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by deadghost
971 days ago
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tl;dr: stocks go down, investors less aggressive, tech job market stays dipped US Treasury Bonds are considered the risk-free rate. If you have $TICKER that you expect to yield 5%, you wouldn't buy it because you undertake risk to invest in a company to get 5%. You'd buy a Treasury bond instead to get 5% risk-free. As a consequence, stock prices should drop until yields + premium to take on risk exceeds the risk-free rate. |
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If the expected value of the investment is 5%, that expectation incorporates the risk. There's a chance it yields -100%, there's a chance it yields 5%, there's a chance it yields 100%, etc. If your value of money is linear, you shouldn't have a preference between a(n individual) 5% investment with high variance and one with low variance. It's perfectly reasonable to prefer low variance for a given expected return, but it's also perfectly reasonable to prefer high variance; and of course a portfolio has an expected return and variance that's a non-trivial combination (due to correlated movement) of its individual investments.