Christine Benz, Morningstar’s director of personal finance, discusses signs of investors taking on too much risk or playing it too safe with their allocations. Benz emphasizes the importance of aligning risk tolerance and capacity, especially for older adults who may feel more risk-tolerant but have a decreased capacity to absorb risk due to age.

In a bull market, investors may fall victim to recency bias, believing that current market trends will continue. Benz warns against crowding into hot market sectors and advises diversification to protect against potential downdrafts. She stresses the need for investors to avoid emotional decision-making and adopt a set-it-and-forget-it mentality to prevent unnecessary portfolio tinkering.

Benz likens a portfolio to a bar of soap, noting that the more you touch it, the smaller it gets. She recommends an annual portfolio review to assess performance, rebalancing needs, tax planning opportunities, and charitable giving considerations. By following an investment policy statement and minimizing unnecessary changes, investors can benefit from a long-term investment strategy.

Read more at Morningstar: Your Investment Portfolio Is Probably Riskier Than You Think