go queasy, it's time to take a step back.

A more conservative financial portfolio can help you maintain your financial well-being — and sleep better at night.

The opportunity cost is a wash

Too many people view all investment opportunities through green-tinted lenses. The fact is that some high-yield investments are so risky that the potential loss far outweighs any gains.

For retirees and near-retirees, shifting to stable investments can offer a better risk-reward profile.

You can't directly manage the investments

You may be managing all the money now – banking, investments, budgets – and doing a bang-up job. But what happens if you can no longer manage the household coffers?

An estimated 15% to 20% of people over age 65 have cognitive impairment, and that figure climbs above 25% for those over 80. Will your spouse, partner, or other family be able to take the helm?

This is yet another reason to involve a financial planner, someone who knows your investment style and can offer guidance.

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SoFi is a Member, FDIC. ⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>.

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You think you'll work in retirement

You can't depend on working in your retirement years. And if you're leveraging high risks with a "backup plan" of working, you need to face reality.

LinkedIn and Reddit boards are rife with stories of would-be workers who cannot find employment, be it in their career field, freelance consulting, or at their local Walmart store. Older workers have it much harder, with ageism rife but seemingly impossible to prove.

Beyond market realities and age bias, there are other hurdles. Many elderly Americans are in caregiving roles, providing full-time care for family members.

And your own health may be the biggest job obstacle yet. People aged 65 and older are disproportionately impacted by chronic conditions such as heart disease, arthritis, or diabetes. Nearly 95% have at least one chronic condition, and roughly 80% have two or more.

Bottom line

If you're in your 20s, a diet of high- and medium-risk investments can help you build wealth and create a stable financial future.

But as retirement draws near, it's time to shift gears and focus on maximizing — and enjoying — your wealth, not risking it all in the pursuit of more.

Derisking doesn't mean you have to stop growing your money altogether. The right moves in retirement can build your wealth in smart, sustainable ways and help with tax mitigation and estate planning.

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Author Details

Stacy Garrels

Stacy enjoys writing about fintech, consumer deals, the side hustle economy, and random tomfoolery. She's personally tried more than 100 different gigs, including being an Uber driver for one afternoon.