A Look at Safe vs Risky Investments

A Look at Safe vs Risky Investments

Written by Kale Havervold
Fact-checked by Caitlin Wood
Last Updated December 7, 2017

While saving is likely the most important thing when it comes to building a good foundation of wealth, don’t discount the importance of investing. While many savings accounts are rarely higher than around 1% returns per year, investments can be much higher. Of course, with this increase in expected returns, there is also a ton of risk associated with investments and you could potentially lose the majority of, if not all, the money you invested.

However, most people take these risks as, simply having your money in a simple savings account simply isn’t enough to keep up with inflation and the cost of living, which always seems to be rising. So in order to ensure they don’t fall behind and continue to generate wealth, they invest.

Before you go thinking that every investment is incredibly risky, you should also know that there are plenty out there that are generally safe and will perform much better than a savings account, with a low amount of risk. This article will take a closer look at safe and risky investments and talk about what they are, benefits and costs of each, and more.

What Can You Invest In?

When it comes to what to invest in, there are a ton of different choices you can make. There are stocks, options, futures, mutual funds, index funds, GICs, and more. But, for simplicities sake, we will look at them in two particular groups; safe investments and risky investments. Each of these types of investments has their own intricacies and nuances. Here is a quick little breakdown.

Safe Investments

A safe investment is one that won’t garner you massive returns but is also unlikely to lose you a lot of money. These can often be depended on to make a little bit of money over time, but won’t turn you into Bill Gates. These are things like GICs, government bonds, corporate bonds, and high yield savings accounts. They are a great option if you want your money to do better than a traditional savings account, but don’t want to put it all on the line.

You can also try investing in an RRSP.

Risky Investments

A risky investment is one that is more volatile than a safe one, on both ends of the spectrum. Basically, if these go right, you can make huge returns on your initial investment. On the other hand, if the investment tanks, you could be left with nothing. These are generally things like stocks, futures, and options.

If you want something with moderate risk and moderate gains, you could look at things like investing in index funds. These are investments where instead of investing in a single company, you are investing in a group of companies. While the returns won’t be as high, the risks aren’t either.

Know your rights and risks when you sign a loan agreement.

Basically, every investment has some risk associated with it, but there is a large spectrum of risk with some being very safe that aren’t likely to lose you much, with some being extremely risky where the chances of making a profit are low and the chances of a huge loss are high.

As you can see, there are definite benefits to each investment, whether safe or risky. A safe investment will give you peace of mind that you aren’t likely going to lose it all, and it will still perform better than inflation most of the time. The big benefit of a risky investment is that if it goes well, you can expect huge returns.

There are, however, costs involved with each type of investment as well. A safe investment might feel like you aren’t making much progress at all, and a risky investment could fall flat and cost you a lot of money in a relatively short time.

Click here to find out if syndicated mortgages a safe investment.

Which is Right For You?

In terms of who should invest in what type of investment, there is really no right or wrong answer. Your choice of investment will depend on a couple of things. The first is your risk tolerance. If you are the type of person who likes to take risks and live life on the edge, you may be more willing to invest in a risky manner. On the other hand, if you have a low-risk tolerance, you might decide to stick with the safer investments in fear of losing your hard earned money.

Another thing that may dictate the right investment for you is how much money you have at your disposal to invest with. If you have a lot of money that you can afford to lose, you might be more willing to put it at risk in a riskier investment. However, if you barely have any to invest, you might rather see it slowly but steadily grow as opposed to potentially losing it quickly.

Also, your age and situation in life can also come into play when choosing what to invest it. Generally, younger people will often make riskier investments as they have less to lose and have a lot of time to recuperate if they lose big. People closer to retirement or with a family to take care of generally invest in a safer manner as they have people to take care of and don’t want to lose the money they have worked for decades to earn.

Of course, there is no need to pick just one. You can elect to invest in both safe and risky investments if you want a truly diversified portfolio. For many people, this is a decent idea as they want the chance to hit it big with a risky investment, but also want the safety that comes with keeping some investments in a GIC or in index funds. Of course, heavy thought and research should go into this decision as investing is a big step for someone to take if they have never done it before.

For a bit of inspiration, check out advice from 10 Successful Billionaires.  

Investing With a Low Income

While it might seem impossible to get ahead and invest when you have a fairly low income, that is not the case. When you have a low income, it is important to not to invest any money that you need, but investing is still a definite possibility. You definitely want to invest in fairly safe investments to ensure that your hard-earned money isn’t lost. You should also look to minimize fees and minimums, as these can often eat away at profits, especially with the safer investments that already don’t have a huge return. While the choice is yours when it comes to what you want to invest in, index funds are a good option as they are relatively safe, but often perform decently well as well. Of course, before thinking about investing, be sure to fully fund your emergency savings and tackle any high-interest debt you might have.

Read this for advice on how to live without a steady income.  

Ultimately, the choice is yours to make. It will come down to your risk tolerance if you can afford to lose your investments and your financial and life situations. Again, before investing at all, make sure you do your research on what to invest in and ensure that you only invest what you can afford to lose. There have been thousands of horror stories about people losing their entire life savings due to a bad investment, so don’t be another statistic.

In his over six-year career as a professional writer, Kale has focused on writing about finance, technology, cryptocurrency, entertainment, and sports. Kale's work has been published on Yahoo, RentHop, the Regina Leader-Post, LoansCanada.ca, and ReboundFinance.com. Kale loves to create a wide variety of personal finance-related content. Including everything from how-to guides to featured articles, to advice pieces and everything in between. Whether he’s writing about the newest piece of technology or providing tips to help people with their finances, Kale is passionate about educating Canadian consumers and making sure they have the information they need to make the best decisions.

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