Return Free Risk Continued
I abruptly ended my previous post as there were too many important points that came up while I was writing it. If you wish to reread the previous post, click here.
I ended the previous post with the equation:
Risk Free Return = “Return Free Risk”
Fixed Deposits are generally considered to be in the Risk-Free Return category. With interest rates where they are today and the high lifestyle inflation world that we live in, do you still consider Fixed Deposits to be Risk Free Return or are they really in the Return Free Risk category?
There is no such thing as Risk Free Return.
Every investment is exposed to RISK.
Lifestyle Inflation and Living Longer (Longevity) together form a deadly cocktail of reducing your purchasing power and destroying wealth.
Warren Buffett in his 2021 Shareholder letter said, “Fixed Income investors worldwide –whether pension funds, insurance companies or retirees – face a bleak future.”
Do you want to believe in an illusion that has been created around us that Fixed Deposits are Risk Free?
From a liquidity and contingency perspective, Fixed Deposits and Debt Investments might have a role to play but they are not Risk-Free Return Products when looked at from a Lifestyle Inflation and Longevity of Life perspective.
Understanding the real meaning of Risk Free and the fact that Real Risk-Free Return does not exist will help you in making wise asset allocation and investment decisions.