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Q: I had a conversation recently about the distinction between savers and investors, and the transition during life from being a saver to an investor. I understand very little about this, especially the human emotions that may determine my investment returns. I am seeking advice on navigating the sometimes difficult mental transition between saving and investing. How do I know when I’m there?
We asked Samer Nusier, vice-president of product and strategy, RBC Direct Investing, to answer this one.
Whether you save or invest, you’re putting money aside for the future, and it’s great that you’re already doing that, Mr. Nusier said.
The main difference, he added, is the introduction of risk into the equation: Savings products guarantee your principal, while investments carry the risk that they may drop in value. “The trade-off is that investments generally grow faster. Different investments come with different growth potential, but higher growth typically means higher risk.”
The key question you should ask yourself, according to Mr. Nusier, is what your comfort level is with this risk-reward trade-off. “The more risk you can stomach, the faster growth you should expect, assuming you’re investing in a diversified portfolio, not individual speculative bets like brand-new cryptocurrencies or prediction market wagers,” he said.
Here’s the good news: unless you’re buying individual stocks or bonds, most retail investment products such as exchange-traded funds or mutual funds hold a basket of investments. This makes complete loss highly unlikely, Mr. Nusier said. And historically, stock market downturns rebound. “Stocks recovered five and a half years after the market crash in 2008, and only five months after the COVID-19 crash of 2020.”
He recommended the following steps: First, ask yourself, if my investments dropped significantly, how long can I wait before I need this money back? “If you need it in the next few years, you may be better off sticking to low-risk investments or even continuing saving,” he advised. If you can wait, you are likely able to invest more aggressively and target faster growth.
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The second question is emotional and, in Mr. Nusier’s experience, arguably more important: Can you stomach the reality that your investments will drop at some point?
“The key is whether you can set emotions aside and wait for recovery rather than sell in a panic,” he said. “The mental transition from saver to investor isn’t really about math, it’s about honestly assessing your psychology and time horizon.”
On the upside, Mr. Nusier said that there are a range of investment options to match most risk tolerances. If you need help choosing, most reputable brokers and financial institutions offer tools, questionnaires or professionals to help.
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He also gave this caution: Avoid get-rich-quick schemes or brokerages that incentivize excessive trading. “Good investing, like saving, is discipline and patience. Features like same-day options trading or prediction markets primarily enrich sophisticated players and the brokerage selling them – not you.”
Mr. Nusier recommended you try to start with a diversified, low-cost fund aligned with your risk profile. “If you can stay disciplined and wait out downturns, you’re ready. If the thought of a 20-per-cent drop keeps you up at night, you may not be, and that’s perfectly fine. There’s no shame in being a saver.”
Do you want advice on a financial planning or retirement issue that’s affecting you? Send us an e-mail.
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