By Tim Courtney, Chief Investment Officer
Investors who have been around long enoughknow that investment gains are hard earned. That wisdom seems quaint in years of market surges and speculativesuccesses. But those who went through the 2000-2002 bear market, or the GreatFinancial Crisis in 2008, or remember the feeling they had in February 2020when markets fell 34% in a little over a month1 know that marketsrequire a price to extract returns.
For more novice investors, it is not clearthat returns must be earned. We might hear questions from newer investors orthose that have mostly experienced markets ripping higher like, “I need to fundmy standard of living but don’t want to take risk” or “what is the nextsure-thing trend or sector?” or “should we move to cash until this uncertaintyblows over?” There are hundreds of questions like this, but at the core ofnearly all of these questions is the desire for a free lunch – return withoutrisk.
These instincts to avoid risk usually serve uswell in other areas of life, but this instinct can be counterproductive ininvesting. Markets ensure that returns don’t come without risks, typically byincorporating information and news into prices very quickly. There was aninstant effect on energy stocks after the Venezuelan president Nicolás Madurowas captured2 and on healthcare stocks after the announcement offlat reimbursement rates for Medicare.3
This isn’t to say that updated prices areright and true, but they are fair enough to keep us from making easy money. Weare as likely to find an obviously and egregiously mispriced asset as we are tofind a dropped $100 bill in a crowded park. Like a crowded park, the market ismade up of many people, just like us, who will act to ensure free money isn’tjust lying around.
However, if our true goal was to investwithout risk, we do have an idea of what that would look like. The so called“risk-free rate” or the interest rate you could receive with a minimal amountof risk, is probably best represented by a 1-month Treasury bill. Over the last99 years, these have returned 3.3% annually4 while inflation hasaveraged 3%5 – not too far away from a 0% real return.
Reality matches up fairly well with thetheory. There still appears to be no free lunch, and a risk-free investmentleads to a near 0% real return. Extracting real returns from markets requires acost in the form of risk.
Accepting investment risk is theacknowledgment that outcomes are uncertain. However, from this risk comesexpected returns, or the compensation we receive for accepting a level ofuncertainty. Investing in companies that create the goods and services that werely on may not provide us with a return exactly when we expect it, but overtime, investors have been compensated.
The goal is not to avoid uncertaintyaltogether, but to understand it, price it appropriately and manage it. If youhave questions on this, please connect with your Exencial advisor.
Sources:
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Investopedia (12/12/25) – Timeline of U.S. Stock Market Crashes
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Business Insider (1/5/26) – 5 Charts That Show The Vast Market-Moving Impact of the Venezuela Attack
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Morningstar (1/27/26) – Healthcare: Managed Care Stocks Plunge Following Almost-Flat Medicare Rate Proposal
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Investopedia (12/22/25) – Historical U.S. Inflation Rate by Year: 1929 to 2025
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A 1-monthTreasury bill (T-bill) is an ultra-short-term, U.S. government-backed debtsecurity that matures in 4 weeks. Issued at a discount to its face value,investors earn interest by receiving the full par value at maturity, with nointermediate payments.
