Has Investment Risk Changed?

There has been a lot of hype recently in regard to cryptocurrency, silver, the GameStop fiasco, and even interest rates. A lot has changed. There are a lot of things changing. Yet, “the more things change, the more they stay the same”¹…

What am I talking about? Cryptocurrency didn’t even exist at the turn of the millennium. Oil prices went negative last year… not to mention that we are stuck in the pandemic of the century.

This is all true. However, we forget sometimes to look at investments for what they are.

An investment is an asset or item acquired with the goal of generating income or appreciation…. because investing is oriented toward the potential for future growth or income, there is always a certain level of risk associated with an investment.²

Perhaps it is no wonder why we do this. Even on Investopedia, you have to get down half-way on the page before you see the mention of “risk.”

There is no such thing as an investment without risk.

Even not making an investment has risk. It carries the risk of losing purchasing power as the price of goods go up.

The bottom line is this. A lot has changed, but the risk and reward relationship has not. “You deserve the return you get.”—Aaron Kennedy, CFA®

In other words, if you are willing to take a certain amount of risk, then you should expect a certain amount of return for that risk.

There is another misconception today. Perhaps because we are too far removed from the 2008 financial crisis or the tech bubble bursting in 2001. No matter, the underlying risk of a particular type of investment has not gone away.

Dividend paying stocks are replacing CDs due to low interest rates. Gold and silver are advertised as safe. Take the Risk Pyramid below and tell me if those statements make sense.

Currencies, much less cryptocurrencies fall just below your Vegas funds. If you buy Silver, should you expect high returns and low risk???

Risk has not changed. And I bet your risk tolerance has not changed.

Our advice is this:

1. Get your risk right—how much could your investments go down before you can’t sleep at night?
2. Address your goals—your investments should proactively support your present situation, future and goals
3. Stay the course—don’t let the changing world change your plan

There is no investment without risk, but the worst risk is not really understanding what risk you have. Start today with our free risk assessment and check off the first item on the list.

1. Jean-Baptiste Alphonse Karr
2. Investopedia