It’s no secret that risk premia have taken wing in recent months, as our chart below illustrates. Nor is it any mystery as to the cause. Prices have slumped like a rock in a lake, and that’s boosted trailing yields and interest rates to the sky. What’s less obvious is if it’s time to avail oneself of the relatively rich offerings.
Alas, the answer to this perennial question is always debatable. Even in the best of times, the wisdom of investment decisions is always in doubt, albeit in varying degrees depending on the context du jour. But this is a major hazard only if you’re betting the farm on a given day or limiting your investment world to a narrowly defined subset of assets. Avoiding those dangers are essential for sound investing and sound sleeping, although it doesn’t allow us to completely sidestep uncomfortable choices or mistakes. Nonetheless, it’s a solid basis for putting our investing strategies on a firm foundation for improving the odds of long-term success.