Because as soon as you can get a risk free rate of return, (savings) then why would someone invest in a half brained start up that has a low probability of any return, when you could get a risk free return.
The FED has reduced interest rates to drive spending in startups, lending, housing market, and the stock market.
But don't worry, .5% is only a start, we have a ways to go before Unicorns start to starve.
> Because as soon as you can get a risk free rate of return, (savings) then why would someone invest in a half brained start up that has a low probability of any return, when you could get a risk free return.
Because startups, while they may have a low probability of return, have a high potential upside, whereas low-risk (and essentially zero-risk, like US government debt) investments have fairly locked-in maximums as well as minimums.
Sure, the higher returns in low-risk investments, the better returns have to be in high-risk investments to justify choosing the latter over the former with the same risk sensitivity.
You should look into the probability of those high returns. The media likes to remind you of the Facebook / twitters/ google, but those are just one in thousands.
So you have a one in ten chance. If you pick a startup that fails, I doubt you will be able to reclaim any of your investment. It's not like you can get liquid, when things start to go in the wrong direction.
The FED has reduced interest rates to drive spending in startups, lending, housing market, and the stock market.
But don't worry, .5% is only a start, we have a ways to go before Unicorns start to starve.