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EPISODE 127 – Are You Taking More Investment Risk Than You Think?

If you have been watching your accounts climb over the last few years, it is easy to assume your investments are “working” and your risk level is fine. Markets are up, statements look good, and nothing feels urgent.

The problem is that most people only discover how much risk they are actually taking when the market turns in the wrong direction. By then, the experience can be painful enough to cause emotional decisions that derail a sound financial plan.

In Episode 127 of the Last Paycheck Podcast, CERTIFIED FINANCIAL PLANNER® professionals Archie and Rob Hoxton talk about one of the most common blind spots they see: the gap between how much risk you are comfortable taking and how much risk you are actually taking in your portfolio.

This episode is a practical guide for anyone who wants to understand their risk exposure before the next downturn arrives.

Why Risk Feels Different When Markets Are Up

Archie frames the discussion around two core questions:

  1. How much risk are you truly comfortable taking
  2. How much risk are you actually taking right now

If you do not have clear, data based answers to both, you are at higher risk of being surprised during the next bear market. Surprise and fear are usually what drive investors to sell at the wrong time.

The goal is not to eliminate risk. That would leave you exposed to inflation and short of your long term goals. The goal is to align your risk exposure with your financial plan and your emotional tolerance, so you can stay invested through both good and bad markets.

Systematic vs Unsystematic Risk: What Are You Really Exposed To

The episode walks through two major types of investment risk:

  • Unsystematic risk
    This is the risk tied to a specific company, bond issuer, or sector. If you hold a single stock and that company runs into trouble, your portfolio can suffer badly. Diversification reduces this type of risk by spreading your money across many holdings, industries, and regions.
  • Systematic risk
    This is the risk of the entire market or system. In a true bear market or financial crisis, nearly all stocks fall together. You cannot diversify this risk away completely. You manage it through asset allocation, time horizon, and behavior.

A concentrated portfolio in just a handful of positions may look fine in a rising market, but it is exposed to both kinds of risk at once. A broadly diversified portfolio, built around your plan and withdrawal needs, behaves very differently when volatility returns.

How Much Could Your Portfolio Drop

One of the most practical points in the conversation is that every investor should have at least a ballpark answer to a simple question:

“If we experienced another 2008 style downturn, roughly how far might my portfolio fall”

Most investors, and many advisors, do not have a precise answer. They may speak in generalities like “moderate risk” or “balanced allocation,” but they have not quantified what that means in real dollar terms.

Rob and Archie describe the value of using planning and risk tools that:

  • Analyze your actual mix of funds and holdings
  • Estimate potential downside in severe historical scenarios
  • Compare that with your stated comfort level and goals

You may discover that your portfolio is much riskier than you thought, or that it is actually too conservative to meet your retirement objectives. Either way, you are better off knowing before the next storm, not during it.

Balancing Risk, Return, and Your Life Goals

The episode also emphasizes the tradeoffs involved in dialing risk up or down:

  • If you take very little risk, your expected return may only be a few percent per year. That may require working longer, saving more, or spending less.
  • If you take very high risk, you might see higher long term returns, but also deeper temporary losses that are hard to live through, especially near or in retirement.

The right balance depends on your age, savings, time horizon, and the lifestyle you want to support. A realistic financial plan needs to answer two questions together:

  • What rate of return do I need to reach or sustain my goals
  • What level of downside volatility can I reasonably accept along the way

Those answers then drive your asset allocation and diversification choices, rather than gut feelings or headlines.

Why Now Is the Time To Check Your Risk

We are currently several years into a strong market. That is exactly when it pays to pause and ask:

  • Has my risk level crept up as markets have risen
  • Am I relying on past performance without understanding downside risk
  • Does my portfolio still match my time horizon and withdrawal plans

Archie and Rob point out that corrections of 10 percent tend to happen every couple of years, and bear markets of 20 percent or more tend to show up every five to six years. They are not rare, and they are not permanent, but they are inevitable.

Getting clear on your risk profile now can prevent panic and regret later.

Final Thought: Do You Know Your Real Risk Profile

Ignoring risk does not make it disappear. It only makes the next downturn more stressful.

Taking the time to understand:

  • How your portfolio is currently invested
  • How it might behave in bad markets
  • Whether that aligns with your goals and comfort level

is one of the most important steps you can take for long term financial confidence.

You do not have to become an investment expert to get this right. You simply need a clear plan, honest expectations, and a risk level that you can live with when markets are rising and when they are falling.

If you are not sure whether your investments match your comfort level and retirement goals, now is the time to find out.

Use Hoxton Planning & Management’s Investment Alignment Worksheet to, map your current allocation, compare it to your true risk tolerance, and identify where you may be taking too much or too little risk. Then, if you want a professional second opinion, schedule a conversation with the Hoxton team to review your results and your overall retirement plan.
Download the Worksheet
Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.