With a net worth of $7 million at 49 years old, I’m wondering if I should scale back my risky portfolio or just keep going

The problem with pensions largely being a thing of the past is that most of us now have to save for retirement on our own. And that means that we need to bear the risks of stock market fluctuations to build up respectable nest eggs.

I always tell people that if you don’t take on any risk in your portfolio, you’re likely to end up with a savings balance you’re not so thrilled with come retirement. But you may reach a point when you’re ready to unload that risk and fall back on safer investments.

That’s the situation this Reddit poster is in. He’s 49 years old with a $7 million net worth outside of his primary residence. And he’s wondering if it’s time to dump his risky investments given the amount of wealth he’s managed to accumulate to date.

My first inclination is to tell him he’s okay to scale back on risk. But I’d also need to know more about his goals before giving that advice.

You need to look at the big picture

Our Reddit poster here has the bulk of his retirement savings in index funds — 64%. He also has 28% of his assets invested in a single company, and then 8% in bonds and money market accounts.

The one issue I have with his asset mix is the 28% allocation to a single company. That’s too high.

My philosophy is that no single company should comprise more than 5% of your portfolio. Some experts might feel differently, but most would probably agree that putting 28% of your assets into a single company isn’t a wise idea.

But at this point, the poster wants to know if he can effectively move his entire portfolio into less risky and more stable assets, like bonds. And what I’d say is this: If he feels he can spend comfortably during retirement with $7 million to work with, then why not? But if he has loftier goals or is planning to retire in the next couple of years, then he may want to keep a decent chunk of his savings in stocks for the potential upside.

Ideally, if he won’t be retiring for a while, I’d like to see him keep at least 50% of his portfolio in the stock market because that still buys him plenty of protection, and because he could lose out on a lot of gains by pulling out now. But I’m also a firm believer that one of the things our money should buy us is peace of mind.

If this person is happy with his $7 million nest egg and doesn’t want to risk losing it, then he’s earned the right to pull out of the stock market completely. And to be fair, even with a conservative portfolio, he might see decent gains in the coming years. So if he’s not retiring right away, he might easily end up with $8 or $9 million even without stocks to fuel his portfolio’s growth.

Get professional input

The fact that this poster has managed to accumulate $7 million by age 49 means he’s done a lot of things right. But the fact that he has 28% of his portfolio in a single company leads me to believe that he could use some guidance on asset allocation and diversification.

For this reason, I’d recommend that the poster here consult with a financial advisor and see what recommendations they have. An advisor can help this person, and anyone else in a similar boat, rebalance their portfolio in a manner that’s perhaps less risky without giving up too many potential gains.

All told, I do think it’s okay to say no to risk once you’ve reached a certain point in your savings journey. But let’s also be clear that this poster clearly took on risk in his portfolio for many years to get to $7 million. If you refuse to take on any risk from the start, you might end up very unhappy with the amount of money you retire with, so do recognize that unloading risk is a privilege most people have to work their way up toward.