The Risky Reach for Yield - Exhibit A

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?"Because I can’t live off 3%" just isn’t an adequate rationale for taking on...

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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