By Tim Courtney, Chief Investment Officer
Investors who have been around long enough know that investment gains are hard earned. That wisdom seems quaint in years of market surges and speculative successes. But those who went through the 2000-2002 bear market, or the Great Financial Crisis in 2008, or remember the feeling they had in February 2020 when markets fell 34% in a little over a month1 know that markets require a price to extract returns.
For more novice investors, it is not clear that returns must be earned. We might hear questions from newer investors or those that have mostly experienced markets ripping higher like, “I need to fund my standard of living but don’t want to take risk” or “what is the next sure-thing trend or sector?” or “should we move to cash until this uncertainty blows over?” There are hundreds of questions like this, but at the core of nearly all of these questions is the desire for a free lunch – return without risk.
These instincts to avoid risk usually serve us well in other areas of life, but this instinct can be counterproductive in investing. Markets ensure that returns don’t come without risks, typically by incorporating information and news into prices very quickly. There was an instant effect on energy stocks after the Venezuelan president Nicolás Madurowas captured2 and on healthcare stocks after the announcement of flat reimbursement rates for Medicare.3
This isn’t to say that updated prices are right and true, but they are fair enough to keep us from making easy money. We are as likely to find an obviously and egregiously mispriced asset as we are to find a dropped $100 bill in a crowded park. Like a crowded park, the market is made up of many people, just like us, who will act to ensure free money isn’t just lying around.
However, if our true goal was to invest without 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 amount of risk, is probably best represented by a 1-month Treasury bill. Over the last 99 years, these have returned 3.3% annually4 while inflation has averaged 3%5 – not too far away from a 0% real return.
Reality matches up fairly well with the theory. There still appears to be no free lunch, and a risk-free investment leads to a near 0% real return. Extracting real returns from markets requires a cost in the form of risk.
Accepting investment risk is the acknowledgment that outcomes are uncertain. However, from this risk comes expected returns, or the compensation we receive for accepting a level of uncertainty. Investing in companies that create the goods and services that we rely on may not provide us with a return exactly when we expect it, but over time, investors have been compensated.
The goal is not to avoid uncertainty altogether, but to understand it, price it appropriately and manage it. If you have questions on this, please connect with your Exencial advisor.
Sources:
Investopedia (12/12/25) – Timeline of U.S. Stock Market Crashes
Business Insider (1/5/26) – 5 Charts That Show The Vast Market-Moving Impact of the Venezuela Attack
Morningstar (1/27/26) – Healthcare: Managed Care Stocks Plunge Following Almost-Flat Medicare Rate Proposal
DFA Returns (1926-2025) – One-Month US Treasury Bills
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.