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Tackle Today: Equity Risk Premium

December 7, 2021

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Tackle Today: Equity Risk Premium

One coin, two sides. ≈


In times of turmoil when volatility rears its ugly head, long-term stock investors should remind themselves that this is what they’ve signed up for. Indeed, this is the very thing that fuels their high returns.

Equities are a rocket ship; volatility is the fuel.

Take away the gas, and what do you get? An asset that looks a lot like bonds or cash.

For over two centuries, stocks have generated more than double the annual return of bonds and other debt instruments. The rosy returns are primarily due to the higher volatility that accompanies them. In an efficient market, higher volatility assets should come with the potential for more significant gains – else why would anyone buy them?

The term “equity risk premium” is what academics use to explain this phenomenon. Because equities carry more volatility (read: risk), they offer investors a premium or higher return.


Chart of the Day: Two Centuries of Returns

Chart of the Day: Two Centuries of Returns

Here’s a handy chart illustrating the really long-term view of the financial markets. The “Real” return means they were adjusted for inflation, which has been roughly 3% per year over the long run. Said another way, the 6.6% real stock return translates into 9.6% per year if unadjusted for inflation.

Video of the day: Covered Call for Beginners › What is a Covered Call and how to trade it?

Watch this Trading For Beginners webinar on the basics of this powerful options strategy: the Covered Call. Covered Calls are a great way to increase your monthly income derived from your Investment Portfolio. In this webinar, Coach Matt will go through what the Covered Call is and how to trade it.

Today’s line up

Tales of a Technician: The Sinking Arkk

There is perhaps no better ETF to track the true carnage transpiring in the marketplace than the Ark Innovation Fund (ARKK). Since November 4th, a mere one month ago, the fund has fallen 29%. If you go back further to its February peak, it’s down 44%. Were we in the midst of a historic bear market, then perhaps the descent would be forgivable. But the S&P 500 is a mere 4.2% from its peak! We’re talking about some serious underperformance.

Traders Lounge 11 PM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

The Coaches Show 8:30 PM EST

This is our weekly MasterMind group. Join the coaches tonight, 8:30 PM EST to discuss the markets and help you prepare for the week.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.

Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

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