Many times as we invest we forget about the “real” risks involved with investing.
I want to walk you through the biggest risks you need to consider when investing.
One of the biggest risks is not even planning, saving or investing to begin with!
As it has been said in the investment world for years, “It’s not timing the markets; it’s time in the markets.”
This means you better just get in. There really is no good time and you’ll never really be able to time the bottoms of the markets (aka – the best time to invest), I mean you may be able to guess, but you’ll only really know years later if it was a good call or not!
It’s like waiting for a good time to have kids!
Hahaha—anyone who has kids knows there is no good time to have kids! You just go for it, and jump in with both feet, and don’t look back!
Timing is never good for anything really, so you just have to take a leap of faith every time you do!
Now, it’s time for a closer look at the main risks you need to be aware of in relationship to your investment portfolio. Here is a list of risks your money faces when you invest in almost anything:
Inflation Risk: the goal is to outpace inflation. (Hint: At the time of
writing this, most GICs in Canada do not outpace inflation right now,
meaning you are technically getting a negative return on your money.)
Currency Risk: be aware when you are buying a stock in another currency, even if the stock goes up, you can still lose money if the currency
is devaluing against yours.
Interest Rate Risk: the goal is to reduce the risk of changing interest
rates, in either direction, which can affect the value of your investment,
depending on what you are investing in.
Volatility Risk: this is the risk of your investments fluctuating
dramatically.
Liquidity Risk: this is how easily you can sell your investment, or you
are locked in for a long time, or it takes a while to find a buyer for
your investment.
Political Risk: this includes the government’s control over a change in
legislation that impacts your investment.
This is by no means an extensive list!
You have to know the risks involved, and know your risk tolerance.
Don’t forget the golden rule of investing, which is essentially do your due diligence, or better phrased, ask a LOT of questions and get a LOT of answers before you put your money into something.
One way to protect against inflation is to hold stocks of publicly
traded companies (equities). As an economy grows and expands,
inflation increases, which means the costs of goods go up in price,
which typically means the value of the business also increases (note
that I didn’t necessarily say “profits,” although that can happen, too).
When you hold and own quality stocks in your portfolio, this will help protect your purchasing power over the long term.
Besides having a great financial planner, understanding that the only constant is change, diversifying your portfolio, dollar-cost averaging, understanding the main risks to your portfolio, and making sure to disclose your full financial picture to your coach, is there anything else you need to know?
No.
The answer for today’s lesson on investment 101 is no, you don’t need to know everything when it comes to investing, in fact – everything else is probably noise or a deterrent.
You can build a solid investment plan on these principles.
If you listen to your financial planner, dollar-cost average into your investments where possible, stay diversified, and create a plan and stick with it through annual reviews (note: I’m not saying just talk once a year—obviously life happens when life happens, so plan for and commit to a yearly review and goals with your financial planner), then providence will move with you.
You have to believe in your plan as well.
I really believe this, and I have seen it time and time again with my clients.
Okay, there is actually a lot more to say about this topic and millions of books to read; however, for the purposes of this conversation, I’m going to say this is what you need to know to get started.
You will learn everything else over time, and even if you dislike this topic, this 6-week investment series should be enough knowledge to at least point you in the right direction. {go back and read the past weeks posts at ellementsgroup.com}
Now, do you really want to know what the biggest risk is to you in investing?
The biggest risk is not doing anything, as I’ve alluded to already.
The biggest risk to your financial health is not investing at all!
Life will move on with or without you.
Not doing anything is like sitting in the middle of a sample sale or Boxing Day sale and looking at your perfect pair of shoes, in your size, at 50 percent off, and not being sure if they are going to drop lower in price, so you wait.
Meanwhile, the pushy redhead next to you grabs them and gets the deal of her life.
You waited, you let the opportunity pass you by, and ultimately, you are sitting there paralyzed in the middle of Nordstrom’s left behind, all alone, without your new fave shoes. End Scene. (I just shed a tear—please don’t let this be you!)
You need to take a chance and yes, it won’t always work in your favor, but more times than not, it will.
You gotta try, as doing nothing will get you nothing. That’s guaranteed.
“Losses aren’t guaranteed, wins aren’t guaranteed, but doing nothing guarantees you won’t win.” – Lisa Elle
Yes, I totally just quoted my self, but feel free to re-quote that!
Step out in fear or step out in faith – either way, step out! (By golly, another good Lisa Elle quote – BAM!)
and
Live Your Legacy!
xx Lisa
PS. If you want to join me for my Investment Planning Training then make sure you sign up at financialbliss.ca to get the Investment Planner {a beautiful investment workbook I created just for you!} and join the Money Makeover Facebook Group where I will walk you through how to plan your investments. The training is already in the Facebook group – waiting for you!
Looking forward to seeing you there!
