moments of greatest fear, short term government bonds returned, thirty or ninety days later, less than the amount actually invested, without even taking into account the effect of infla on on the real value. Some large American banks have actually quoted nega ve shortterm interest rates in an a empt to deter depositors.
FORGOTTEN RISK/REWARD The lack of secure, liquid returns has prompted some investors to explore high-yield stocks. The Vanguard High Dividend Yield Index (see below) fell by more than one-half from 11,011 in 2008 to 5,303 in 2009. This currently pays an annual yield of 3.2%, which appears totally inadequate compensa on for the risks involved. Other investors have chosen to chase the yield on corporate bonds – forge ng that in 2008-9 these assets also faced losses as bad as the 50% hit for dividend stocks.
RETURN OF CAPITAL ͵ NO GAIN, NO PAIN Many investors find it difficult to accept the premise that making nothing at all is be er than the risk of losing 10% of the value of their investment every me rates are hiked. However, in an environment where investors and depositors are worried about the manifold risks of double dips, currency collapses, poli cal gridlocks and social unrest, Main Street is showing an increasing willingness to simply accept the return of their capital – even without allowing for the extent to which infla on takes its toll – as opposed to a return on their capital. (The challenges faced by depositors and investors are highlighted in Appendices One and Two)
FX ͵ RISK OR OPPORTUNITY Vola lity in foreign exchange rates, another significant challenge that today’s investors must face, increased significantly from the beginning of August 2011 to January 2012 (see the chart below). The major currencies con nue to hold an ‘ugly contest’ and take turns in claiming the prize of being the least desirable currency to invest in. 10