At Bluestone Financial, risk is central to what we think about, and work on, every day. The reality is, we are all exposed to risk – two types – one we can avoid, and one we cannot avoid.
We seek to avoid the one we can, and manage the one we cannot. Because with us, risk is a four letter word.
First and foremost, we can, and we must, avoid the risk of losing money with an unsound investment. Warren Buffett said it best, “The first rule to investing is don’t lose money, and the second rule is don’t forget the first rule.”
The other risk, the one we cannot avoid, is the triple threat of inflation, taxation and retirement spending. Inflation, historically 3%, wipes out one third of our purchasing power every ten years. Taxation can take up to half of our investment returns. And retirement spending should be enjoyed, not postponed or denied for fear of running out of money.
Investors, in their attempt to avoid the risk of losing money with an unsound investment, are tempted to invest in so-called “safe” investments like GICs and Bonds. But the low return from these “safe” investments keeps them from actually being safe, in fact leaves them fully exposed to the triple threat of inflation, taxation and retirement spending, simply because the rate of return is too low.
A successful investment strategy, therefore, must answer these two main risks: investments must be sound, to avoid losing money, and investments must grow, to offset the effects of inflation, taxation and retirement spending.
Risk is a four letter word. We want to avoid it, and manage it.
We want to avoid it by making certain our investments are sound, not high risk. And we want to manage it by investing for growth.
