Many people who begin investing will take a cautious approach, often investing $100 a month and saving the rest. And while this is great for those starting out, you might be outgrowing this approach.
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Here are some signs your next step should be investing more aggressively, according to experts. Next, check out some other signs you need to reevaluate your investing strategy.
Sufficient Savings and Zero High-Interest Debt
According to Gagan Saini, founder and director of acquisitions at JiT Home Buyers, when your emergency fund covers six to 12 months of expenses, and you’ve eliminated high-interest debt, it’s time to consider more aggressive investing.
“I’ve guided numerous clients through this transition, and I’ve seen how maintaining a conservative portfolio can actually harm long-term wealth building when investors are financially ready for more growth-oriented strategies,” he explained.
He watched this play out with a recent client who kept $200,000 in low-yield savings accounts out of market fear.
“After reviewing their stable income, solid emergency fund and long investment timeline, we shifted 60% of their portfolio into growth stocks and real estate investments,” he said. “Within 18 months, their portfolio generated returns that significantly outpaced inflation while maintaining a comfortable risk level.”
Thomas Maluck, certified financial education instructor and owner of Financial Flock, agreed. “In many cases, paying off high-interest debt is the best investment a person can make, because it comes with a guaranteed rate of return.”
Once those liabilities are cleared, he said there’s the question of a safety net. In other words, how much can you afford to lose if a risky investment doesn’t pay off? “People with an emergency fund and steady income that pays their bills can afford to take greater risks, because their needs are already met.”
Meanwhile, he noted that someone living paycheck to paycheck without any savings may feel like a large risk is justified, but they can end up in worse straits, too.
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Your Debt-to-Income Ratio Is a Crucial Indicator
When your debt drops below 28% of your income for housing costs and 36% for total monthly debt payments, you’re typically in a strong position to take on more investment risk, said Saini.
“In my work with first-time investors, I’ve observed that many miss growth opportunities by waiting too long after reaching these financial milestones,” he explained.
Your Age and Career Stability Also Play Major Roles
“I regularly see professionals in their 30s and 40s with secure jobs who could benefit from a more aggressive allocation,” said Saini.
He mentioned a healthcare client who recently increased her stock exposure from 60% to 80% after receiving a substantial promotion. “This adjustment aligned perfectly with her enhanced earning power and long-term financial goals.”
You’re Prepared for a Higher Degree of Risk
There’s investing aggressively for your financial goals, and then there’s taking on too much risk — if you know the difference and you’re not taking on as much risk as you could be, it may be time to invest more aggressively.
Maluck said someone with a long time horizon sitting on a portfolio of certificates of deposit may consider taking on a little more risk for better long-term performance. However, it’s important to do your research.
“The college graduate in their first salaried job trying to get a retirement account up and running by setting up a $50 per month deposit into an index fund will probably be fine,” he explained. “The retiree who reads about meme coins and transfers their nest egg into an app they can’t explain is probably walking a tightrope over catastrophe.”
Market Timing Shouldn’t Drive These Decisions
One thing you shouldn’t do is try to time the market — that is, invest while prices are low with the hope they’ll go up and increase the value of your investment faster.
“My most successful clients transition to aggressive investing based on their financial milestones rather than market conditions,” said Saini. “Just last quarter, I worked with a tech professional who started aggressive investing during market volatility. His systematic approach has already shown promising results.”
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This article originally appeared on GOBankingRates.com: 4 Signs Your Next Step Should Be Investing More Aggressively
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