Like most investors, you are probably aiming to make financial stability a reality with minimal investment risk. While 39%* of Canadians report owning stocks, investing in bonds and mutual funds is also popular. Some of the most common investments can help put your money to work for you. Having a path towards financial independence and wealth takes work. Having our Credential Securities team at Innovation Wealth on your side will help navigate this risk.
When investing there can be outcomes other than the ones you might anticipate. The possibility of these outcomes is how we describe investment risk.
A team with the right qualifications can help steer your investments through risks that include:
- Changes in the purchasing power of your currency
- Political shifts that shake up the market where your investments sit
- Interest rates on investments that may stunt your returns
- Liquidity risk that limits your ability to sell an asset for a profit
- Business risks for the company where you’d like to invest
Risks are a regular part of investing. So, let's look at ways to identify and manage risks you find in your investment journey.
Navigating Different Investment Risks in Your Portfolio
Purchasing assets at the right time takes due diligence. Awareness of interest rates, the company's management style, and potential investment risk are crucial. A comprehensive appraisal of investment products aims to make sure an investment meets your buying needs.
Research of a product helps you see what potential investment risk lies ahead. Reviewing a company’s performance history and financial records is a part of this process. Understanding the investment risk you take with an asset can help you make the best choices.
The process varies for different types of investments and the types of risks they carry. However, each layer helps prepare you for responsible ownership and management of an asset. As a result, you can enjoy a more balanced approach to investing with these concepts in mind.
Balance the Types of Investment Risk
The most common kinds of investment risk are interest rate, currency, and equity risk. Meanwhile, numerous other factors can impact the future of an asset. For example, you work hard to maintain balance in your portfolio, but currency risk is a genuine challenge.
Balancing an Approach for Retirement
Are you looking for the most returns but taking a conservative approach to reduce losses? Knowing your long-term goals is essential. Bringing balance between the types of risk you encounter can help you prepare for retirement, build substantial wealth, and afford the life you want.
If you invest in overseas markets, sound investments can help you avoid currency risk. However, a market with debt higher than its earner power can struggle with this risk. By not investing, the potential size of your portfolio could feel the impact. Additionally, your lifestyle in retirement could feel the effects. So, what does this mean for your investment strategy? It depends on how long you have until you plan on retiring.
Taking Investment Risk Earlier in Retirement Planning
When you are earlier in your career, retirement can seem a long way off. However, balancing risk means investing sooner to build a more robust pot of earnings.
In the earlier years, growth opportunities may be a more significant piece of your portfolio. Moreover, mutual funds and stock ETFs may be beneficial. You may be able to handle a more ambitious investment plan earlier on. Long-term returns may be a more significant part of your plan to manage investment risk at this stage.
Still, it is essential to own assets like bonds to help counter some volatility in your portfolio.
Getting Closer to Retirement
As you get closer to retirement, you still want to balance investment risk. This balance means taking on stocks and bonds with more conservative outlooks. These should help bring lasting growth while also helping income needs into retirement.
It is crucial to take on investments with potential but to find the stability that lets your goals stay within reach.
Calculating Your Investment Risk and Reward
Managing investment risk is needed for your portfolio. Making the best decisions is more than a guess. There are critical pieces to understand the risk attached to your investments. Moreover, there are even calculations that give a precise picture of risk.
There is investment risk with any asset. However, if you are a holder of stocks or bonds, you likely want a reward for any risk you take on.
If you were to purchase shares of $SNC after seeing it take a shallow dip, you would want to be holding it when the value recovers. If $SNC was at $35 when you bought it, but you think it could go to $39, the risk/reward is favorable. A purchase of shares could net substantial gains.
In calculating your risk/reward, you take net profit and divide it by the amount of maximum risk. So if $SNC went up to $39 per share, that is a gain of $4 on each of your shares. Divide the total profit by what you paid for the shares. This process reveals the risk/reward ratio.
Weigh Your Investment Risk Tolerance
Risk tolerance is a part of any investment plan. Understanding how comfortable you are with investment risk is essential. This part can help you map your steps for building sustainable wealth.
Create clear goals to help you move toward realistic success points. For example, set time horizons to create clear expectations for growth. Making up for losses is a part of the process, and time-based goals help with gains.
The Innovation Wealth Advantage
Credential Securities at Innovation Wealth's skillful team can help create your financial roadmap. There is no cookie-cutter approach - we build personalized strategies customized for you.
Investment and retirement planning, estate planning, wealth protection, and more are all possible with Innovation Wealth.
Contact Credential Securities at Innovation Wealth to improve your investment planning.
Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds and other securities are not insured nor guaranteed, their values change frequently and past performance may not be repeated. Credential Securities is a registered mark owned by Aviso Wealth Inc. Financial planning services are available only from advisors who hold financial planning accreditation from applicable regulatory authorities.