Summary
In Episode 5 of the Plain English Finance Podcast, Tré explains why most people misunderstand investment risk. The conversation highlights why volatility isn’t the real danger, how different types of risk affect corporate owners, and a practical four-step framework to manage them. The episode also introduces the “cash-bucket” approach: a way to protect near-term spending while keeping long-term growth on track.
Why Volatility Isn’t the Whole Story
Most product labels in Canada define risk as “volatility” — the fluctuations in market returns. While useful, that definition is far too narrow.
As Tré explains:
“The risk of ups and downs is guaranteed.”
Corporation owners need to think in terms of outcomes, not just swings. A so-called “low-risk” GIC could actually be high risk for retirement if it fails to keep pace with inflation.
The real question isn’t “How do I avoid losses?” but: “How do I avoid a bad outcome?”
The Many Types of Risk
Volatility is only one piece. Other risks matter just as much:
- Liquidity risk — Can you get your money when you need it?
- Credit risk — Will the borrower or issuer pay you back?
- Interest-rate risk — How do rate changes affect your debt or bonds?
- Inflation risk — Will your money maintain purchasing power?
- Longevity and sequence risk — Will your savings last through retirement, even if markets struggle early on?
As Tré puts it:
“You want to be impacted a little by every risk… rather than be crippled by one of these risks.”
A Four-Step Risk Framework
Tré’s approach is simple and repeatable:
- Eliminate risks you don’t need, like speculation or unnecessary concentration.
- Reduce costs, debt mismatches, and single exposures.
- Transfer where appropriate — using insurance for income protection, illness, or liability.
- Plan & Provision for what remains through a structured withdrawal plan.
On the podcast, Tré describes the last step clearly:
“We have between one and seven years of what somebody needs in cash and bonds… so that when the markets drop… we have funds available.”
The Danger of “Low-Risk” Choices
Sometimes, picking what feels “safe” can backfire.
As Tré warns:
“You think you’re picking the lowest risk option, but in reality… you’re actually picking the highest risk option for your goal.”
A low-return investment may reduce short-term volatility but increase the chance of falling short over decades.
What to Do Next: A Checklist
- ✅ Stop equating risk only with volatility.
- ✅ Identify all relevant risks — liquidity, inflation, credit, and sequence.
- ✅ Eliminate, reduce, transfer, and make provisions using a clear framework.
- ✅ Build a 1–6 year cash-bucket for planned withdrawals.
- ✅ Diversify globally and avoid concentrated bets.
- ✅ Stress-test your plan for inflation and early retirement downturns.
Episode 5 shows that risk management isn’t about avoiding volatility. It’s about avoiding bad outcomes. With the right framework, you can protect your lifestyle while investing for long-term growth.