There is no such thing as an investment with absolutely zero risk. But you can get pretty close to zero-risk with things like US Treasuries and other government bonds, which is why when people think of the "risk-free rate of return" they usually think of instruments like these.

Not completely risk free, but pretty damn close.

Over the last cycle, and specifically between 2009-2021, the risk-free rate was at historic lows. What that meant is that if you wanted to generate any sort of meaningful return, you had to both look to other types of assets, such as real estate, and you had to take on more risk.

How this usually works in practice is pretty simple. Find asset. Figure out how much said asset yields (or could yield). And then decide if the spread you'll be earning above the risk-free rate is worth the amount of incremental risk you think you'll be taking on.

One challenge in bull markets is that it can get very competitive for assets, which can lead to investors accepting lower spreads. But regardless, the underlying idea remains the same. If you're going to take on more risk than no risk, you should be compensated for it.

Today, the problem is a different one. 2022 led to a "sea change" in the market. The risk-free rate is much higher, and that means that previously attractive assets yields are now no longer attractive. Things need to be reset.

It doesn't feel like this has happened yet, but it has to eventually. That is, assuming rates don't go back to 0-1%, which I don't believe they will.