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There is no risk free investment that will return you 12%. In a year where you are down 30% are you still contributing 5% on initial capital? If not, you are ju
by hhmc 1y ago
There is no risk free investment that will return you 12%. In a year where you are down 30% are you still contributing 5% on initial capital?
If not, you are just constructing an instrument where you only pass through downside risk
- WalterBright 1y ago> There is no risk free investment Fixed that for ya!
- hhmc 1y agoFor all practical purposes you can - and the world broadly does - consider e.g. TBills to be risk free (or take your favourite interbank lending rate etc etc).
- WalterBright 1y agoThe US government has confiscated value from T Bills before. The government used to sell two bond types - dollar bonds that paid off in dollars, and gold bonds that paid off in gold. The gold bonds were safer and hence paid a lower interest rate. Enter FDR. FDR decided to pay off the gold bond holders in dollars, not gold, and since the value of gold vs dollars had diverged substantially, FDR confiscated the difference. That was the end of the phrase "sound as a dollar". Gee, I wonder why nobody says that anymore! The largest risk of TBills is that inflation will shrink their value, and with catastrophic deficits that is a very, very real risk. That's why I don't invest in bonds or any investment that is denoted in dollars.
- deleted 1y ago[deleted]
- hhmc 1y agoThis is heterodox opinion to modern financial theory. You’re welcome to hold it, I’m not interested in trying to convince you otherwise — I think it undermines the larger point I’m trying to make in an unhelpful way.
- otoburb 1y ago>>That's why I don't invest in bonds or any investment that is denoted in dollars. Most investments seem to eventually (?) denominate into USD equivalents, especially if you live in the US. Do you mean hard(er) assets like real estate or commodities (which also leaves me puzzled because they’re still typically denoted in an underlying fiat currency and especially USD if they’re domestic assets).
- WalterBright 1y agoBeing "denoted in dollars" means the returns are a specified number of dollars. Stocks, on the other hand, are "denoted in shares of the company" and the returns are the change in value of the company.
- hhmc 1y agoThe share value is price x shares, so there’s an effective dollar numeraire. It’s easy to imagine a well performing stock that neverless loses due to a currency shock. Indeed this is why one would typically hedge currency risk if trading a name outside of accounting currency