The Iron Law of 5.5%

There is an iron law of investing, and almost no one talks about it. It is called opportunity cost. It asks a single question. What did you give up by putting your money into A instead of B?

Right now, cash pays around 5.5%. That is close to risk free. And that number changes everything.

The VAS ETF, which tracks the ASX 300, delivers an earnings yield of about 4.5% to 5%, but strip out the capital growth portion and the actual dividend yield is roughly 3%. In other words, the "safe income" from Australian shares is now running about 250 basis points below what cash pays.

The US market is worse. The S&P 500 dividend yield now sits at 1.03%, the lowest ever recorded. Investors buying US shares today are accepting almost no yield in return for taking full equity risk on the most expensive market in 155 years.

Then there is the sudden avalanche of private credit offerings quoting 7.5% and even 8% paid monthly, all over LinkedIn and every finance publication in the country. Almost no one is talking about the risk sitting underneath those returns …

Opportunity cost is the discipline. Every pitch, every stock, every fund gets run through 5.5%. If it does not clear the bar after risk, it does not go in the portfolio.

This week's episode walks through the same themes you have just read: the 5.5% question, the private credit warnings, the property market's next leg down, and how the Aramco commentary changes the oil picture. Free listeners get the full episode.

Opportunity cost is a numbers game. Sticking to it, in a market that keeps waving 7.5% in your face, is a discipline game. That starts with knowing your own wiring. Our free investor personality assessment, built on the Enneagram framework, takes ten minutes and shows you your archetype, your strengths, and the blind spots that cost you money.