Saving, Managing Debt, and Budgeting

Risk / Reward

What is the theoretical risk-free investment, and why is it so important?

The theoretical risk-free investment is the return that an investment may bring from an investment that carries no risk. The problem with this definition is that there are no truly “risk–free” investments. Even keeping cash under your bed is risky, as it could be lost or stolen. Also, inflation of prices over time—coupled with government monetary and fiscal policies that may change with different political regimes—may reduce the value of that cash under your bed. So risk-free investments exist only in theory, but are still highly important because they allow you to compare the risks of other investment choices.


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