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taw comments on Abnormal Cryonics - Less Wrong
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This is plain wrong. Most of these rates is inflation premium (premium for inflation you need to pay is higher than actual inflation because you also bear entire risk if inflation gets higher than predicted, and it cannot really get lower than predicted - it's not normally distributed).
Inflation-adjusted US treasury bonds have rates like 1.68% a year over last 12 years., and never really got much higher than 3%.
For most interest rates like the UK ones you quote there's non-negligible currency exchange risk and default risk in addition to all that.
taw:
Not to mention that even these figures are suspect. There is no single obvious or objectively correct way to calculate the numbers for inflation-adjustment, and the methods actually used are by no means clear, transparent, and free from political pressures. Ultimately, over a longer period of time, these numbers have little to no coherent meaning in any case.
It seems low but it's correct. Risk-free interests rate are very very low.
Individual stocks carry very high risk, so this is nowhere near correct calculation.
And even if you want to invest in S&P index - notice the date - 2007. This is a typical survivorship bias article from that time. In many countries stock markets crashed hard, and failed to rise for decades. Not just tiny countries, huge economies like Japan too. And by 2010 the same is true about United States too (and it would be ever worse if it wasn't for de facto massive taxpayers subsidies)
Here's Wikipedia:
This wasn't true back in 2007.
This is all survivorship bias and nothing more, many other stock exchanges crashed completely or had much lower returns like Japanese.
And I should add that markets are wickedly anti-inductive. With all the people being prodded into the stock market by tax policies and "finance gurus" ... yeah, the risk is being underpriced.
Also, there needs to be a big shift, probably involving a crisis, before risk-free rates actually make up for taxation, inflation, and sovereign risk. After that happens, I'll be confident the return on capital will be reasonable again.