The Sleep Test: How to Know If Your Portfolio Is Too Risky
We often talk about diversification, time in the market, and passive investing. But one of the most useful ways to evaluate your portfolio is something I call the sleep test.
If your investments are keeping you awake at night, you're likely overexposed. Not necessarily in numbers, but emotionally.
Starting Out: When Big Risks Make Sense
When you're just starting out and investing small amounts, taking bigger risks can actually make sense. You have time to recover, and losses won't derail your life. I used to buy meme coins, try small-cap plays, and trade altcoins based on Reddit hype. But I couldn't sleep well. I was constantly refreshing apps, watching charts, checking news, wondering if someone was about to dump the coin at midnight.
That's not investing. That's gambling with extra steps.
When Everything Changes
As your portfolio grows and life gets more complex, everything changes. You might have a family, a mortgage, or a business. Losing a big portion of your net worth overnight isn't just stressful, it can have real consequences. This is where the sleep test becomes essential.
Right now, Bitcoin is my second-largest position after real estate. For many people, that sounds extremely risky. But for me, it doesn't break the sleep test. I understand what I'm holding. I believe in the long-term thesis. I'm not trying to time it. I've lived through the ups and downs before. A ten thousand euro swing in a day? I've seen that. But I don't panic, because I don't need to sell. That's the key difference.
On the other hand, if I were to go back into smaller altcoins or meme tokens like I used to, I know I wouldn't sleep well. That's how I know it's not worth it.
Finding Your Sweet Spot
Everyone's risk tolerance is different. Some people feel safer in bonds. Others are fine holding volatile assets like Bitcoin or single stocks. There's no right or wrong. You just need to find what works for you.
If you're new to investing, give yourself space to experiment with small amounts. You'll only know how something feels once you're actually in it. Losing money hurts. But it also teaches you where your limits are.
At the end of the day, investing is not just about numbers. It's about behavior. And if your behavior is being driven by stress, fear, or obsession, then your portfolio might need adjusting.
The Simple Rule
The sleep test is simple. If you can't sleep well at night because of what you're invested in, it's too risky for you.
Pass the sleep test first. The rest will take care of itself.
Want to build a portfolio that passes the sleep test? Check out my ETFs vs dividend stocks guide or explore safe, regulated brokers on Match My Broker.
Risk Disclaimer: All investments carry risk of loss. Your risk tolerance may be different from mine. This content is for educational purposes only and should not be considered personalized financial advice. Always do your own research and consider consulting with a qualified financial advisor.
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