A quick game of opposites
I say black, you say?… Hopefully you said white.
I say big, you say?… Small is my guess. You remember the children’s game.
I’m sure you are getting this. Get ready.
What is the opposite to risk? If you said no-risk then no points I’m afraid.
the opposite of risk is another risk
Here’s a few examples.
We risk running out of money too early if we spend too much of our life savings on travel.
– v –
We don’t spend some savings and so avoid that risk, but we risk eventually dying having not completed our bucket list in our lifetimes.
The Government locks-down the country to try to save lives and protect the NHS.
– v –
The Government takes no action and more lives are lost and the NHS collapses but lock-down will contribute to substantially more livelihoods being lost forever.
We don’t invest because we are afraid of losing savings.
– v –
We feel safe in a “risk free” bank deposit account or a National Savings account, but have to accept that the buying power of that cash will halve over the medium to long term. And perhaps we will never have enough money to experience many of the nicer things in life.
No-risk is never the opposite to risk. We have to choose. Often between the lesser of the two evils.
the risk free return
The expression “risk free return” is used to describe the return on an investment which can be obtained without incurring any risk to the capital sum invested. Prior to the Great Financial Crisis of 2008/09, this characteristic was assumed to apply to sovereign debt in the developed world. In short, lend your money to Western Governments and they will always give it back to you at the end of the term, and along the way they will always pay out your interest on time.
Many South American governments including Argentina and Venezuela cannot be trusted to be in a position to pay the interest on time, never mind be able to repay the debt at the end of the term. Hence just Western Democratic Governments are used in the definition.
Strange then that many of us do not expect the UK’s current or successive Governments to ever be able to repay the total amount they are currently borrowing to fight Coronavirus. It’s not just the UK either that is on a spending binge. Most countries effected by Covid – 19 need to borrow in the short term to get through this. Even Europe, should they ever be able to agree on a pan-european package. Perhaps Covid – 20 will have reached them by then.
Even stranger that many Governments in Europe can borrow money and not be expected to reward the lender with any interest at all! In fact they are currently being asked to be remunerated because they agreed to borrow money by paying negative interest rates. The UK is considering this too, along with the US. Letting lenders pay borrowers to take their money. Outrageous. Will this lead to individuals being charged to place money in banks on deposit without getting a penny in interest. Who knows. It seems it will be the depositors who will pay for this in the long term with not a penny in interest, much like they did post 2008.
It seems that now, even a risk free return is far from risk free.