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Financial Planning -> Stocks, Bonds etc.

Risk as it Relates to Investing

We aren't experts at risk, but this is how we see things.  The main types of risk are political risk, the risk of volatility, and risk related to the quality of investments.

There is political risk in all countries, because as governments change, their policies change.  This can affect the price of investments quite dramatically, especially if the government is a socialist government, or a non-democratic government.

Stock markets are often volatile due to greed and fear.  Greed can drive stocks to unrealistic highs, and fear can drive them to unrealistic lows.

Interest rates can also cause volatility in stocks and bonds.

Another risk is the quality of the company behind the stocks.  Developed countries have securities laws which require companies to provide audited financial reports annually.  These reports are usually reliable.  When investing in developing countries, the reports may not always be reliable.

When you are buying bonds, their rate of return is related to their risk.  There are bond rating agencies that rate the bonds from AAA to junk.  As the quality of the bond decreases, the rate of return increases.  The main risk with bonds is that their returns are not as good as stocks, and you may end up outliving your money.  This is much less likely with stocks or ETFs.

As stocks go up you don't usually hear very much about it, but when they go down, it is often on the front page of the newspaper.  This is because stocks usually slowly rise, but occasionally they go down very quickly.  Every day there is a financial crisis happening somewhere in the world.  If you just pay attention to all the bad news, you would never invest in stocks.  Some of the financial crises include:

bullet 1965 - The Dow Jones Industrial Average (30 large US stocks) closed at 969.3.  It did not again reach and stay over this price permanently until 17 years later in 1982.
bullet In this same 17 year period, the S&P 500 (500 large US stocks) increased from 40 to 142.
bullet 1980 - In January, Gold hit high of $850 US per ounce.
bullet 1980s - Savings & loan crisis in the US.  Over 1,000 savings & loan institutions failed.
bullet 1987 - North American stock markets crashed.
bullet 1989 - Japan's Nikkei 225 index hit a high of 38,915, and by 2002 it had fallen to 8,303.
bullet 1994 - Mexico had a major economic crisis.
bullet 1998 - Russia went bankrupt (defaulted on its bonds).
bullet 1998 - Emerging Markets fell 22%.
bullet 1998 - Hedge fund Long Term Capital Management went bankrupt.  The Board of Directors included 2 Nobel Prize winners for economics.
bullet 1999 - Brazil economic crisis
bullet 2000 - Emerging Markets fell 32%
bullet 2000 - The tech bubble burst.
bullet From 2000 to 2002:
bullet the Nikkei (in yen) was down 69%
bullet the S&P 500 (in US$) was down 43%
bullet the TSX (in Cdn$) was down 22%
bullet European markets (in US$) were down 51%
bullet 2001 - 9/11.
bullet 2002 - Argentina went bankrupt (defaulted on its bonds).
bullet 2008/09 US financial crisis - Dow/TSX down approximately 42%:
bullet Dow Jones went from over 11,300 in Sep 08 to just over 6,600 in Mar 09
bullet TSX went from over 12,900 in Sep 08 to 7,591 in Mar 09
bullet 2011 - In August, Gold hit a high of $1,916 US per ounce.  This is an average return of 2.6% per year from the January 1980 high of $850.
bullet 2011 Portugal, Iceland, Ireland, Italy, Greece, Spain (PIGS) financial crisis.
bullet 2020 COVID-19 pandemic caused a dip of approximately 30% in March, but as of October 13, 2020 the US markets have recovered (from Jan 1 values), and the Canadian market had almost recovered, but both are still relatively volatile.

The following list shows how countries and economic sectors are usually rated, from low risk to high risk.  The positions in the list will usually change as countries either falter or prosper, and as economic sectors are re-evaluated by analysts.

     Risk ratings of stocks in various countries or economic sectors     


Undeveloped markets







South Africa




Emerging markets ( VWO)






United Kingdom

Pacific Region (VPL)

United States (SPY)

Europe (VGK)

High Risk




Materials (Resources)



Health care

Consumer discretionary



Consumer staples


Long bonds

Medium bonds

Short bonds



Low Risk

The risk of an ETF (VGK, VPL, VWO, VEU, etc) is less than the risk of the individual countries it represents.  See our article on recommended stocks (ETFs) for inside or outside of your RRSPs.

How to lessen risk:

bullet do your own research, or get professional advice to help pick stocks.  There are hundreds of different organizations that rate and make recommendations about stocks.
bullet have your investments diversified across many countries and industries
bullet buy good quality stocks or exchange traded funds (ETFs)
bullet hold your investments for long periods of time
bullet when buying bonds, buy investment grade (BBB or higher) bonds

Despite all the financial crises that occur, you can see by our article on historic returns on stock markets and other investments that by buying quality investments and holding them for a long time, you can make a good return on your investments. Resources

Buy Investments and Hold Them Forever

Currency Risk

Tip:  Buy quality investments and plan to hold them for a long time.

Revised: October 26, 2023


Copyright © 2002 Boat Harbour Investments Ltd. All Rights Reserved.  See Reproduction of information from

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