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there is a risk free alternative to stocks How is holding a bond risk free? It is a promise to give you a certain amount of money at a certain time in the futu

• kube-system 4y ago
  “Risk” usually refers to default risk in financial terms. T-bills are generally considered to have zero default risk. The inflation for two different assets traded in the same currency are equal, so there’s not much of a comparison to be made there.
• senthil_rajasek 4y ago
  >How is holding a bond risk free? No asset is risk free. Bonds are a relatively less risky asset. >The government constantly raises and lowers that scarcity at will. Nope. Notes, Bills, Bonds are auctioned.
  • TekMol 4y ago
    The FED can buy bonds in an auction at will. Because it prints the money to do so. It's not like the FED goes "Uh oh, those bonds are too expensive for me".
    • senthil_rajasek 4y ago
      It's a recent phenomenon. During the covid crisis the fed became a buyer of last resort. It's not usual.
      • TekMol 4y ago
        Maybe it's the new normal? Just like doubling the money supply every couple of years seems to be the new normal since it started in 2008?
        • senthil_rajasek 4y ago
          Maybe, but it's not normal today.
• fny 4y ago
  You get a guaranteed return depending on how long you lock up your cash. You may or may not beat inflation, but it still protects you on some level.
  • TekMol 4y ago
    A guaranteed return of dollars. What those dollars are worth is not guaranteed. Imagine Tesla would hand out a certain type of share that after 10 years turns into 2 shares. Nobody would call that a risk free return. Because you don't know how much dollars you will get for those two shares. The same with dollars. You don't know how much Tesla shares you will get for those dollars.
  • bigdict 4y ago
    You don't get a guaranteed return because the borrower can default.
• proteal 4y ago
  Risk in this context means uncertainty - since the government can print money it is always able to pay its debts. You might not get a great return on your investment, but the government always has the capability to pay you back. There’s little reward with no risk.
  • TekMol 4y ago
    I disagree. When I lend 2022 dollars to the government, I give away a certain amount of buying power. I don't know if I will get that buying power back when I get my 2032 dollars. The government does not always have the capability to pay me back my buying power. It cannot create value at will. It can create money at will. But the more money it creates, the less value it has. So it cannot create value at will.
    • sumofproducts 4y ago
      "Risk" in this context generally refers to default risk, not the chances that the opportunity cost of your T-bill'd money exceeds the return.
    • quintushoratius 4y ago
      Governments are not the only source of bonds. 10-year securities are not the only denomination.
    • oneoff786 4y ago
      You don’t disagree, you just don’t understand basic financial terminology
• presto8 4y ago
  >> there is a risk free alternative to stocks > How is holding a bond risk free? It is a promise to give you a certain amount of money at a certain time in the future. I Bonds. They are guaranteed not to lose purchasing power and not to have a negative return. Unless the U.S. government defaults on its debt obligations. That is as close to risk free as one is going to get :-)