One size does not fit all
We have the lowest interest rates in our history, and the Reserve Bank warns that we are in for a prolonged period of low rates.
But just how low can they go?
Well, there are trillions of dollars world-wide that is currently subject to NEGATIVE rates. That’s right, NEGATIVE interest rates.
...
The twin elements of investment are risk, and return. We are constantly told that you cannot get a better return, without taking on more risk (but the reverse doesn’t apparently apply. If you invest in higher risk investments, it doesn’t follow that higher returns will necessarily eventuate. And, here the argument becomes fairly circular – more risk means more risk, which may mean no return, or total loss - if you get my drift).
The current way of measuring risk, is to look at the average volatility of returns over an extended period (in practice it is a bit more technical, but this is the essence of it). The more volatile the returns, the riskier the investment, and vice versa.
This way of measuring risk has been around since the 1950’s, and it was certainly a big improvement on what went before.
...