Personal Finance & Money Asked on March 21, 2021
Investing is about balancing risk and reward. Any good investment will typically allow for nominal risk for a healthy return, but let’s suppose that’s not what I’m looking for. I want something with no risk, provided no armageddon-like scenarios (US defaults on debt, government collapse, etc.) occur. I might invest in CD’s which max out around 1%, T-bonds which max out around 2%, and some FDIC-backed savings accounts offer yields up to 2.5%.
What is the highest-return investment with functionally zero risk?
There is no zero risk.
If you exclude some less probable developments from your analysis, some investments seem risk-free, but the ‘highest’ risk-free is simply the last one you exclude.
In other words, you ask “what is the largest number if I exclude all above N?” - well, then the largest remaining number is N-1…
Answered by Aganju on March 21, 2021
The instruments that are considered "risk-free" in an economy are government bonds in that country. So in the US, US Treasury bonds are considered "risk free" if you hold them to maturity because there is zero variance in the cash flows you receive. The government will not default (they can borrow or print more to pay you off) and the cash flows are fixed.
You might find vehicles like the savings accounts and CDs you mention that pay more than T-bills, but they generally come with a catch (minimum balances, limits on withdrawals) that affect their liquidity.
Answered by D Stanley on March 21, 2021
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