There Is No Such Thing as a “Risk-Free” Investment
Investing can feel overwhelming when you’re just getting started. Before choosing stocks or ETFs, there’s one step that matters more than anything else: understanding your risk level. This sets the foundation for every investment decision you make and helps prevent panic and stress over your finances.
Understanding risk also means recognizing that if something is a genuine investment (such as a stock or an ETF), it is not risk-free.
The only places money can truly be considered low risk are bank savings accounts, high-interest savings accounts, and guaranteed products like GICs. Once your money enters the market, even in what’s considered a safe ETF, risk exists.
You might be tempted to keep your money in a plain savings account or a standard TFSA (RRSP and FHSA in Canada are a different story) because it feels like there’s no way anything bad can happen to your money. I cannot advise against this enough.
Investing in stocks and ETFs is how your money actually works for you. Over time, investing allows your money to grow at a much higher rate than cash sitting in an account, even when you factor in market dips or temporary losses.
Why “Risk-Free” Investing Is a Myth
Even investments considered safe can still drop in value in the short term, be affected by market crashes, and take time to recover. That doesn’t make them bad investments. It simply means risk is normal and unavoidable in investing.
This is also why any promise of “risk-free exponential returns” should immediately raise red flags. If an investment or a person claims guaranteed returns, no downside, or massive growth with zero risk, you should walk away.
Promises like these often come from investing “gurus” on social media, private investment groups, crypto schemes, or outside connections offering unreal opportunities. They rely on people not understanding risk and freaking out when their investments fluctuate.
In real investing, risk and return are connected. Higher risk comes with the potential for higher but more volatile returns, while lower risk comes with steadier but more modest growth.
There is no legitimate shortcut around this relationship. If someone claims they’ve found one, it’s usually a scam, a pyramid scheme, or a situation where someone is being paid when you invest.
How Real Investing Actually Works (The Honest Version)
Real investing looks boring compared to scams, and that’s exactly how it should look. You aren’t meant to become wealthy or make massive amounts of money overnight.
Your portfolio will fluctuate, and the more diversified your investments are, the more your overall risk is balanced. Some years will produce negative returns or returns that are lower than expected. Patience is a crucial aspect of investing, and withdrawing your money during downturns locks in losses. Growth happens over time, as trends even out and the market recovers.
The goal isn’t to avoid risk entirely. The goal is to choose a level of risk you can live with and stay invested through. That’s why understanding your risk tolerance comes before picking investments.
People also tend to feel more confident investing in things they understand, use, or have taken the time to research. Always check the history of any investment you’re considering.
How This Connects Back to Your Risk Level
To find your risk level, ask yourself how much financial volatility you can emotionally handle, whether you would panic if your portfolio dropped 20%, and whether you want stability or growth right now.
There is no “best” risk level. Everyone is different, and you should always choose investments that align with your comfort level.
Investments take time to grow, but it’s normal to want to check in on them occasionally. I’ll be releasing a post in my Excel series that shows how to view your investment data in real time, so you have something you can open periodically for peace of mind.
Losses are normal. Market dips are normal. Pulling your money out locks in those losses. Don’t panic.
I highly recommend taking a free investor profile quiz before you begin researching investments.
You can find it here: Investor Profile Questionnaire.
The quiz is Canadian, but I believe it is still a great tool for anyone to determine their starting point.
One Last Important Note Before You Invest
Now that we’ve covered risk level and investing basics, it’s important to say this clearly: do not invest all of your savings.
Investing works best when the money is left untouched for a long time. Always keep a portion of your savings in a liquid and accessible form for emergencies.
Beginner Takeaway
Risk always exists in stocks and ETFs. Higher returns always come with higher risk. Guaranteed, risk-free market returns do not exist. Understanding risk protects you more than chasing returns. Do not invest your entire savings account.
Go take that quiz to figure out what type of investor you are. It should give you a clear starting point for the types of investments you should begin researching.