It’s natural to want safety when investing. After all, nobody enjoys uncertainty.
That’s why terms like “guaranteed returns” and “low risk” feel so appealing. But one of the biggest myths in personal finance is the idea that truly risk‑free investments exist.
At CommonCents Financial Planning, we believe that the truth is that even the safest‑seeming strategies carry risks—just not the kind you immediately see.
The Hidden Risk: Inflation
Term deposits, savings accounts, and government bonds don’t fluctuate like shares, which is why they’re considered safe. But they have another problem: inflation quietly eats into their value.
If your term deposit earns 5% but inflation is 3.5%, your real return is only 1.5%. And over years—even decades—that gap becomes significant.
A Real‑World Example
I once met a retiree who had kept $100,000 in a term deposit for nearly 20 years. Her hope was that the money would eventually be divided among her children to help them buy homes.
But the balance of course didn’t grow, it remained at $100,000. When it came time to distribute the money, each child received $25,000—not nearly enough to achieve what she always imagined.
She didn’t lose money on paper, but she lost a great deal of purchasing power.
Even Defensive Assets Carry Risk
- Cash loses value when inflation rises.
- Bonds fall when interest rates increase.
- Government guarantees protect the balance—not your future buying power.
So while these products feel safe, they may not support your long‑term goals.
A Smarter Approach
The aim is not to avoid risk—that’s impossible. The aim is to manage risk properly.
1. Understand the risk‑return trade‑off.
Higher returns mean higher volatility. Lower volatility means lower growth. Both have a place that aligns with your purpose for investing.
2. Diversify across asset classes.
A balanced mix of shares, property, bonds, and cash protects you from relying on one outcome.
3. Review your strategy regularly.
Your needs change therefore your portfolio should change with them.
Safety Is Not a Product
It’s a strategy.
A genuinely safe financial strategy:
- protects your long‑term purchasing power
- manages market volatility
- supports your goals
- grows your wealth appropriately
Avoiding risk entirely usually creates a different – and often more damaging – risk: the slow erosion of your financial security.
Contact us to chat about how you can take a step toward comprehensive financial security that spans generations.
