Risk Free Rate: The Impact of Risk Free Rate on Your Required Rate of Return

1. Introduction to Risk-Free Rate and Its Importance in Finance

The concept of the risk-free rate is foundational in the world of finance, serving as a benchmark for evaluating investment performance and making critical financial decisions. It represents the theoretical return on an investment with zero risk, essentially the rate of return that investors would expect from an absolutely safe asset over a specific period. The importance of the risk-free rate stems from its role in the assessment of the time value of money, the calibration of financial models, and its use as a starting point for pricing risky investments.

From the perspective of an individual investor, the risk-free rate is the minimum return they would require to justify not holding cash. For portfolio managers, it is the cornerstone upon which the capital asset pricing model (CAPM) is built, helping to determine the expected return on assets when considering the inherent risk. Economists view the risk-free rate as an indicator of the economic environment, reflecting the state's fiscal and monetary policies.

1. Time Value of Money: The risk-free rate is integral to understanding the time value of money. It is used to discount future cash flows to their present value, allowing investors to make apples-to-apples comparisons between investments with different time horizons.

Example: Consider a government bond that pays $100 in a year's time. If the current risk-free rate is 3%, the present value of this future cash flow would be approximately $97.09, calculated using the formula $$ PV = \frac{FV}{(1 + r)^n} $$, where \( PV \) is the present value, \( FV \) is the future value, \( r \) is the risk-free rate, and \( n \) is the number of periods.

2. financial modeling: In financial modeling, the risk-free rate is used to determine the cost of capital. It acts as the foundation for various models, including the CAPM, which calculates the expected return of an asset based on its beta and the expected market return.

Example: If an asset has a beta of 1.5 and the expected market return is 8%, with a risk-free rate of 3%, the expected return using capm would be \( E(R) = 3% + 1.5 \times (8% - 3%) = 10.5% \).

3. Risk Premium: The risk-free rate helps in calculating the risk premium, which is the additional return over the risk-free rate that investors demand for taking on additional risk.

Example: If a corporate bond is offering a return of 6% and the risk-free rate is 3%, the risk premium would be 3%. This premium compensates investors for the higher risk compared to a risk-free asset.

4. Economic Indicator: The risk-free rate is often seen as an indicator of the health of an economy. Lower risk-free rates can signal a more accommodative monetary policy to stimulate growth, while higher rates might indicate efforts to curb inflation.

Example: In a recession, central banks might lower the risk-free rate by reducing policy rates, making borrowing cheaper to stimulate investment and consumption.

understanding the risk-free rate and its implications is crucial for anyone involved in finance, whether they are making personal investment decisions, managing large portfolios, or formulating economic policies. It is a key component that influences a wide range of financial activities and reflects the interplay between market dynamics and economic conditions.

2. Understanding the Components of Required Rate of Return

When considering the required rate of return, it's essential to recognize that it is not a one-dimensional figure but rather a composite of several key components. Each component reflects a different aspect of the risks and expectations that investors have when they allocate their capital to an investment. The required rate of return is a pivotal metric in finance, as it represents the minimum return an investor expects to achieve to consider an investment worthwhile. This expectation is shaped by the risk-free rate, which acts as a starting point, but also by additional premiums that account for the unique risks associated with a particular investment. These premiums include the equity risk premium, the size premium, the liquidity premium, and sometimes, a specific company risk premium. By dissecting these components, investors can better understand the risks they are taking and set benchmarks for their investment returns.

1. Risk-Free Rate: This is the theoretical return of an investment with zero risk, typically represented by government bonds. For example, if 10-year U.S. Treasury bonds are yielding 2%, this would be considered the risk-free rate in the U.S. Market.

2. Equity risk premium: This premium represents the additional return that investors require for choosing equity over a risk-free investment. For instance, if the expected return on equities is 8% and the risk-free rate is 2%, the equity risk premium would be 6%.

3. Size Premium: Smaller companies often carry higher risks due to less market presence and stability; hence, investors might require a size premium. For example, a small-cap stock might have a size premium of 2% over the risk-free rate.

4. Liquidity Premium: Investments that are not easily convertible to cash without a significant price concession may carry a liquidity premium. For instance, certain real estate investments might have a liquidity premium of 1% to 3%.

5. company-Specific risk Premium: This is an additional premium required for risks unique to a particular company, such as management quality, industry position, or financial health. For example, a company with volatile earnings might have a company-specific risk premium of 2%.

By understanding these components, investors can make more informed decisions about their required rate of return. For instance, an investor might consider a tech start-up's stock, which could have a high equity risk premium due to the sector's volatility, a size premium because it's a small company, and a company-specific risk premium due to its unproven business model. If the risk-free rate is 2%, and the combined premiums amount to 10%, the investor's required rate of return would be at least 12% to justify the investment risks. This analytical approach allows investors to align their expectations with the inherent risks of their investment choices.

3. How Risk-Free Rate Serves as a Benchmark for Investments?

The concept of the risk-free rate is pivotal in the world of finance, acting as the foundational benchmark against which all other investments are measured. It represents the theoretical return on an investment with zero risk, essentially the rate of return that investors would expect from an absolutely safe asset over a specific period. This rate is crucial because it forms the baseline for the risk premium, which is the additional return above the risk-free rate that investors demand for taking on extra risk.

From the perspective of an individual investor, the risk-free rate is the return they could earn without taking any investment risk. For instance, U.S. Treasury securities are often considered the standard for risk-free assets because they are backed by the full faith and credit of the U.S. Government. However, it's important to note that the risk-free rate can vary depending on the country, as it's tied to that government's financial stability and inflation rate.

1. Benchmark for Expected Returns: investors use the risk-free rate to calculate the expected returns on riskier assets. By adding a risk premium to the risk-free rate, they can determine what return they should demand for the level of risk they're taking on. For example, if the risk-free rate is 2% and the risk premium for a stock is 5%, the expected return on that stock would be 7%.

2. Capital asset Pricing model (CAPM): The CAPM formula, $$ E(R_i) = R_f + \beta_i (E(R_m) - R_f) $$, where \( E(R_i) \) is the expected return on the capital asset, \( R_f \) is the risk-free rate, \( \beta_i \) is the beta of the investment, and \( E(R_m) \) is the expected return of the market, uses the risk-free rate as a key component. This model helps in understanding how much return an investment should yield given its risk compared to the market.

3. discounted Cash flow (DCF) Analysis: In DCF analysis, future cash flows are discounted back to their present value using the risk-free rate. This is particularly useful in valuing companies or investment projects. For instance, if a project is expected to generate $100,000 in a year, and the risk-free rate is 3%, the present value of that future cash flow would be approximately $97,087.

4. Influence on Asset Allocation: The risk-free rate affects how investors allocate their assets. During periods of low risk-free rates, investors may shift towards riskier assets like stocks to seek higher returns. Conversely, when the risk-free rate is high, investors might prefer the safety of risk-free securities.

5. Impact on retirement planning: For retirement planning, the risk-free rate is used to estimate the growth of pension funds or retirement accounts. If the risk-free rate is low, individuals may need to save more or invest in riskier assets to meet their retirement goals.

6. Economic Indicator: The risk-free rate also serves as an economic indicator. A low risk-free rate often indicates that the central bank is trying to stimulate the economy by making borrowing cheaper, while a high rate suggests efforts to curb inflation or cool down an overheating economy.

The risk-free rate is more than just a theoretical concept; it is a practical tool that influences a wide range of financial decisions. From individual investment strategies to corporate finance and economic policy, understanding the role of the risk-free rate helps in making informed decisions that align with one's financial goals and risk tolerance.

When times are bad is when the real entrepreneurs emerge.

Robert Kiyosaki

4. The Relationship Between Risk-Free Rate and Market Volatility

Understanding the relationship between the risk-free rate and market volatility is pivotal for investors who aim to optimize their portfolios. The risk-free rate serves as a foundational benchmark, often represented by government bonds, against which all other investments are measured. It's the theoretical return of an investment with zero risk of financial loss. Market volatility, on the other hand, refers to the frequency and magnitude of asset price movements. It's a measure of the dispersion of returns for a given security or market index. When market volatility is high, asset prices can swing dramatically, whereas low volatility indicates a more stable market.

From an investor's perspective, the risk-free rate is a critical component in the calculation of the required rate of return, especially when using models like the Capital Asset Pricing model (CAPM). The CAPM formula is $$ R_i = R_f + \beta_i (R_m - R_f) $$, where:

- $$ R_i $$ is the expected return on the capital asset,

- $$ R_f $$ is the risk-free rate,

- $$ \beta_i $$ is the beta of the security,

- $$ R_m $$ is the expected return of the market.

The risk-free rate is also integral to the Discounted Cash Flow (DCF) model, which is used to estimate the value of an investment based on its expected future cash flows. The formula for DCF is $$ V_0 = \sum_{t=1}^{T} \frac{CF_t}{(1+R_f)^t} $$, where:

- $$ V_0 $$ is the present value of the investment,

- $$ CF_t $$ is the cash flow in period t,

- $$ R_f $$ is the risk-free rate,

- $$ T $$ is the number of periods.

Insights from Different Perspectives:

1. Economists' Viewpoint:

Economists often argue that a low risk-free rate encourages investment in riskier assets, as investors seek higher returns. Conversely, a high risk-free rate might lead investors to prefer the safety of government bonds, reducing capital available for equities and increasing market volatility.

2. Traders' Perspective:

Traders might see an increase in the risk-free rate as a signal of tightening monetary policy, which can reduce liquidity in the market and lead to higher volatility. They use various hedging strategies to protect their portfolios against this volatility.

3. Behavioral Finance Analysts:

These analysts study how psychological influences and biases affect the financial behaviors of investors and markets. They note that the risk-free rate can impact investor sentiment and risk tolerance, influencing market volatility.

Examples Highlighting the Relationship:

- During the financial crisis of 2008, the risk-free rate was lowered to near-zero levels to stimulate the economy. This led to a surge in stock market investments as investors chased higher returns, increasing market volatility.

- In a stable economic environment with a moderate risk-free rate, investors might be more inclined to hold a balanced portfolio of bonds and stocks, leading to lower market volatility.

The interplay between the risk-free rate and market volatility is complex and multifaceted. Investors must consider both factors when making investment decisions, as changes in the risk-free rate can have significant implications for market behavior and portfolio performance. Understanding this relationship is essential for achieving a required rate of return that aligns with one's investment goals and risk tolerance.

5. Calculating Your Required Rate of Return with Risk-Free Rate

When considering investment opportunities, one of the most critical calculations an investor can perform is determining their required rate of return. This figure represents the minimum return an investor expects to achieve to consider an investment worthwhile. The risk-free rate plays a pivotal role in this calculation as it serves as the baseline return an investor would expect from a risk-free investment, typically government bonds. The risk-free rate is essential because it is the starting point from which additional risks are measured and compensated for in the form of higher expected returns.

From the perspective of an individual investor, the required rate of return is deeply personal and varies based on individual risk tolerance, investment goals, and time horizon. A retiree might have a lower required rate of return due to a lower risk tolerance, while a young professional might seek higher returns to build wealth over time. Institutional investors, like pension funds or insurance companies, have different considerations such as actuarial assumptions and regulatory requirements that influence their required rates of return.

Here's an in-depth look at how to calculate your required rate of return using the risk-free rate:

1. Identify the Risk-Free Rate: The first step is to determine the current risk-free rate. This is typically the yield on government treasury bonds. For example, if the yield on a 10-year U.S. Treasury bond is 2%, that would be your starting point.

2. Estimate Risk Premiums: Next, estimate the risk premiums you require for taking on additional risk beyond the risk-free investment. This could include premiums for market risk, sector risk, or specific company risk. For instance, if you're investing in a technology stock, you might add a 5% premium for the additional risk compared to the risk-free rate.

3. Adjust for Inflation Expectations: Inflation can erode the purchasing power of your returns, so it's important to adjust your required rate of return for expected inflation. If inflation is expected to average 2% per year, you would add this to your calculation.

4. Consider Your Personal risk tolerance: Your own risk tolerance should adjust the required rate of return. If you're risk-averse, you might be satisfied with a return slightly above the risk-free rate. Conversely, if you're comfortable with risk, you might require a much higher return to justify the investment.

5. Calculate Your Required Rate of Return: Combine the risk-free rate with your estimated risk premiums and inflation expectations. Using the previous examples, if the risk-free rate is 2%, your risk premium is 5%, and you expect 2% inflation, your required rate of return would be 9%.

Example: Let's say an investor is considering purchasing stock in a company but wants to ensure the investment meets their required rate of return. If the risk-free rate is 2%, the investor expects inflation to be 2%, and they require an additional 5% premium for the risks associated with investing in the stock market, their required rate of return would be:

$$ Required\ rate\ of\ Return = Risk-Free\ rate + Inflation\ Rate + Risk\ Premium $$

$$ Required\ Rate\ of\ Return = 2\% + 2\% + 5\% $$

$$ Required\ Rate\ of\ Return = 9\% $$

This calculation helps the investor decide whether the potential investment is likely to meet or exceed their personal threshold for acceptable returns, considering the risks involved. Remember, the required rate of return is a tool to help make informed investment decisions, and it should be recalibrated as market conditions and personal circumstances change.

6. The Influence of Central Bank Policies on Risk-Free Rate

central bank policies are pivotal in shaping the economic landscape, and their influence on the risk-free rate is particularly profound. As the benchmark for the safest investment in a country's financial system, the risk-free rate serves as the foundation upon which all other interest rates are built. Central banks, through their monetary policy tools, can manipulate this rate to steer the economy towards desired outcomes such as controlled inflation, stable employment, and sustainable growth. By adjusting the risk-free rate, central banks indirectly influence the cost of borrowing, the return on savings, and the overall investment climate. This, in turn, affects the required rate of return for investors, as they calibrate their expectations based on the perceived stability and predictability of the market.

1. open Market operations (OMO): Central banks conduct OMOs to control liquidity in the banking system, which directly impacts the risk-free rate. For example, when the Federal Reserve buys securities, it injects money into the economy, lowering the risk-free rate. Conversely, selling securities tightens liquidity and raises the rate.

2. Policy Rates: The central bank's policy rates, such as the federal Funds rate in the United States or the Main Refinancing Operations Rate in the Eurozone, serve as the primary tools for influencing the risk-free rate. A lower policy rate can stimulate borrowing and investment by reducing the risk-free rate, while a higher rate can cool off an overheating economy.

3. Reserve Requirements: By altering the reserve requirements for commercial banks, central banks can affect the amount of money available for lending. Lower reserve requirements typically lead to a decrease in the risk-free rate, as banks have more funds to lend.

4. Forward Guidance: Central banks use forward guidance to communicate future policy intentions. Clear guidance can anchor expectations and influence the risk-free rate even before actual policy changes take place.

5. Quantitative Easing (QE): During economic downturns, central banks may engage in QE, buying long-term securities to lower long-term interest rates, including the risk-free rate. For instance, the Bank of Japan's extensive QE program has kept its risk-free rates near zero for an extended period.

6. negative Interest Rate policy (NIRP): Some central banks have experimented with NIRP, effectively charging banks for holding excess reserves, encouraging lending, and further lowering the risk-free rate. The European Central Bank's NIRP has led to historically low, even negative, risk-free rates in some European countries.

Examples:

- In response to the 2008 financial crisis, the Federal Reserve slashed the Federal Funds Rate to near-zero levels, which led to a corresponding drop in the U.S. Treasury yields, a proxy for the risk-free rate.

- The European Central Bank's adoption of NIRP in 2014 resulted in negative yields for German Bunds, influencing investors to accept lower returns on investments deemed risk-free.

The interplay between central bank policies and the risk-free rate is a dance of economic forces, where each step taken by the central bank leads to a ripple effect throughout the financial system. Investors and economists alike scrutinize these moves, understanding that the risk-free rate is not just a number, but a signal of the health and direction of the economy.

7. Risk-Free Rate in Different Economic Climates

The concept of the risk-free rate is pivotal in the world of finance, serving as a benchmark for gauging the return on investment against the backdrop of no risk. However, the notion of 'no risk' is not static and can fluctuate significantly with the changing economic climates. In robust economies, the risk-free rate often mirrors the optimistic outlook, with governments issuing debt at lower yields, confident in their ability to repay. Conversely, in turbulent times, the risk-free rate can surge, reflecting the increased uncertainty and the investors' demand for higher compensation for their capital.

From the perspective of an investor, the risk-free rate is a critical component in the calculation of the required rate of return, especially when employing models like the Capital Asset Pricing Model (CAPM). The CAPM formula, $$ R = R_f + \beta(R_m - R_f) $$, where \( R \) is the expected return, \( R_f \) is the risk-free rate, \( \beta \) is the beta of the investment, and \( R_m \) is the expected return of the market, hinges on the risk-free rate to determine the premium over it that an investor should demand for taking on additional risk.

1. Economic Expansion:

During periods of economic expansion, the risk-free rate is typically lower. This is because investors feel more confident about the market's prospects and are willing to accept lower returns for the safety of their capital. For example, in the mid-2000s, prior to the financial crisis, the U.S. Treasury bills, often considered the standard for risk-free assets, offered relatively low yields as the economy was perceived as strong and stable.

2. Economic Recession:

In contrast, during a recession, the risk-free rate can increase. Investors become more risk-averse, seeking the safety of government bonds, which drives up their prices and, inversely, their yields. The 2008 financial crisis is a prime example, where the yields on Treasuries initially spiked before settling at lower rates as the Federal reserve slashed interest rates to stimulate the economy.

3. Inflationary and Deflationary Environments:

Inflation and deflation also impact the risk-free rate. High inflation can erode the real returns of risk-free assets, prompting investors to demand higher nominal rates to compensate for the loss of purchasing power. Conversely, in deflationary periods, the real return on risk-free assets can increase, even if the nominal rate is low, as the purchasing power of the returns grows.

4. Political Stability:

The political climate of a country can also influence its risk-free rate. Countries with stable governments and low political risk typically enjoy lower risk-free rates, as seen in nations like Switzerland and Germany. On the other hand, countries experiencing political turmoil or uncertainty may see their risk-free rates escalate, reflecting the increased risk perceived by investors.

5. Monetary Policy:

Central banks play a crucial role in shaping the risk-free rate through their monetary policy. By adjusting the benchmark interest rates, they can directly influence the yield on government securities. For instance, when the european Central bank (ECB) introduced negative interest rates, it pushed down the risk-free rate, even resulting in negative yields for some government bonds.

The risk-free rate is not a monolith but a dynamic figure that ebbs and flows with the economic tides. Understanding its movements and the factors that drive them is essential for investors looking to make informed decisions about their portfolios and the risks they are willing to undertake for potential returns.

8. Adjusting Investment Strategies Based on Changes in Risk-Free Rate

Understanding the dynamics of the risk-free rate is crucial for investors as it serves as a foundational element in the construction of a diversified investment portfolio. The risk-free rate represents the return on an investment with no risk of financial loss. Traditionally, government-issued securities are considered to be risk-free assets since they are backed by the full faith and credit of the issuing government. However, changes in the risk-free rate can have a profound impact on investment strategies. As the risk-free rate shifts, so does the required rate of return on various investments, prompting investors to adjust their portfolios accordingly to maintain an optimal balance of risk and reward.

From the perspective of a retail investor, the risk-free rate is a benchmark against which other investments are measured. If the risk-free rate increases, the attractiveness of higher-risk investments may diminish unless they offer a correspondingly higher potential return. Conversely, a decrease in the risk-free rate could lead investors to seek out riskier assets in pursuit of yield.

Institutional investors, such as pension funds and insurance companies, also monitor the risk-free rate closely. These entities often have long-term liabilities that are sensitive to interest rate changes. A rising risk-free rate can lead to higher discount rates for future liabilities, potentially improving the funded status of a pension plan, for example.

Portfolio managers and financial advisors use the risk-free rate to calculate the Sharpe ratio, a measure of risk-adjusted return. A change in the risk-free rate affects this ratio and, by extension, the perceived performance of an investment portfolio.

Here are some in-depth considerations for adjusting investment strategies based on changes in the risk-free rate:

1. Rebalancing fixed-Income portfolios: When the risk-free rate rises, existing bonds with lower yields become less attractive, causing their prices to drop. Investors may need to rebalance their bond holdings, possibly shifting towards shorter-duration bonds that are less sensitive to interest rate changes.

2. Evaluating Stock Valuations: The risk-free rate is a component of the Capital Asset Pricing Model (CAPM), which is used to determine a theoretically appropriate required rate of return of an asset. An increase in the risk-free rate can lead to higher required returns for stocks, potentially making them less appealing unless their future cash flows also increase.

3. Assessing Alternative Investments: With changes in the risk-free rate, alternative investments like real estate or commodities may become more or less attractive. For instance, a lower risk-free rate might enhance the appeal of real estate investments as financing costs decrease.

4. Considering International Exposure: Changes in a country's risk-free rate relative to others can influence the flow of capital across borders. Investors might adjust their international exposure based on these differentials to capitalize on more favorable risk-free rates abroad.

5. Adjusting for Inflation Expectations: The risk-free rate is often closely tied to inflation expectations. If investors anticipate higher inflation, they may demand a higher risk-free rate to compensate for the loss of purchasing power, which could necessitate a shift towards inflation-protected securities.

Example: Imagine an investor who holds a portfolio of long-term government bonds yielding 2%. If the risk-free rate suddenly increases to 3%, the investor faces a potential loss as the market value of their bonds decreases. To adjust, the investor might sell some of the long-term bonds and purchase shorter-term bonds or inflation-protected securities to mitigate the impact of rising rates.

The risk-free rate is more than just a theoretical concept; it is a vital component that influences investment decisions across the spectrum. By staying attuned to changes in the risk-free rate, investors can make informed decisions to optimize their portfolios in alignment with their financial goals and risk tolerance.

9. Integrating Risk-Free Rate into Personal Financial Planning

In the realm of personal financial planning, the integration of the risk-free rate is a pivotal element that warrants thorough consideration. This rate, often represented by the yield on government securities, serves as a foundational benchmark for assessing investment opportunities. It is the theoretical return of an investment with zero risk, providing a baseline against which all other investments are measured. The risk-free rate is crucial in the calculation of the required rate of return, which is the minimum return an investor expects to achieve to compensate for the risk undertaken.

From the perspective of a conservative investor, the risk-free rate represents a safe haven, a guaranteed return without the volatility of the stock market or other high-risk ventures. For such individuals, integrating the risk-free rate into their financial plan might mean allocating a significant portion of their portfolio to government bonds or similar securities. This strategy ensures a steady, predictable income stream, particularly important for those nearing retirement or with a low tolerance for risk.

On the other hand, aggressive investors might view the risk-free rate as a benchmark to beat. Their financial plans are likely to be geared towards investments that can offer returns significantly above the risk-free rate, accepting the associated risks. These individuals might use the risk-free rate as a component in more complex investment strategies, such as the Capital Asset Pricing Model (CAPM), which helps in determining the expected return of an asset based on its inherent risk.

1. The Role of Inflation: One cannot discuss the risk-free rate without considering inflation. The real risk-free rate is adjusted for inflation and provides a clearer picture of the actual return on investment. For instance, if the nominal risk-free rate is 3% and inflation is 2%, the real risk-free rate is effectively 1%. This is critical for long-term financial planning, as failing to account for inflation can significantly erode purchasing power over time.

2. Diversification Strategies: Integrating the risk-free rate into a diversified portfolio can help mitigate risk. For example, an investor might allocate 70% of their portfolio to stocks and 30% to risk-free securities. This blend allows for growth potential while maintaining a safety net, balancing out the volatility of the stock component with the stability of the risk-free rate.

3. Retirement Planning: For retirement planning, the risk-free rate is often used in determining the appropriate asset allocation. As one approaches retirement, the focus typically shifts from growth to preservation of capital, and the risk-free rate becomes more prominent in the investment mix. A common strategy might involve gradually increasing the proportion of risk-free assets as retirement nears.

4. Risk Tolerance Assessment: An individual's risk tolerance is a key factor in how the risk-free rate is integrated into their financial plan. A risk assessment can help determine the suitable mix of risk-free and risky assets. For example, a young investor with a high-risk tolerance might opt for a 10% allocation in risk-free assets, while someone closer to retirement might increase this to 50%.

5. economic conditions: Economic conditions also play a role in the relevance of the risk-free rate. During periods of economic uncertainty or market volatility, the risk-free rate might become more attractive, leading investors to shift funds into safer government securities.

The risk-free rate is more than just a number; it is a fundamental component of personal financial planning that influences investment decisions, risk management, and retirement strategies. By understanding and integrating the risk-free rate into their financial plans, individuals can make informed decisions that align with their financial goals, risk tolerance, and economic outlook. Whether one is building wealth or safeguarding it, the risk-free rate is an indispensable tool in the investor's toolkit.

The technologists and entrepreneurs I know are generally good people. If they were given a choice, 'Do your job and eliminate normal jobs' or 'Do your job and create abundant opportunities,' they would choose the latter. Most of them would happily even take a small hit to do so. But this isn't a choice they're given.

Andrew Yang