When you invest, there’s always a chance your money could go up—or down. That’s risk. Most people think of risk as losing money. But risk is really about uncertainty. It’s the chance that your investment won’t perform the way you expect. Some investments are riskier than others, but they may also offer higher potential returns. Safer investments tend to grow more slowly.
Knowing how risk works helps you make smarter choices and feel more confident about where your money is going.
Risk isn’t just about numbers; it’s also about how you feel and what’s happening in your life.
Your risk tolerance is how comfortable you are with uncertainty. It’s shaped by:
Your age – Younger investors often have more time to bounce back from losses. Older investors may prefer stability.
Your financial situation – Can you afford to lose some money without it affecting your daily life?
Your personal circumstances – Big life changes like starting a family, switching jobs, or buying a home can shift your comfort level.
Your emotions – If market ups and downs make you anxious, you may lean toward safer investments.
Your goals – Are you saving for something soon or far in the future? That affects how much risk you might take.
A registered investment professional can help you figure out your risk tolerance and build a mix of investments that fits your comfort level. They’ll work with you to create a risk profile, which helps guide your decisions.
Your risk tolerance can change over time. That’s why it’s important to check in regularly with your advisor—especially after major life events like starting a new job, getting married or divorced, having a child, or planning for retirement.
Here are some common types of risk you might face as an investor—and what they mean for your money:
Your investments could lose value because of changes in the economy or events that affect the whole market.
Equity risk – Share prices can rise or fall.
Interest rate risk – Changes in interest rates can impact bond values.
Currency risk – Exchange rates can shift, especially with foreign investments.
Commodity risk – Prices of goods like oil or wheat can fluctuate and affect returns.
Some investments are harder to sell quickly. You might not be able to access your money when you need it—or at the price you want.
Putting all your money into one type of investment or company can be risky. Diversifying—spreading your money across different types—can help reduce this risk.
Also called default risk. If you invest in bonds, there’s a chance the company or government won’t be able to pay you back. Look at the bond’s credit rating—AAA is the safest.
If you earn interest or dividends and reinvest them, you might have to do so at a lower rate than before, which can reduce your future earnings.
If your investments don’t grow faster than inflation, your money could lose buying power over time.
Your investment timeline might change unexpectedly. For example, if you lose your job, you might need to cash out earlier than planned.
This is the risk of outliving your savings. It’s especially important when planning for retirement.
Investing outside Canada can expose you to extra risks—like political instability, currency changes, or unfamiliar regulations.
You can’t eliminate risk entirely—but you can manage it. Here’s how:
Know your comfort level: Take our investment risk profile quiz and talk to a registered investment advisor to understand what level of risk suits your situation.
Diversify your investments: Spreading your money across different types—stocks, bonds, mutual funds, and more—can reduce risk.
Ask questions: Talk to a registered investment advisor about your options. They can help you build a plan that fits your goals and comfort level.
Stay informed: Review your plan regularly and adjust as your life changes. Keeping your advisor updated helps ensure your investments stay aligned with your needs.