Investing is not my favourite topic, you guys know that. However, I’m a money blogger and investing is a vital part of managing your finances.

The last couple of months have been loony-tunes when it comes to the stock market. December sucked, January didn’t. And that’s precisely why I had an itch to talk about investing now. Investing risk and market volatility are one of the main reasons I hear for people not investing their money. I get it, watching the value of your portfolio take a nose dive is terrible.

Saving vs Investing

Saving money is great. In fact, it’s more than that; it’s essential. But saving money is not investing.

Saving money is the act of setting money aside for the future. Investing is attempting to grow that money, so you have to save less of it in the long term. Saving a million bucks is very cool, but saving $1,000 a month for 30 years and having it grow to over a million bucks is a downright miracle. Or just the power of compounding, but you get my point. Every dollar your savings grow is one dollar less you have to save.

What does that mean? Instead of keeping your savings in a ‘savings’ account, you want to step things up a notch and invest the money in the market. A typical bank will pay you less than 1% to keep your money in a high-interest savings account. That’s not a bad option for your emergency fund or short term savings but isn’t good enough for long term goals. If you are looking for a high-interest savings account, I recommend the  EQ Bank Savings Plus Account. Their current rate is 2.3%*, and you can set up an account for free.

In comparison, the S&P/TSX Composite Index (the most common benchmark for the Canadian stock market) has earned an annual average of 7.9% over the past decade.

What does that look like in real numbers…

$1,000 in a savings account earning 1% would be worth $1,105 after ten years

$1,000 invested earning 7.9% would be worth $2,139 after ten years

I’ll take option two, please! It’s not quite that simple, but you have a much better chance of earning more with your money in the market than you do by keeping it in a savings account.

Inflation Risk

Keeping your money 100% secure may sound incredibly tempting, especially when the markets are as volatile as they have been recently.

The issue is that the rate of return you’ll earn on a 100% secure investment like cash or GICs can actually mean a loss in purchasing power. Prices go up over time; we know this. Groceries, gas, lattes, etc. are more expensive now than they were ten years ago. To buy something worth $1 in 1986 (the year I was born), would cost you $2.24 in 2019.

That’s inflation.

Over the past ten years, inflation in Canada clocks in at 16.48%. That’s an average of 1.65% per year.


If the rate of return on your investment isn’t outpacing inflation, then I’m sorry, but your 100% secure investment is actually losing you money.

Investing Risk

The fear of losing money is the most common reason why people aren’t investing. Lack of knowledge is up there too, but loss is the big one.

If you’re in that boat, you’re not wrong to be concerned. A significant drop in your investment value will hurt, and no matter how young you are, it will set you back. But I’m talking about a SIGNIFICANT drop in value, think a 20% or more loss in a year. If you’re a millennial like me, then this would be what your parents were freaking out about in 2008. That year the TSX was down 35%. Ouch.

There is always going to be a risk when investing, but you can decrease the risk by avoiding extremes. We already talked about the risk of super secure investments; those are your low extremes. At the high extremes, you have investments like options, futures, penny stocks, leveraged funds, etc. Very few of us have the knowledge (or risk tolerance) to play in those realms. Your best bet is to find a balance in between the two extremes. You’ll be able to ride slightly lower highs and avoid the lowest of lows. There is absolutely nothing wrong with being an average investor.

Volatility vs. Decline in Value

There are two kinds of risk when it comes to investing. The one we all think about is loss. That’s when your investments take a nosedive, and you start stressing.

The second type of investment risk is volatility. In the most basic terms, volatility is how much your investment will go up and down over a set period. Two investment may earn the same annual return over one year, but they might take very different paths to get there. As can be seen in the chart below, the blue and yellow lines represent two different investments. Both earn the same average return (the black line), but the blue line is significantly more volatile than the yellow. At the end of the day you end up in the same place, but the problem with volatility is it plays with your emotions. The more volatile the investment, the more likely you are to get over eager and buy when prices are surging, or sell when prices are in a freefall. It’s way easier to control your emotions when you’re not witnessing such big swings.

Know Yourself

I’m not here to tell you exactly which investments to buy. There’s no ‘one size fits all’ option. The best advice I can give you is to know your own personality and how much risk you are willing to take. If a drop in value stresses you the heck out then look for lower risk options that will grow gradually without significant swings. Or, if you can check out and ignore your balances, then you can take it up a notch in the risk department. But remember, no extremes either way!

The worst thing you can do is not invest at all. The second worst is not acknowledging that investing is emotional. No matter how many times you are told to keep your emotions out of investing, it’s next to impossible in practice. Building an investment portfolio that works with your emotions will put you ahead in the long run, and keep you happy in the process.

*Interest is calculated daily in the total closing balance and paid monthly. Rates are per annum and subject to change without notice. 

When it comes to investing, sometimes the biggest risk is doing nothing. Find out how to balance investing risk with growing your money.

This post was proofread by Grammarly.

Image Credit: ZACHARY STAINES

7 Comments

  1. Investing is so scary! And so emotional! People who say “it’s just money”, are kidding themselves. It took a freaking massive leap for me to invest my money rather than keep it squirreled away in a TFSA (it’s still in one, it’s just an investment one now). I was so panicked about losing all my money, and I still am. But now at least I had a chance to come out ahead.

    • Sarah Reply

      It is so true. Unless you’re paying someone else to make all your investment decisions it is nearly impossible to not get swayed by emotions.

  2. It’s funny how some of us money bloggers really don’t like to talk in depth about investing even though we are doing it. And oh man, the emotions to toss more money in when things are sliding downward… I had no money to invest in 2008 and none to lose, so this next big downturn will be my first, and I’m trying to steel myself against the drops because I KNOW it’s the right choice long term. Realizing that savings accounts mean you’re automatically losing to inflation has helped me a lot process the investing bit.

    • Sarah Reply

      Learning the impact of inflation was a turning point for me as well and made it a little easier to take on some risk.

      I was the same in 2008, was just starting to invest, but it was also right when I started working in the industry so I saw how concerned people were.

  3. So true that the negative impact of non-action when it comes to investing isn’t considered often enough. In order for me to get over the fear of investing, I tried with small amounts to start, while continuing to educate myself with books and blogs. (Raiz in Australia or Acorns elsewhere is a good start). With more knowledge, I now know that my investment preference is to be diversified by buying a mix of Australian (my local market) and World index funds, rather than individual stocks. I feel I have read up enough to understand the rational logic to keeping up investing in a market downturn, so I feel ‘alert but not alarmed’ and confident I’ll be able to stay the course during the inevitable drop – even if it won’t feel fun at the time!

    • Sarah Reply

      Alert but not alarmed is a really good way of putting it! I also started small when it came to investing, and I try to keep my investment choices as simple as possible. I don’t have the desire to spend time researching individual stocks so I stay away from those and stick to index funds and ETFs.

  4. Very well said and great financial advice overall, Sarah! I agree that it’s about knowing your personality and what you are comfortable with. It’s always such a loaded question when people ask me what they should invest in because it’s not so simple. I wouldn’t want someone that is uncomfortable with investing attempting my strategy. This is just a great article and would be a benefit to any investor, especially those starting out. It’s realistic advice. Thanks for sharing!

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