Beyond Conservative vs. Aggressive: Rethinking Investment Risk

By Ryan Goldenhar

Some professionals think about investment risk in binary terms: conservative or aggressive. They either sit on excess cash because market volatility feels unsafe after years of building wealth, or they take outsized bets on speculative investments because a diversified portfolio seems to be growing too slowly compared with the equity gains that got them here.

In our opinion, both are fundamentally flawed approaches.

The Comfort Conundrum

Think about your own investment behavior. You likely feel comfortable holding a concentrated position in your employer’s stock, even when it represents 50% or more of your net worth, but the idea of putting that same amount into a diversified portfolio of stocks you don’t know as well feels riskier.

The truth is, a concentrated position in any single company carries significantly more risk generally than a diversified portfolio, but familiarity creates a false sense of security. You know the company and you understand the product, so the investment feels safe.

Meanwhile, some of the same people who are comfortable with massive single-stock concentration also keep hundreds of thousands in cash, earning almost nothing, because the stock market seems too risky.

What Concentration Really Means

In our opinion, any investment that represents 10% or more of your net worth is generally considered concentrated. For this calculation, we typically exclude home equity and lifestyle assets like second homes, boats, or planes, and look exclusively at cash and investments.

In practical terms, concentration is one way to potentially build wealth, and diversification can help manage risk and may help preserve the wealth you’ve created. Just because you have concentration doesn’t mean you must diversify immediately; doing so might eliminate the potential for even greater wealth creation.

But concentration can carry real downside risk. According to FINRA, concentration risk is “the risk of amplified losses that may occur from having a large portion of your holdings in a particular investment, asset class or market segment relative to your overall portfolio.”

When your concentrated position goes up, your net worth can increase dramatically. When it goes down, though, the same amplification works against you.

Weighing Returns vs. Regret

We try to help our clients avoid binary thinking. Instead of selling or holding everything, we work on a spectrum: a little bit at a time, over multiple years, to reduce potential taxes while being mindful of investment risk exposure.

We’re not trying to maximize returns at all costs; instead, we’re trying to help minimize potential regret.
If you hold your concentrated position and the stock goes up over time, the risk turns out to be a benefit. If the stock falls dramatically, though, the risk was realized, and you’ll likely regret not selling at a higher price.

When it comes to investments, regret may lead to more financial decisions you might regret later. If you watch your company stock drop 70%, you may be more likely to make your next decision from a place of fear or overcorrection.

Finding Your Right-Fit Risk Number

Rather than asking simply, “How much risk should I take?”, we try to help clients answer the question, “What level of risk allows me to sleep well at night while still making meaningful progress toward my goals?”

For some people, that looks like holding more concentration than a financial textbook would recommend, because they genuinely believe in their company’s trajectory and can emotionally handle the volatility.

For others, it means diversifying more aggressively, because the anxiety of watching their net worth swing by hundreds of thousands of dollars in a single day isn’t worth the potential upside.

Understanding Your Balance Point

Conservative investors face the risk of not keeping pace with inflation, of running out of money in retirement, or of missing the compounding that supports long-term wealth accumulation.

Aggressive investors face the risk of catastrophic loss, of taking so much damage in a downturn that they can never recover, of making decisions from a place of desperation.

Leaning too heavily to one side or another can be the real risk. We help clients find their balance point: enough risk to potentially build wealth over time, but not so much that a bad year or a bad decade derails your entire financial life.

That balance point looks different for everyone, depending upon your age, income stability, expenses, family situation, and emotional relationship with money.

Building Financial Resilience: Strategy and Patience, Not Luck

Financial resilience isn’t about taking the most risk and happened to win. It’s about building a portfolio designed to withstand a range of market environments, that doesn’t rely on perfect timing, and that allows them live their life without constant anxiety about daily market movements.

That might sound a little boring, but financial security isn’t supposed to be exciting. It’s supposed to enable you to make decisions based on what you really want, regardless of what the market is doing on any given day.

Keep visiting our site and follow us on LinkedIn to stay up to date with all our latest thoughts. Feel free to reach out directly if you have questions about your specific situation!

Frequently Asked Questions About Investment Risk

How concentrated is too concentrated?
Any single investment representing 10% or more of your net worth is generally considered concentration (excluding home equity and lifestyle assets). There’s no magic number where concentration becomes unacceptable; it always depends on your risk tolerance, financial goals, and ability to emotionally handle volatility.

What’s wrong with holding cash?
Holding some cash is prudent, but holding too much can allow inflation to erode your purchasing power over time, causing you to miss the compounding that builds long-term wealth. The question is how much is “enough” for your emergency fund and near-term needs versus how much is excess that should be invested.

How do I know if I’m taking too much risk?
If you’re losing sleep over your portfolio, checking prices multiple times a day, or making emotional decisions based on short-term movements, you’re probably taking more risk than you can handle. The right amount of risk is the amount that lets you live your life without constant financial anxiety.

What’s the best way to diversify a concentrated stock position?
Generally speaking, gradually, over time, with a tax-efficient plan. This might mean selling some shares each time new equity vests, using tax-loss harvesting, or timing sales around your overall income.

This content is provided for general informational and educational purposes only and does not constitute personalized investment advice or a recommendation of any particular investment or strategy. Investing involves risk, including the possible loss of principal. No investment strategy can eliminate risk or guarantee outcomes.