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Is Risk-Free Return Really Risk Free?

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Written by   23
2 months ago

You want to get a return from your money without taking any risk. You work hard to make money. When you have money, you want to get the best out of it, and at the same time, you want to avoid risk.

You will get interest from the money you deposit in a bank. That is considered a risk-free return. Or, when you invest your money in riskless assets to get a certain rate of return, it is assumed risk-free return.

Does risk-free return truly exist? The world we live in is not risk-free. Whether you realize it or not, every investment has a certain degree of risk. Risk-free return is a theoretical concept. Even when you deposit money in a bank, are you certain about everything that's going on in the bank and financial system?

How much interest do you get from the bank? Whatever it is, that's very low. Moreover, you have to pay tax, and account maintenance charges along with different charges. So after subtracting everything, you will get way less as a return.

Will it beat the inflation rate? Of course not. So you are losing money consistently. Inflation is burning your cash slowly. You are losing purchasing power. This is not risk-free if you see what's actually going on.

You may say keeping money in a bank with little interest is better than having idle money at home. When you manage your money, you will not keep your idle cash. You will invest to make money.

There are crypto lending platforms, and you will get interest in depositing your crypto on their platforms. It seems like a bank. They offer lucrative interest and it is advertised as risk-free. Everything looks good as long as the crypto market keeps rising.

When the crypto market starts going down, you can see the real picture of those so-called lending platforms. You cannot withdraw your crypto from their platforms anymore because they got rekt. They use your crypto to lend to others, take leverage, and even more scary when they lend your crypto without any collateral. You don't want to lose your cryptocurrency and end up in a vulnerable position, do you?

So when you see any risk-free return, always ask yourself how much risk you are taking. Then make your financial decision.

Thank you for reading this post. Please feel free to leave your comments. That's it for now. I'll be back with another post.

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Written by   23
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