What is my tolerance for risk?
As an investor, you need to accept that some level of risk is inherent in all investments, and there will be ups and downs along the way. Your tolerance for risk—whether aggressive, conservative, or somewhere in between—determines how much growth potential you pursue with your investment portfolio. It's a fundamental principal that to earn a higher return, you have to be comfortable taking on more risk. So the question is: how much fluctuation in the value of your investments are you willing to accept, in exchange for the prospect of higher long-term returns?
Stocks have historically had higher risk but higher long-term returns than bonds or cash-based investments. If you choose to hold a high percentage of stocks in your portfolio, you should be willing to experience some volatility.
Bonds are generally less volatile than stocks but offer more modest returns. If you don't consider yourself an aggressive investor, then you might have a higher proportion of bonds in your portfolio.
Cash and cash equivalents, such as GICs and money market mutual funds, are the safest investments, but offer the lowest returns. The chances of losing money on cash-based investments are negligible, so they make sense if you're nearing a financial goal. But for a long-term investor, playing it safe with a higher percentage of cash in your portfolio makes less sense: returns may not keep up with inflation, and your purchasing power can gradually be eroded.
If you want to grow your savings in a GIC but are looking for something different, Market-Linked GICs are a great option. They offer principal protection at maturity and a return tied to market performance. You’re guaranteed a minimum return along with the potential to earn even more.