How to Visualize Risk and Return

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Imagine a world where someone can earn a 4%+ risk-free return. For the last 15 years, that image was a pipe dream. Today it’s reality. Consequently, investors face a risk-free rate not far from historical equity returns. This setup presents investors with options with which they are unfamiliar.

With the Fed purposely trying to slow economic growth and a banking crisis in full swing, do the heightened risks argue for accepting the current bond yields and reducing equity exposure?

To help you appreciate the question, I will get wonky with statistics. This article visualizes risk and return profiles in different market environments and monetary policy stances. The goal is to better appreciate how changes in market tone and/or the Fed’s rate policy alter the expected risk and return profile of equities.