Risk-Free Asset

See: Treasury Bill.

There's virtually no risk when the U.S. Government promises to pay back a loan. Or at least there hasn't been since we IPO'd in 1776. The whole world believes we're safe...the safest bet there is. So we get to borrow money at the lowest rates that exist, more or less. Our bonds then are essentially a risk-free asset. And that's good. Near certainty of payback.

But the bad news: when you have something with almost no risk, like when you're an investor in those bonds, then you have almost no reward. They pay way less interest than most corporate bonds. And they're taxable to boot, so the government recoups a good chunk of the interest they're paying anyway in the form of taxes.

So, yeah..."risk-free" is kind of a misnomer in a sense. There are other risks, like losing out to inflation rates, and the opportunity costs of having not invested your money elsewhere to make better returns. All reasonable alternatives to putting your dough in a risk-free asset. And almost all of those alternatives carry a spread to that return rate of the risk-free number that's a premium to it. Like...if you're investing in a package of 37 loans on apartment buildings in Reseda, CA, those bonds pay 5.37% interest versus the risk-free asset rates of 2.00%, or a 337 basis point premium against them.