How to Average 4% a Year Risk Free?

Prism

Linton wrote: »

Yes but value/high yield is a reasonably good proxy for low volatility. The idea was that this would provide a better long term return than investing in potentially high growth stock which tends to be be more volatile.

The disconnect with yield at the moment is that currently low volatility is associated with quality growth (Pepsi, McDonald's, Nestle etc) all of which are pretty expensive. Also very little UK stuff in the low vol index at the moment probably due to politics

MarkCarnage

Prism wrote: »

The disconnect with yield at the moment is that currently low volatility is associated with quality growth (Pepsi, McDonald's, Nestle etc) all of which are pretty expensive. Also very little UK stuff in the low vol index at the moment probably due to politics

Agreed, it is global brands that tend to lead that and there is logic in that provided they don't screw the brand up and have decent balance sheets.

MarkCarnage

Back to the original question, with short rates anchored close to zero and long bond yields not much better, I think that the very low risk 4% sought by the OP is not realistic or feasible, as the implication is that material volatility in capital value is not acceptable. I think you need to look at half that rate to be in the ballpark.

bostonerimus

In times like these with interest rates so low it’s impossible to make 4% risk free in something like a savings account. The best you will do is a couple of percent in a long term savings bond, but what you include inflation you’re basically just treading water.

Once upon a time there were guaranteed products paying good interest that you could buy from pension and insurance companies. I’m in the US and bought a pension deferred annuity that will pay 4.3% this year and is guaranteed to always pay above 3%, but it has withdrawal restrictions.

MaxiRobriguez

MarkCarnage wrote: »

Back to the original question, with short rates anchored close to zero and long bond yields not much better, I think that the very low risk 4% sought by the OP is not realistic or feasible, as the implication is that material volatility in capital value is not acceptable. I think you need to look at half that rate to be in the ballpark.

No, it isn't.

I'd be relatively happy with a 4% return on my 100% equities portfolio given where we are at the moment. Half the reason of pricey stocks is because risk-averse investors are chasing yield.