A few readers asked about the term “risk premium” in Wednesday’s article. In short, the term refers to the fact that whenever one category of investments carries greater risk than another category of investments, that risk should be rewarded in the form of higher expected returns (which may or may not show up over any given period).
For example, corporate bonds have greater credit risk than Treasury bonds. So corporate bonds of a given maturity will usually have higher yields and earn higher returns than Treasury bonds of the same maturity.
As it just so happens, the anonymous blogger at Monevator published an article this week discussing several such risk premiums:
- Return Premiums That Can Rev Up Your Portfolio from Monevator
- Common Diversification Myths from Matthew Amster-Burton
- When Indexing Works and When It Doesn’t from Larry Swedroe
- A Bear to Remember from Allan Roth
- Passive Investing Doesn’t Exist, But So What? from Rick Ferri
- Are There Times When You Shouldn’t Be Passive? from Larry Swedroe
Other Money-Related Articles
- If Money Doesn’t Buy Happiness, What Does it Buy? from The Finance Buff
- Do Homeschooling Expenses Qualify as Educator Expenses? from Kelly Phillips Erb
- Do Kindergarden Expenses Qualify for the Child Tax Credit? from Kelly Phillips Erb
- Are Fellowship and Scholarships Taxable? from Kelly Phillips Erb
- Do Your Heirs Know What They’ll Inherit? from Vanguard
Thanks for reading!