The Risky Reach for Yield - Exhibit A

With interest rates at record lows, there is much temptation to look towards potentially higher yielding products. Gareth Brown discusses the risks associated with this, and calls for investors to exercise caution …

The reach for yield is the process by which individuals, and sometimes whole markets, take on a little more risk than wanted in the hope of achieving a little higher return. It’s a particularly tempting carrot at the moment, with bank account and term deposit rates at historical lows.

We’ve warned against the temptation regularly. If you can’t afford the forgone few percent in income because of lower interest rates, can you really afford the 20% hit to your capital if you buy riskier assets and they tank?

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