Ep 349: Investor risk premium: what is it and why it matters

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In this episode, Stuart breaks down the 'Investor Risk Premium', a key concept that helps you assess whether you’re being fairly rewarded for the risks you take with your investments. Traditionally used in share investing, Stuart explains why this idea should apply to all asset classes, from shares and property to speculative assets like crypto.

Right now, U.S. equities appear overvalued, with future returns unlikely to match the past decade’s gains. In fact, forward-looking data suggests the expected equity risk premium in the U.S. is negative, meaning investors may not be adequately compensated for the risk.

By contrast, Australian shares and property offer more attractive return prospects, especially when measured against the risk-free rate.

The key takeaway? Don’t chase past performance—focus on future returns relative to risk. Whether you're investing in shares, property, or anything else, you need to ensure the expected return is worth the volatility, liquidity constraints, and uncertainty you're taking on.

A sound, evidence-based strategy that prioritises risk-adjusted returns is the smartest way to build long-term wealth. Tune in to learn how to apply this thinking across your portfolio and avoid the common traps of emotional or trend-driven investing.

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