7.2.4 Risk and your risk tolerance

When you look at your investment options, consider both the risk characteristics of a particular investment and your risk tolerance.

Risk means that you might make high returns or you could lose your money. Your risk tolerance describes how comfortable you are with the uncertainty in your investments. Are you comfortable not knowing what you will make from your investments? How well can you handle losses if your investments lose value?

Before investing, be sure you understand your tolerance for risk and ensure that your investments match your tolerance for risk.

The following chart compares the risk characteristics of three typical products:

In general, understanding the risk characteristics of investment products can help you choose investments that match your risk tolerance, as well as your financial goals, age and investment timeline. If your portfolio contains a combination of assets, the risk of each asset must be considered together with the entire portfolio. A professional investment advisor can help with this.

Returns are compared for three investment products with different levels of risk. Description below.
Text version: Risk

All three investments start at $10,000. Over time, the exchange traded fund moves up and down in value. Its value rises the most rapidly but also goes through some large falls. The bond has smaller rises and falls in value, while the GIC moves up in value at a slower, steady pace.

Investment type Net percentage return over 10-years Price of shares over 10-years
Exchange traded fund tracking the Standard and Poor's Toronto Stock Exchange Composite Index (S&P/TSX) 6.68% $18,454.64
Canadian bond mutual fund 6.01% $16,136.62
5 year guaranteed investment certificate (GIC) 3.25% $13,847.66

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