Astute investors know that buying when others are fearful can be a good strategy. Despite remarkably low market volatility, investors continue to avoid risk. This month, we examine previous periods of risk and investor behavior, when investors discarded normal valuation measures, threw caution to the wind, and suffered the consequences. But those periods have few parallels in today’s market environment, suggesting that carefully introducing some risk into portfolios may be timely.

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Risk. Mention the word, and many investment professionals pause. Traders, hedge funds, and a few quantitative firms and their algorithms may love risk. But these days, the preponderance of investors, advisors, strategists, and their clients—not to mention the individual investor—see risk as a negative to be avoided. And that is why, dear readers, it may be time to consider adding some to clients’ portfolios.

All of the attendant disclaimers should—and must—accompany that statement. Adding some risk wisely does not mean turning a conservative portfolio into an aggressive one, or tossing best interest out the window. It does not mean advising clients to take half of their assets and put them in bitcoin. Nor does it mean ignoring real, actual risks in favor of rank speculation and greed.

It does, however, mean considering investments whose success is predicated on the continued stability of the financial system and the continued evolution of global commerce. In short, considering risk in today’s climate might simply mean investing as if the world is not on the verge of some crisis.

Risk now, risk then

Measuring the market’s appetite for risk is not science. One popular gauge is the level of volatility in the market, measured by a basket of futures known as the VIX (CBOE Volatility Index), which often is referred to as “the fear gauge.” In spite of global crises, such as North Korea, domestic political sclerosis, and popular sentiment that have been trending negative, market volatility has been remarkably low. In fact, it has been on a steady decline for a few years, after staying elevated in the years following the 2008-2009 financial crisis.

Volatility measures suggest that both investor appetite for risk and investor fear are muted. One would think that as market players become less concerned, they would behave in the opposite fashion by loading up on risk. It certainly was the case in the late 1990s and again in the mid- 2000s, and to some degree it was the case for the years after 2008, when a select number of funds made substantial sums of money trading financial instruments and derivatives keyed to volatility.

Today, however, even though volatility is muted, investors continue to pursue investments that they see as safer. Despite equities having a very strong year, fund flows into them are negative. While there have been a number of weeks with strong inflows into US equities, almost every week has been positive for US bonds, with billions of dollars flowing into Treasurys, even as rates sag and lag and refuse to budge much above 2.5%.

Fund flows are a decent proxy for investor preferences, and this year they paint much the same picture as in the past years. Even plain vanilla equities—not small caps, biotech, emerging markets—are less in favor than government bonds, regardless of the fact that equities of all flavors have been doing much better for the past few years. The same is true of higher risk bonds: high yield bond prices have barely budged, which means that demand may be stable but hardly substantial. Compare today’s risk appetite with that of the late 1990s or the mid-2000s, when appetite for return trumped concerns about risk. Investors poured into more and more speculative equities in the late 1990s and into more and more esoteric debt and derivative instruments in the mid-2000s, especially those tied to the red-hot housing market of those years.