Many investors believe they’re playing it safe when it comes to their money.
This often stems from a well-documented psychological bias...
This bias is known as the Dunning-Kruger Effect.
It happens when someone with limited knowledge in a subject overestimates their understanding.
For example, reading a few articles on the investing might make someone feel like they’ve mastered the subject.
But the more experienced you become, the more you realise how much there is to learn.
After over two decades in professional investing, I can tell you with certainty: most retail investors misunderstand what “safe” really means.
And that misunderstanding can be costly.
What “risk” really means
Let’s start by defining a word that gets thrown around constantly: risk.
People often tell me, “I don’t want any risk.” But when I ask them to define what they mean, they usually can’t. That’s because “risk” is meaningless without context.
In investing, risk comes in different forms: short-term volatility, inflation risk, loss of capital, or liquidity issues, to name a few.
An investment that feels risky to one person may actually be safer than they think—while something that feels safe might be silently eroding their wealth.
To illustrate this, let’s look at how novices typically rank investment types by perceived safety, and then compare it to how informed investors view the same options.
By the way, I also published a YouTube video on this very topic, which you can watch here if you prefer:
The uninformed risk scale: How beginners perceive investments
I first saw this scale explained by financial expert Andy Hart.
It shows you 10 investments through the eyes of a beginner, ranked in order from 1 as something that most people consider ‘very safe’, through to 10, something so ‘risky’ it keeps them lying awake at night.
Here’s the common ranking:
LEAST RISKY: 1. Cash in the bank
Simple and visible. It feels secure because you can access it any time and know exactly how much you have.
2. Government bonds
Seen as stable. You’re lending money to the government, and they promise to pay you back with interest. What could go wrong?
3. Corporate bonds
Instead of lending to governments, you're lending to large, established companies. Feels like a logical next step.
4. Property
Tangible and familiar. People often see property as solid, especially since “people will always need homes.”
5. Commodities and alternatives
Includes gold, hedge funds, venture capital, and more. Glossy, prestigious, but not well understood.
6. “What’s working now”
Trending assets like crypto, cannabis stocks, AI, NFTs. These seem exciting and offer big upside—but they also inspire fear and doubt.
7. Global equities
Beginner investors often associate the stock market with gambling, crashes, and unpredictability.
8. Emerging market equities
Investing in fast-growing foreign economies feels abstract and risky, despite the growing influence these regions have globally.
9. Single large-cap stocks
Investing in one big name like Apple or Amazon feels like a high-stakes bet.
MOST RISKY: 10. Single small-cap stocks
Early-stage companies or startups. Potentially huge returns, but most beginners see them as speculative and highly risky.
So there we have it.
The uniformed risk scale (from least risky to most risky):
This is how the majority of novice investors understand risk.
But this isn’t objective truth—this is perception.
The informed risk scale: What experienced investors know
Experienced investors—those with decades of data, historical context, and behavioural insight—see things very differently.
They understand that real risk isn’t about daily price swings. It’s about the permanent loss of capital or erosion of future purchasing power.
With that in mind, here’s how professionals would reorder that same list:
LEAST RISKY: 1. Global equities
One of the most misunderstood asset by beginners is, in fact, the one professionals trust most.
By investing in thousands of the world’s most successful companies, you harness growth, innovation, and long-term wealth creation.
2. Property
Not a single residential property in one location—but a diversified, professionally managed portfolio. Provides both capital appreciation and rising income.
3. Emerging market equities
Volatile, yes—but not doomed. These economies are growing rapidly, and the businesses within them often deliver outsized returns over long periods.
4. Commodities and alternatives
Mixed performance. These may hedge against volatility in traditional markets, but are complex and often underperform long-term.
These fall into the “amber zone”—where you’re unlikely to lose everything, but your money may lose value over time in real terms.
5. Corporate bonds
Slightly higher returns than government bonds, but still vulnerable to inflation. They provide safety from volatility, but not from long-term erosion of value.
6. Government bonds
Generally more stable than equities, but returns are often too low to beat inflation, especially in low-interest environments.
7. Cash
Useful for short-term liquidity. But long term? Inflation eats away at its value, making it dangerous to rely on for wealth preservation.
8. Single large-cap stocks
Even big companies can collapse. Betting on one means you’re heavily exposed to events outside your control.
These top three fall into what professionals consider the “red zone”—where capital loss is not just possible but likely if you’re not careful.
9. Single small-cap stocks
Potential for high return, but the outcomes are largely unpredictable—even for professionals.
MOST RISKY: 10. “What’s working now”
Trending ideas that rise fast and fall faster. Often marketed heavily to beginners. Easy to sell, difficult to predict, and very easy to lose money on.
So here's the final list, starting with least risky:
- Global equities
- Property
- Emerging market equities
- Commodities and alternatives
- Corporate bonds
- Government bonds
- Cash
- Single large companies
- Single small company shares
- "What's working now"
These final three belong in the “blue zone”—where risk comes in the form of volatility, not permanent loss.
Volatility can be uncomfortable, but it's the price you pay for higher, inflation-beating returns.
Here's the complete scale:
Rethinking safety in investing
Most people associate safety with familiarity, stability, and short-term predictability. But the real risk lies not in volatility—but in failing to preserve and grow your purchasing power over time.
Volatility is not your enemy—permanent capital loss is.
And many so-called “safe” investments, like cash or bonds, are quietly eroding your future wealth.
The most successful investors understand this. They don't avoid risk—they choose the right kind of risk: informed, diversified, and tied to long-term growth.
If you're looking to build a portfolio that actually grows your wealth rather than just protecting it on the surface, it’s time to stop trusting your instincts—and start trusting the data.
Avoid the hype.
Embrace volatility.
Invest in what's been proven to work.
