You are currently viewing Risk of Safe Investments

Risk of Safe Investments

Risk of Safe Investments

Inflation is a phenomenon where the general price level of goods and services in an economy increases over time, leading to a decline in purchasing power of currency. This means that the same amount of money will be able to buy fewer goods and services in the future. Inflation is a risk that can have a significant impact on investments, especially those that offer low returns such as GICs.
GICs, or Guaranteed Investment Certificates, are a type of investment that offers a fixed rate of return over a set period of time. They are considered a “safe” investment because they offer a guaranteed return and are protected by deposit insurance. However, GICs may not be so safe in the long term due to the risk of inflation. The low returns they offer may not be enough to keep up with the increased cost of living, especially if inflation rates are high.
To mitigate the impact of inflation, it is recommended to diversify your portfolio with equities. Equities, or stocks, are a type of investment that represents ownership in a company. They offer better growth potential than GICs because their returns are tied to the performance of the company, which can increase over time. While equities are considered riskier than GICs, they have historically provided higher returns over the long term.
Diversifying your portfolio means investing in a variety of assets to reduce risk. By including equities in your portfolio, you can offset the impact of inflation and potentially achieve higher returns than you would with GICs alone. However, it’s important to keep in mind that diversification does not guarantee a profit or protect against losses, and investors should always do their research and consult with a financial advisor before making investment decisions.

This chart illustrates the effect of inflation on $10,000. Even at the typical target inflation rate of 2% annually, over 20 years $10,000 shrinks to $6,729.

The opinions expressed within this article/communication are those of the Financial Advisor and are not necessarily those of Keybase Financial Group Inc. Any data provided is for illustration purposes only. Clients and prospective clients should always read a product prospectus and fully understand all of the risks associated with the product before purchasing. Any information relating to the discussion of taxation issues is considered to be only general in nature. Clients should seek a qualified tax professional to discuss their specific tax requirements.
Keybase Financial Group Inc. is a member of the MFDA and is a member of the MFDA IPC