March 06, 2017

Risk Getting Poor with No-Risk Investment

When it comes to their investment, some people are literally obsessed about protecting their capital. They are so afraid to loose money that they will never be able to make any.

They sometimes brag about not losing money in the last big stock market correction. But they forget they also missed out nice market runs before and after the dreaded correction.

For one thing, the only guaranteed fact about no-risk investment like GICs is that they will leave you poor if you count on them in the long run. Most of the time, GICs won’t even get you enough to just keep up with inflation. Don’t get me wrong, I wouldn’t recommend speculating in stocks in the short-term; GICs still can have their use and may be better suited if you know your money will be needed within a couple years (for instance, for a down payment on your house).

Oftentimes, the price you pay to protect your capital is simply too high and paying for that useless guarantee on a long period of time doesn’t make any sense. As an alternative, on top of interesting returns, a diversified portfolio constituted of solid companies should provide for free that long-term intrinsic guarantee.

Trying to avoid short-term loss of capital at any cost, you will ultimately miss out on significant long-term returns. So avoid overly protecting your capital because in the end, it will only help you stay poor. 

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