All investments come with risk and if someone offers you different advice, RUN!

Investment risks are something you shouldn’t lose sleep over but when you have your future diversified you pull back the sheets and for some people it’s a hard pillow to crash on.

I’ve found that over the years the more I learn about investing basics the better I feel about our investments but it’s an on-going process because money comes and money goes.

Who invests your money?

Most of you may also invest like we do through a financial advisor, bank, mortgage company or other government facilities and knowing the investment risks you face are critical.

Property investment risks and retirement investing risks are typical of most people in the market today. Yes, your property comes with investment risks especially if you buy high and need to sell when the market is low.

Risk will always be there

You risk losing money and the same goes with anything you put your money into, the risk will always be there. Being smart with your money takes on a whole new game when it comes to investing as opposed to just budgeting to save.

Luckily we have a great advisor who takes the time to educate us on all the questions we ask him but we also do lots of reading which means  we are invested in our investments and you should be too.

What is risk and return?

Risk simply the possibility of your investments tanking or increasing which would be a risk worth taking but you never know what the return will be. Everyone who invests wants a low risk high return portfolio but in a perfect world.

Investments go Up and Investments go Down

There will always be ups and downs as we encountered the last month with our investments. We are bunched in the higher-risk category with our investments which means we may see higher returns but risk a huge drop.

As you may have read in our October net worth update our investments dropped over $13,000 and that was that. Luckily in November we gained back the money we lost but we didn’t earn anything more.

Invest in your Investments

I guess the name of the game is to keep your head above water as long as you can hoping that the investment process will keep building you a sand castle and not digging you a hole.

As promised last month I wanted to talk a bit about investment risk and the different types of risk you face when investing your money whether it be in pensions, bonds, mortgages, companies, overseas etc. I’m not a financial advisor rather a guy who wants to learn about the potential investment risks that could happen with the money he’s investing for future use.

Types of Investment Risks

Investment Horizon

This is how long you plan to hold your investments before cashing out. I’ve known many people who have had to cash out their investments that they planned on holding for the long-term because of job loss, health problems or ran into financial trouble.

When doing so they lost quite a bit of money in the process but that was the risk they took when investing.

Disproportion Risk

This was something that our financial advisor goes over each time we meet up with.

He wants to make sure that the money he is investing for us suits our longevity or horizon needs and that he understands our risk tolerance.

Diversification Risk

This is when you put all your eggs in one basket which I’m sure you’ve heard about in your life-time. Never sink all of your money into one or two investments.

Diversifying or spreading your money offers you investing power geographically, industry-wide and through various investment engines.

Longevity Risk

This is something we worry about because you really don’t know how long you will live. Are you investing enough today for your tomorrow and how long will you live?

Longevity risk means you may live longer than your investments our you will outlive them. Outliving your investments may significantly lower your financial power by exhausting their savings thus putting someone into poverty who was once perfectly fine.

Liquidity Risk

This is when you may need to sell your investment but risk not getting what the investment was or is worth thus losing money.

Getting an equitable price even if you are able to cash in which in some markets you can not may mean you either take what you get or you leave it. This is why we always have some form of cash on hand but not everyone wants to drain an asset because they need cash. Different circumstances for different investors.

Market Risk

Market Risk also called “systematic risk” is where the economy affects our investments and the investor experiences losses.

Any developments that happen can either increase or decrease what you have invested. These market risks are in the form of equity, currency and interest rate which everyone should be familiar with at the basic level of investing.

Sources of market risk include recessions, political turmoil, changes in interest rates, natural disasters and terrorist attacks.- Source: Investopedia

Currency Risk

This risk is when you have money invested overseas like I do and the exchange rate dictates what my money is worth in Canadian Dollars.

Moving to Canada from the UK was a beautiful thing as my currency at the time more than doubled.

I’ve also seen the little money that I do have left in the UK drop significantly in the last 11 years but for the most part I’ve been lucky for others it may not be that way.

It’s always a risk investment with money out of country.

Interest Rate Risk

Interest rate risk is probably one of the most common debt investment risk especially since we rely on the increase of interest rates to boost our investment power.

When interest rates go up so does our investment but when it drops, our investments drop.  Debt investments with fixed payments including interest such as bonds and mortgages are the most common.

Equity Risk

Equity risk is a market drop in the price of shares based on supply and demand. So if a market share is in high demand you can expect the price to jump which may be a good thing if you’re invested in it.

On the other hand if demand is low or dropping the market price will drop thus you risk losing money.

Inflation Rate Risk

Inflation rate risk is really is a term that is tossed around quite a bit because everything seems to cost more as the year goes on which means if certain investments don’t keep up you risk losing investment power.

An example might be if you go grocery shopping and have $100 to spend today when you go tomorrow that same shopping cart with the same groceries may cost you $150. If you are a shareholder on the other hand those same companies can increase prices which means your shares should fall in line with inflation thus protecting them.

Credit Risk

This means debt investments or whoever or whatever company you are investing in may run into financial trouble which means you risk not getting the returns you are entitled to.

Before investing in a bond do your research and investigate the credit rating of the bond to give you an idea of where the company stands. In other words the company may not be able to pay you interest or return pay back the funds you invested.

How much risk are you willing to take?

That’s what you have to know. I don’t know how much power an investor will have from this standpoint but it’s certainly a risk one takes when investing.

Reinvestment Risk

This is when the investment you own or are invested in is no longer and you have to find another places to invest your money.

You risk not getting the same type of investment or return on your money or possibly a lower rate than the original investment.

There’s always more risks involved

Don’t take what I’ve said as the holy grail of investment risks as I’m sure there are plenty more out there but I wanted to touch on the basics for my readers.

If you don’t understand or want better clarification on different investment risks the best person to talk to is a financial expert who does this for a living.

Feeling confident in the money you invest and knowing your risk tolerance is far better than finding out you invested your money in something that didn’t suit your needs.

Discussion: What other investment risks can you think of? Can you add to any of the above investment risks I’ve spoken about today? Leave me a comment below.

Our Net Worth November 2018

Where did all of our money go this month?

Well, we actually had a good month in terms of Net Worth growth, but it didn’t increase our net worth any more than what it was a couple of months ago. The blip in the stock market put a dent in our investments but the last two months have basically rebuilt it back to the same level as before.

Although this can be dis-heartening at times, we do realize that we are in this for the full journey, which will be full on ups and downs. However, they haven’t fully recovered because we pay in every month to purchase more investments. For us, investments aren’t for short-term gains, rather long term gains for our future retirement.

Understanding Net Worth

What Does Individual Net Worth Mean?

Net Worth is a snap shot of your financial health sort of like a picture or debt to net assets. In simple terms it’s a total of the value of your assets minus your liabilities.

We credit the growth of our net worth due to patience, perseverance, using a monthly budget and not giving up. Your numbers may go up and down but don’t let the numbers scare you rather understand why and move on.

If you would like to use our budget I offer a FREE downloadable budget which I created and that you can use at home just like we do. I don’t charge for it because I want you to save money not spend more!

There are tonnes of other free printable lists offered at Canadian Budget Binder to help you achieve some of those financial goals and build your net worth.

Calculate Your net worth

Do you know how to calculate your own Net Worth? We like to calculate our net worth every month so we know if we are still on track.

Some people calculate it yearly or quarterly but it’s up to you and how informed you want to stay when it comes to your financial health.

Net Worth is only an estimate and not everyone uses the same type of figures to tally it up.

Some of you may not include vehicles like we do or leave out assets inside the home like we have. You might be that person that believes that your house should be excluded.

It depends on what you want to calculate or what you can sell today and make money on for tomorrow.

Figuring out net worth is fairly easy as long as you know your personal numbers or monthly finances which means you need to do your homework.

Net Worth is simply adding up all your assets (what you own) then taking away your liabilities (what you owe) which will give you a net worth number.

Understanding your net worth will help you determine if you are on track to meeting or beating your personal financial goals. It doesn’t get any easier than that.

How to Determine Net Worth?

Net Worth = Assets – Liabilities

Why not go ahead and calculate your own using our Free Money saving Tool Net worth Calculator (Canadian Budget Binder 2012)

Financial numbers

When budgeting anything is possible, we are proof of that although we still have a long way to go in our journey. These are our numbers and our goals, not a means of comparison towards your own goals to others target goals.

We don’t care how much money others make or if they have a high net worth or if it is lower than ours as it’s not a competition. I hope our experiences will help guide you along your financial path working towards debt freedom.

Not everyone has the same path in life.

Some of you may have had to start over like I did or go to school a second time and now have OSAP loans to pay back.

Others may have divorced, lost money in the stock market or other investments, suffered job loss, fell ill or injured on the job and so on but you can’t let that stop you from achieving your financial goals.

Some of you may have been given trust funds, paid-for homes, paid educations or perks in life that give you a financial kick-start and that’s OK too.

Remember what I said, “It’s not about how much money you make, it’s how you save it”.

The only reason people accumulate wealth is because they know how to save or invest it wisely even if they did inherit money or win the lottery.

The smallest improvements should mean big strides in working towards reaching your goals.

Sometimes we have to fail in order to learn and we’ve all been there. Money can be an evil force for some people especially those who have a negative attitude towards their own financial situation.

I urge you to be optimistic and little by little with determination you too should see improvements, if you want that to happen.

Net worth updates 2018

Click the links below to read 2017 net worth updates to see how we made out following our own budgeting and investing rules.

• January 2018
• February 2018
• March 2018
• April 2018
• May 2018
• June 2018
• July 2018
• August 2018
• September 2018 (oops missed this month’s update post)
• September/October 2018

That’s all for this months net worth update but please check in at the beginning of  January 2019 to see how we made out in December 2018 with our financial portfolio.

~Mr.CBB

“It’s Not About How Much Money You Make It’s How You Save It“

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