When Should I De-Risk My Portfolio? and How?

Nathan Ota - A Really Good Night
A Really Good Night by Nathan Ota
When I first started investing I knew that I had decades of work ahead of me and I knew I wanted to reach financial independence quicker than the average investor. Knowing this I swung for the fences, I knew that if I failed I might potentially have to start over and lose some time and money, but if I had a little bit of luck on my side I could get a jump start on my savings.

Luckily for me, I got a jump start on my savings instead of stumbling out of the blocks. Now that it's been a number of years with an extremely aggressive portfolio I've been wanting to start protecting my nest egg more than just focus on pure growth.

Why Do I Want To Lower My Risk?

  • The last 5 years the market has had an incredible run, I know that eventually there will be a pull back and I also know that I'm not smart enough to miss it, if I get into safer assets I shouldn't feel the sting as much when it happens.
  • Being in aggressive stocks is great when they go up, but when they go down just as sharp you start to learn your risk tolerance. Over time my portfolio has gotten larger but at the same time the volatility has grown too. Seeing your balance increase by 10k in a day is nice, but if it drops by 10k you learn what kind of stomach you really have.
  • I'm starting to get lazy with my investments, I realize that I don't want to spend as much time watching over them and keeping current with every company in my portfolio. If I move my assets to larger less volatile companies then I won't need to keep as close of an eye on them.

How Do I Get Out Of Risky Assets?

Once I decided that I wanted to reduce the risk in my portfolio I had to figure out a good way to sell the most volatile assets. Luckily for me some of this happened without any input from myself. I used to own stock in various 3D printing companies. While I think it will gain stronger foothold in the next few years the market has not liked them very much this year. Luckily I had an exit strategy setup and when the price dipped my positions sold so I locked in some profit.

That's exactly how I would recommend getting out of a position if it's gone up for a while then just put a tight stop loss on it so that if it goes up you can raise the stop loss a little higher or if it goes down then it sells and you are out like you wanted.

What Do I Invest In Instead?

I have mentioned in the past that I started investing in the stock market by picking some big blue chip companies. Large companies that won't disappear overnight are an easy way to lower your risk in the market. I've slowly started moving some of my investments to dividend stocks since these companies are well established and are less likely to go under if any sort of crash happens. These types of companies are also typically less likely to fluctuate as much in market corrections. Also, the reasoning of other blogs such as Dividend Mantra have slowly started converting me over the years.

I also took a large chunk of money and invested it in Vanguard's VTSAX which is an index that tracks the entire stock market. If companies fail they are removed from the index, if they do well, then you participate in it. You're never going to hit anything out of the park, but over the long term you will always come out ahead. Here is an excellent article that explains this much better than I can. This is truly an investment that I can set and forget.

This doesn't mean I will not still be investing a portion of my money in higher risk assets, it just means I will be using less of it for high risk investments.


  1. Good job of you. I learned a lot from this post. And I am planning to invest something but don't know what yet. Thanks for this.

    1. Thanks Hannah, I'm glad this helped. Individual stocks can be pretty risky which is part of the reason I don't usually recommend specific ones. A lot of investing has to do with your personal preferences which can change over time, like how I am starting to feel the need to lower my risk and put more money into index funds. I still plan to invest some in high risk high rewards stocks, but not as much I as I used to. I think I sleep better at night knowing that if one or two companies do something terrible my nest egg is still in tact.

      I hope your investing goes well!

  2. Our family recently discovered the dividend stocks community and since then have been slowly working towards de-risking our portfolio. It's been less than a year since the de-risking began but I can tell you than I sleep better at night knowing I'm taking the right steps to better my investment future. My confidence in my portfolio grows by the month as I view my portfolio transform slowly.

    Best wishes in your personal journey! AFFJ

    1. AFFJ,

      I think that dividend stocks are great in that they are solid companies that you don't really have to worry about as much. But in my heart of hearts I still believe that growth stocks will get me to financial independence sooner, the trade off is that I worry more about my portfolio because of the volatility.

      Right now I'm actually more focused on my writing than I am with my portfolio which is why I'm trying to make things more automatic.

      Good luck on your journey!