# has Anyone Invented Riskless Investing? **URL:** \ **Category:** Factual Questions\ **Created:** [August 17, 2015, 1:37pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069 "2015-08-17T13:37:20Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![Scylla](https://avatars.discourse-cdn.com/v4/letter/s/a5b964/32.png) [@Scylla](https://boards.straightdope.com/u/Scylla)\ **Post date:** [August 17, 2015, 6:09pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/41 "2015-08-17T18:09:50Z")
> [@Tired\_and\_Cranky](#): > > It’s been a while since this mattered to me professionally, but I think you have the effect of substitution on CPI backwards. Potential substitution is said to mean that CPI is artificially biased higher. When the price of T-bone steaks doubles, government economists have to shrug their shoulders and say that the T-bone steak component of their price basket doubled and inflation is accordingly higher. But individual consumers will just substitute cheaper ground chuck for T-bone steaks to keep their food budget the same. So the inflation they experience is, in fact, lower than the government’s estimate. I think it was in 1998 that they gave themselves the ability to change the item structure to reflect that consumers can change their consumption based on acute price action. At any rate, they can switch it now, and that can lead to arguments as to whether chuck and tbone are equivalent, and whether the switching from one to another might constitute a deliberate manipulation to understate inflation. FWIW, I fall into the camp that they are manipulating this and real inflation is likely fluctuating around the higher single digits. This viewpoint is about as controversial as living in Oregon and opining that it’s probably gonna rain soon. ---
**Author:** ![Surreal](https://avatars.discourse-cdn.com/v4/letter/s/eada6e/32.png) [@Surreal](https://boards.straightdope.com/u/Surreal)\ **Post date:** [August 17, 2015, 6:14pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/42 "2015-08-17T18:14:03Z")
> [@Flyer](#): > > No you didn’t. 17 years is on the long side of medium-term. It isn’t long-term. A 30-year-old has two 17-year periods in his life before he reaches retirement age. > > For more information, see this publication from the Kansas City Fed. > > [http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.482.7678&rep=rep1&type=pdf](http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.482.7678&rep=rep1&type=pdf) You didn’t define long-term in your post but the longer it is, the less data you will have to support it and the more meaningless your statement becomes. We only have about 115 years of good data for the US stock market, which doesn’t even fit 4 non-overlapping 30-year return data points. So whatever statement you were attempting to make is almost certainly unproven, meaningless, or altogether wrong. ---
**Author:** ![Scylla](https://avatars.discourse-cdn.com/v4/letter/s/a5b964/32.png) [@Scylla](https://boards.straightdope.com/u/Scylla)\ **Post date:** [August 17, 2015, 6:19pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/43 "2015-08-17T18:19:11Z")
> [@Really\_Not\_All\_That\_Bright](#): > > That’s a reasonable argument, but I still wouldn’t say it’s a good one. I honestly can’t think of a better criteria for what would constitute a “good” argument than that it be reasonable. In this sense, I feel you’ve made a distinction without a difference. if I interpreted you correctly, you disagree with the premise as there are checks and balances that would make it difficult to game. I’m tempted to say something snarky about the impartiality of the congressional re districting process and how that is always impartial… But I’m just way too classy to go that route. 😛 ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [August 17, 2015, 6:33pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/44 "2015-08-17T18:33:38Z")
There _aren’t_ any checks or balances on the redistricting process in most states. The legislature (or its proxy) draws the map it wants and affected citizens must petition the courts for redress, which have very little power to act unless the districts are unbalanced or lawmakers are openly flouting the 14th Amendment. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [August 17, 2015, 6:42pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/45 "2015-08-17T18:42:17Z")
> [@Flyer](#): > > **That is not risk. That is not gambling. That is cold, hard, mathematical FACT.** “Past performance does not guarantee future returns.” That’s required to be inserted in the prospectus of publicly traded mutual funds and should be tattooed on your eyeballs. ---
**Author:** ![watchwolf49](https://avatars.discourse-cdn.com/v4/letter/w/e9c0ed/32.png) [@watchwolf49](https://boards.straightdope.com/u/watchwolf49)\ **Post date:** [August 17, 2015, 6:45pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/46 "2015-08-17T18:45:56Z")
> [@leahcim](#): > > The rich are more likely to invest by starting businesses or being early investors in them. These are much higher risk investments than most others, but the rich are more capable of absorbing a loss and diversifying enough to even it out. Also helpful is the rich don’t pay no where near their fair share of the tax burden. ---
**Author:** ![FasterThanMeerkats](https://avatars.discourse-cdn.com/v4/letter/f/278dde/32.png) [@FasterThanMeerkats](https://boards.straightdope.com/u/FasterThanMeerkats)\ **Post date:** [August 17, 2015, 7:16pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/47 "2015-08-17T19:16:18Z")
_Every_ finance 101 course in every university teaches that long-term arbitrage is illusory (in the same lecture as beta). Arbitrage is self-correcting when it gets large enough and well before the “average investor” or person on this board could take advantage of it. The notion of a “riskless” return has a technical meaning and is not the same as a general “low-risk” strategy like AAA bonds. Seriously, the OP’s question is so far out in left field it doesn’t merit further technical response. (not a slight on the OP, just an observation on the question as posed of accessible 10% riskless return strategies using beta neutral portfolio theory). To do so lends more false credit to the reasonableness of the implied question as to whether such a strategy exists and is available to investors. This is no different than a discussion of vaccine effectiveness. It’s that definitive. Or you can wait until inflation meets/exceeds 10% and is reflected in your savings accounts and T-Bills, if that meets the OP’s criteria. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [August 17, 2015, 7:34pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/48 "2015-08-17T19:34:05Z")
There is one very important way in which the rich can invest more profitably than the poor. High-risk investments generally have higher expected value than lower-risk ones, because people attach a price to the risk itself. One way of mitigating this risk is to make a very large number of investments, in areas that would be expected to be relatively uncorrelated with each other (a diverse portfolio). Make enough investments, in enough different fields, and you’re almost guaranteed to have a few of your long shots coming in at any given time, and more than paying for the ones that don’t. But this only works if you can make enough investments. Make too few, and there’s a too-high-to-ignore that all of your long shots will fail, and wipe you out. And how many investments you can make is limited by how much money you have to invest. ---
**Author:** ![leahcim](https://avatars.discourse-cdn.com/v4/letter/l/b4bc9f/32.png) [@leahcim](https://boards.straightdope.com/u/leahcim)\ **Post date:** [August 17, 2015, 8:27pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/49 "2015-08-17T20:27:18Z")
> [@Chronos](#): > > One way of mitigating this risk is to make a very large number of investments, in areas that would be expected to be relatively uncorrelated with each other (a diverse portfolio). You (as a person of wealth and power) can actually do better than just “relatively uncorrelated”. You can seek out investments whose risks are anti-correlated. The classic example is a wheat farm and a bakery. The wheat farm is risky because the price of wheat might drop, lowering the profit it can make from its output. The bakery is risky because the price of wheat might rise, forcing it to pay more for its raw materials. The risk of an investment both together is lower than either, beyond just diversification. ---
**Author:** ![KarlGauss](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/karlgauss/32/3713_2.png) [@KarlGauss](https://boards.straightdope.com/u/KarlGauss)\ **Post date:** [August 17, 2015, 8:39pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/50 "2015-08-17T20:39:50Z")
> [@Chronos](#): > > There is one very important way in which the rich can invest more profitably than the poor. High-risk investments generally have higher expected value than lower-risk ones, because people attach a price to the risk itself. One way of mitigating this risk is to make a very large number of investments, in areas that would be expected to be relatively uncorrelated with each other (a diverse portfolio). Make enough investments, in enough different fields, and you’re almost guaranteed to have a few of your long shots coming in at any given time, and more than paying for the ones that don’t. > > But this only works if you can make enough investments. Make too few, and there’s a too-high-to-ignore that all of your long shots will fail, and wipe you out. And how many investments you can make is limited by how much money you have to invest. Sounds similar to a [martingale](https://en.wikipedia.org/wiki/Martingale_(betting_system)). ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [August 17, 2015, 8:53pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/51 "2015-08-17T20:53:39Z")
> [@Flyer](#): > > There has **NEVER** been a long-term period in which the stock market failed to go up by a considerable degree–even after taking inflation into account. There has **NEVER** been even a short-term period when hindsight couldn’t outperform the smartest investor. The U.S. stock market has done well over any long period in the PAST century and a half. The U.S. has won every major war it entered, and recovered from every financial panic. If my point isn’t clear, find a calculater site for returns in the \*German \*stock market. I think you’ll find that you would have _lost_ money during any 30-year period within 1885-1975. ---
**Author:** ![FasterThanMeerkats](https://avatars.discourse-cdn.com/v4/letter/f/278dde/32.png) [@FasterThanMeerkats](https://boards.straightdope.com/u/FasterThanMeerkats)\ **Post date:** [August 17, 2015, 8:54pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/52 "2015-08-17T20:54:10Z")
> [@Chronos](#): > > …Make enough investments, in enough different fields, and you’re almost guaranteed to have a few of your long shots coming in at any given time, and more than paying for the ones that don’t… Very true, but that is not the OP’s question. The OP is looking for a beta-neutral 10%+ return, which has a very technical meaning in finance of “free lunch with no strings attached.” I’m not joking, many finance phd candidates write their thesis on various attempts to achieve a riskless return and professors lecture and research the numerous strategies that have been designed to try to achieve it and failed. This entire thread is like asking “does 1+1 =0?” with the responses being “well 1-1 =0”. The responses are not false statements, but they do not address the question. The answer to the question is “No”. Any suggestions to the contrary is to propose that every Finance PHD and Professor and portfolio manager in the modern world is wrong. This is GQ, not IMHO, and this is an answerable question, and the answer is No. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [August 17, 2015, 9:21pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/53 "2015-08-17T21:21:14Z")
Right, I wasn’t addressing the OP’s original question, because it looks to me like that was pretty well covered already: No, it’s not possible, even theoretically. With that out of the way, it’s natural for a thread to drift to other interesting, and less-trivial, questions. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 17, 2015, 9:32pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/54 "2015-08-17T21:32:43Z")
> [@ralph124c](#): > > So where can i put my nest egg, get \>10%/year, with no risk? Here is a thought experiment. Say someone owned the goose who laid golden eggs or some other way of making 10% with no risk, and this investment opportunity became open to the public. As it became known, many investors would flock to take advantage. The owner of the investment would find that he’d have lots of customers if he reduced the return to 9%, and pocketed the extra 1%. Then 8%, then 7% and so on down until the return would stabilize to the point where risky returns paying more would attract clients in place of this one. I suspect there is math to say exactly where this point is. So, unless you own the goose, or have some secret knowledge what you want is impossible. And the latter case is unlikely to work since the owner of the investment will want to maximize his returns by making it public. Secrecy more than likely means it is a scam. (Or certainly means it is a scam.) ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [August 17, 2015, 9:38pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/55 "2015-08-17T21:38:14Z")
> [@FasterThanMeerkats](#): > > This entire thread is like asking “does 1+1 =0?” with the responses being “well 1-1 =0”. The responses are not false statements, but they do not address the question. The answer to the question is “No”. Any suggestions to the contrary is to propose that every Finance PHD and Professor and portfolio manager in the modern world is wrong. > > This is GQ, not IMHO, and this is an answerable question, and the answer is No. Ironically, the one get-rich-quick scheme that invariably works seems to be selling get-rich-quick schemes. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [August 17, 2015, 10:42pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/56 "2015-08-17T22:42:34Z")
Rather than looking at historical behavior to quantify risk, it’s quite easy to prove that investment risk can never be zero because systemic and existential risk aren’t zero. Pick your favorite really bad disaster scenario. An asteroid could strike the planet a month from now and cause a mass die off, plunging the minute fraction of humanity that remains into a new dark age. A global thermonuclear war could reduce most population centers to glassy craters. Neither is very likely, but neither are they impossible. And there’s fuck-all your investment strategy can do about it. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 17, 2015, 11:19pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/57 "2015-08-17T23:19:53Z")
> [@iamthewalrus\_3](#): > > Rather than looking at historical behavior to quantify risk, it’s quite easy to prove that investment risk can never be zero because systemic and existential risk aren’t zero. > > Pick your favorite really bad disaster scenario. An asteroid could strike the planet a month from now and cause a mass die off, plunging the minute fraction of humanity that remains into a new dark age. A global thermonuclear war could reduce most population centers to glassy craters. Neither is very likely, but neither are they impossible. > > And there’s fuck-all your investment strategy can do about it. I think risk is measured in relation to other options. Pretty much all your options are going to be equivalent under this scenario - except maybe the hookers and blow and drink yourself to death five minutes before the asteroid hits option. Which seems optimal given foreknowledge. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [August 17, 2015, 11:33pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/58 "2015-08-17T23:33:09Z")
> [@Voyager](#): > > I think risk is measured in relation to other options. Pretty much all your options are going to be equivalent under this scenario - except maybe the hookers and blow and drink yourself to death five minutes before the asteroid hits option. Which seems optimal given foreknowledge. If you measure risk relative to other options, then it seem that some kind of (hypothetical) extremely broad index would fit the bill. Just invest in all possible asset classes, and you’ll approach the average economic return for human economic activity. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [August 17, 2015, 11:43pm UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/59 "2015-08-17T23:43:52Z")
> [@FasterThanMeerkats](#): > > Very true, but that is not the OP’s question. The OP is looking for a beta-neutral 10%+ return, which has a very technical meaning in finance of “free lunch with no strings attached.” I’m not joking, many finance phd candidates write their thesis on various attempts to achieve a riskless return and professors lecture and research the numerous strategies that have been designed to try to achieve it and failed. > > This entire thread is like asking “does 1+1 =0?” with the responses being “well 1-1 =0”. The responses are not false statements, but they do not address the question. The answer to the question is “No”. Any suggestions to the contrary is to propose that every Finance PHD and Professor and portfolio manager in the modern world is wrong. > > This is GQ, not IMHO, and this is an answerable question, and the answer is No. I agree, and said as much upthread. I think people just can’t believe that the OP is actually asking that question, so they’re answering the question they think he SHOULD be asking. ---
**Author:** ![kaylasdad99](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kaylasdad99/32/3398_2.png) [@kaylasdad99](https://boards.straightdope.com/u/kaylasdad99)\ **Post date:** [August 18, 2015, 1:03am UTC](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069/60 "2015-08-18T01:03:49Z")
> [@Really\_Not\_All\_That\_Bright](#): > > TIPS bonds have zero risk versus inflation because the returns are adjusted based on the CPI. Why don’t I just buy shares of the CPI, then? That seems to pretty much always go up… [Previous page](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069.md?page=2) [Next page](https://boards.straightdope.com/t/has-anyone-invented-riskless-investing/728069.md?page=4)