Is there anything like a Risk free Investment?
Well what is risk? Risk is the chance you may not achieve your investment objective, in financial lingo its called Volatility of returns .
So "risky" means more volatility of returns, lower risk means lower volatility of returns, higher risk means higher volatility of returns. So higher risk translates to a greater propensity for higher returns NOT a guarantee of higher returns.
Similarly lower risk translates to a lower propensity for volatility NOT a guarantee of zero volatility.
In practice, stock have a higher volatility of returns and thus will offer opportunities for higher returns to the investor. Federal Government Treasury Bills offer a lower volatility of returns thus lower returns but not zero volatility.
During the 2007 financial crisis, the price of a Money Market fund that invested in a 'risk free" instruments saw its share price fall below its nominal value of a $1. Bad!!!
So the key language and understanding for investing is not Risk free ie Volatility free but lower volatility ie lower risk.
No Investment is risk free.
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