As chaos weaves its way through private credit, it’s worth remembering the value of full faith and credit treasury bills. In other words, the risk-free rate of return. Your Survival Guy was taught this at Babson College a long time ago.

Anything outside the risk-free rate is a different animal with its own mix of credit and interest rate risks.

As you’re seeing in private credit markets, when investors want their money back, they’re being told “Sorry, you can only have 10%” or something far less than 100%.

Most often, investors look at juicy yields first and then realize their risk tolerance after the fact, when they want their money back. Caveat emptor.

Action Line: What’s your risk tolerance? How would you feel if you lost 10% of your investments? 20%? 30%? What if you could only access 5% of your money? If you don’t have ready answers to these questions, you have some self reflection to do. When you want to talk about your risk tolerance, and develop an investment plan, email me at ejsmith@yoursurvivalguy.com.

Read the entire series here.

Originally posted on Your Survival Guy.