3. ‘Risk’ in investing generally refers to fluctuations over time

The term ‘risk’ sounds pretty scary when it comes to money, but in the finance world, it generally just describes how much your investment fluctuates over time.

Low risk: Savings

A savings account is the lowest risk place to store money because there is very little chance it will ever go down in value. Whenever you need that money, you know exactly how much will be available.

High Risk: Investing

If you own a home, you’ll have seen it change in value over 10-20 years. That’s exactly how the share markets work. If you need money on a particular day, your shares may be worth less on that day.

But there is a risk you may lose money

Absolutely, if you’d taken your life savings and invested them in the Pokemon Go game at the height of it’s fame, you may now be left with a lot less than you started with. 

Over the next few days, we’ll teach you about some investing principles that significantly lower your risk of losing money in the long run (think: don’t put all your eggs in one basket), but yes, it is possible to lose money. 

It is important to note that since the crash in the 1980’s, laws have changed dramatically. The chances of a dodgy dealer mishandling your money are far, far lower these days, and if they do, it’s a criminal offence. 

I am now risk aware, on on!

Where should you keep your short term ‘emergency’ savings?

  1. A savings account

  2. Term deposit

  3. Invest it

  4. One or more of the above

  5. None of the above

1. Short term = low risk

Everyone worth their salt will tell you to keep your emergency funds in the lowest risk bank account you can find. When your car breaks down, or you book a last minute holiday, you want to get quick access to that money and you want to know exactly how much is going to be there.

What about the long term?

What about the money you’re saving for your kid’s education?

  1. A savings account

  2. Term deposit

  3. Invest it

  4. One or more of the above

  5. None of the above

4. Long term = higher risk

If you’re working towards a far-off goal, you can afford to wait out the ups and downs of investing. Why? Because this isn’t money you need any time soon, so you don’t need to guarantee that on any given day, you can get out what you put in.

In the long term, you don’t want to save your money, you want to grow it

The goal of a savings account is to preserve your money, not to grow it, and you pay a high price for guaranteeing your account balance. For a start, the interest rate you get is dwarfed in comparison to the average returns of the share market over the last 20 years. The second kicker is inflation. At the current inflation rate, the value of your money decreases by 1.5% each year.

Let’s try an example

If you put $5,000 in a savings account 20 years ago, at 2.5% interest, how much would it be worth today?

  1. $5,381

  2. $7,542

  3. $10,678

  4. $15,643

  5. I have no idea!

1. Inflation wipes out most of your interest, leaving you with about the same as you started with

We used Sorted’s great savings calculator to deliver the disappointing news that, when you take into account inflation, after 20 years in a savings account, your money has earned you $514. On the other hand, even after numerous market ups and downs (and the GFC!), if you’d invested the money in the share market, it would have more than tripled:

Under your mattress

In a savings account at 2.5% interest

In the share market at an average return of 7.5%

In 20 years, you'll have




After inflation (i.e in today’s money), it’ll be worth:




We’d love to give you the answer, but it’s a personal choice

The numbers show that you sacrifice a lot just to have a guaranteed account balance every day. In the short term, it makes sense, in the long run, not so much. The general rule is that you should subtract your age from 100 - and that's the percentage of your money that you should have invested in the share markets.

If you're 30, you should have 70%. If you're 70, you should have 30%.

But it’s not all facts and figures. 

Choosing where to put your money is as much of an emotional decision as it is a logical one. Over the last 20 years, the share markets may have returned 7.5% on average, but there’s more to the story:

The share market didn’t go up in value by 7.5% every year, in fact, about 20% of the time, it dropped in value. Some years it shot up, some years it didn’t do much. But what’s absolutely guaranteed is that every year, investors had to watch the value of their investments change and feel the pain of watching them go down in value every 5 years or so.

There’s no guaranteed return 

No one can tell you what the average returns from the share market will be over the next 20 years. We do know that since they began, over time, they’ve always gone up, but how long those fluctuations take is anyone’s guess.

But the great news is, it’s not all or nothing. You can spread your long term savings over savings, term deposits and investments and you can change up that mix over time #StartSmall.

More on this to come!

Take action

Sign into internet banking and see how much you’ve got in savings.

Every day, we’ll ask you to do one simple action that gets you a little closer to investing. 

Today, just break down your savings by short, medium and long term. How much do you have in each bucket? How much can you add to each bucket each week?

Do more: Extra reading

  1. Investing for your stage in life

  2. The Intelligent Investor by Benjamin Graham is the bible for share market investors. Warren Buffet called it “the best book on investing ever written”! Benjamin Graham is said to be one of the top investment consultants of the twentieth century. Graham’s claim to fame is making money on the markets for his clients (and himself) without taking big risks. He’s credited for creating many principles of investing safely – principles built on his diligent financial evaluation of companies. And he’s got the experience to back it up: Graham's personal losses in the 1929 crash and Great Depression led him to perfect his investment techniques.

  3. Juno Magazine is a great NZ-based magazine

  4. The balance website is

  5. Finimize is a great daily email resource