Risk means you can’t be sure what you’ll make when you invest. It also means that you may lose money. Each person has a different feeling about how much risk they are willing to take. This is called your risk tolerance.

What’s a safe or low-risk investment to most people?

•  You know what you will make before you invest. There are few unknowns and no surprises.
  
•  You won’t lose any of the money you invest. You always know you’ll get back at least as much as you started with.
  
• It’s not hard to understand how the investment works. You know what you’re getting into.
• Your money grows slowly but surely. There are fewer ups and downs. A good visual is the old playground teeter-totter: Picture these investments at the centre of the teeter-totter, so it moves very little.
   
  Examples: Guaranteed Investment Certificates (GICs), Canada Savings Bonds (CSBs), savings accounts, T-bills, money market funds.

What feels like a risky investment to most people?

• You don’t know what you’ll make. You can make a good guess, but there is no guarantee. You may even lose money.
  
• It’s harder to understand. There are many things that can affect what happens to the money you invest.
• The value of your investment changes a lot. It could even drop suddenly and take years to climb back up again. Going back to the playground teeter-totter example, as you move out along the teeter-totter, the range of movement up and down increases.
  
  Examples: Stocks, mutual funds that invest in stocks, real estate.

How do the professionals see risk?

Investment experts look at risk a bit differently. They have tools that help them measure how risky an investment is. For example, to evaluate a stock, they look at things like:

• How often the stock price moves up and down
• How much a stock price changes compared to the rest of the stock market
• How widely the stock swings in price.

Of course, there’s a big difference between taking some risk when you invest and speculating. Most investments have some risk. There’s even a risk in doing nothing. If you put your money in a savings account, for example, it may not grow fast enough for you to reach your goals. You may even fall behind if the cost of living goes up faster than your money grows. Learn more now.     

Remember: Risk is different for everyone.

What feels risky to you may feel quite safe to the next person. That’s why investment professionals use more objective tools to look at the risks involved in an investment. Watch this video to learn more about risk with Claude Lamoureux.

Try these quizzes:
Do you know how to keep your money safe? Test your safety IQ with our Investing Safety IQ Quiz.
How much risk is right for you? Our quiz, What’s Your Risk Comfort Level?, can help you understand your tolerance for risk.