To CNBC's Jim Cramer, there is such a thing as making too much money. Investors should be wary if their stocks dramatically outperform the averages during a market-wide rally, as that could be a warning sign that their investments are too risky or too concentrated in one sector.

"The best time to figure out if you're making too much money, meaning you're taking on a dangerous amount of risk, is during a big market-wide rally," he said. "Use these runs as diagnostic tests to see if your portfolio has too little diversification and too much risk, or if it's A-OK."

Cramer said extreme gains could indicate that an investor has too many eggs in one basket. While concentrated investments can yield high returns in the moment, they leave investors vulnerable to losing everything during a sell-off, he added. For example, investors that loaded up on cloud software stocks before they peaked in November of 2021 "got blown out" with "massive losses," he said.

While admitting that he's not the most conservative investor, Cramer stressed that taking on too much risk is unwise. A portfolio that beats roaring averages can be another indicator that you're taking on needless risk, he said.  

"Say the rally comes and you make much more than the averages—the question is: why? Were you using margin, borrowing money from your broker to get that extra bit of leverage?" he asked. "That will help you crush the averages in a rally, but it will also get you crushed by your losses in a sell-off. That's just not worth it, people." 

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