I’ve been thinking about this for a while, and I think I have it figured out, but it is a bit complicated.

Buying a bond is the same as receiving a series of inflows; the price is based on the present value of those inflows. If time slowed down, those inflows would be further in the future, and thus worth less. So a bond will decrease in value as you approach the speed of light. Obviously buying a bond is not the right plan then.

But what about shorting a bond? Yeah, that could work! Find someone who is about to travel at something approaching the speed of light. Ask him what bonds he owns. Short those bonds. Then, when he is on his journey and his bonds are worth less, buy them from him to cover your short.

I will leave the method of communicating with him while he is traveling at the speed of light up to you to figure out.

The Capital Asset Pricing Model (CAPM) considers a Treasury bill to be risk-free. A T-bill is a short term investment in the U. S. Government, and since the government has never reneged on its debt, this investment is supposed to be risk free.

But is it really?

Ignoring the possibility of the government defaulting on its debts, a T-bill is STILL not risk free. Default risk is just one of many risks to consider with any investment. Here are some other risks to consider:

Inflation risk — the risk that the return on the investment is below inflation, and thus you are actually losing purchasing power.
Reinvestment risk — The risk that periodic cash flows (such as interest or dividend payments) will have to be reinvested at a lower rate than is currently available.
Market risk — the risk that the investment’s market value declines.
Currency risk — for foreign investments, the risk that changes in foreign exchange rates decrease your return.
Liquidity risk — the risk that the market is not liquid enough to allow you to cash out an investment.

This is just a quick summary, there are many other risks to consider as well. But, the point is that calling A T-Bill “risk-free” is really not accurate. It may be default risk-free, but it is not completely risk-free. In fact, there is no investment in anything that is risk-free. All investments require a balance between the various potential risks, but none are completely risk-free.

You might say this is just semantics, but I would disagree. I have met many people with their entire 401(k) invested in T-Bills. When asked why, they say “Because they are risk-free.” These people don’t realize that inflation risk is probably a bigger concern than default risk for their portfolio.

Growing up I’m sure you heard the story about how Manhattan was bought for $24 in beads in 1626. Sounds like a ripoff, doesn’t it? Manhattan must be worth more than $24, right?

Well, how much would that $24 be worth today, if it had been invested, rather than spent?

Let’s see, 1626 was 383 years ago. I don’t know what the various stock markets were returning at that time, but the average annual return during the 1900s in the United States was north of 10%. Let’s just call it 10%.

So, before you read on, formulate a guess in your head. How much would $24 grow to in 383 years, assuming a 10% annual return?

The image below is just a filler to help stop you from reading ahead — don’t move on until you have a guess.

The answer is $171 quadrillion, which is the same as $171,000 trillion. If you want to be more specific, the answer is $171,241,749,947,654,000 (this answer is probably not accurate as excel can’t really calculate accurately with that many digits). This post already showed you how big a trillion is, so imagine a number 171,000 times that size.

Obviously most people, except my friend Jon who claims to be immortal, don’t have a 383 year investing horizon. But, this example shows how a little bit of money, over a long time frame, can add up to a lot of money. Maybe setting aside $50 a month for your kids’ education or your retirement is a good idea after all!