How to assess an investment's risk

There's no such thing as a 100% safe investment–the level of risk varies a lot from one investment to another. And this does not depend only on the product you choose; the market and your own behaviour also have an impact on the level of risk of an investment.

Product-related risks

Some investments are safer than others. Term savings, for instance, carry a very low risk of not generating the expected return because they're normally guaranteed by their issuers.

Buying stocks from a sole company can make you a millionaire if this business turns out to be very successful. On the other hand, you could find yourself in a very precarious financial position should it go bankrupt. Hence, the importance of holding a well diversified portfolio.

Market-related risks

When the stock market undergoes a downturn, it often means that most stocks on the market have lost value. Interest rates can also be suddenly drop–something no one can escape.

Financial markets hinge on a number of economical variables such as inflation, the trade balance, domestic production and the available labour force. A single one of these factors can cause the stock exchange to fluctuate. If the market shifts, so will interest rates.

Investor-related risk

As an investor, you have an important role to play in making the right decisions at the right time. For example, if you give way to panic when the market collapses and sell your stocks at a much lower price, chances are you will lose a tremendous amount of money. That's why it's essential to fully understand your level of tolerance to risk and to determine your investor profile. Note that, when you choose a managed solution, this risk is managed by portfolio managers.

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