A risk-free asset is an investment, typically one with minimal risk, that is expected to yield a specific return with almost zero possibility of the principal investment being lost. Examples of risk-free assets are government bonds, Treasury bills, and short-term deposits. Risk-free investments have a few advantages.

First, risk-free assets provide a guaranteed return, so investors know exactly what their returns will be. Since there is little to no risk of experiencing a loss, investors do not need to worry about volatility of market prices. This can help investors who are risk-averse and want to minimize the chances of experiencing a loss.

Second, risk-free assets provide diversification opportunities. Investors who diversify their investment portfolio with a combination of risky and risk-free assets can reduce their overall level of risk by using risk-free assets to offset their riskier investments.

Third, risk-free investments can be a reliable source of income. Risk-free assets tend to have low return on investment, but they are a reliable source of income that can help cover expenses while less risky investments take longer to mature.

Although risk-free investments sound like an ideal option, they are not without risk. For starters, risk-free assets are not completely "risk free"—they are still subject to inflation risk. Over the long-term, the purchasing power of risk-free investments may decrease due to inflation. In addition, investments such as Treasury bills and short-term deposits may also be subject to reinvestment risk, meaning that when the investment matures, the investor may not get the same rate of return on their investment.

Finally, a risk-free asset is not the same as a guaranteed asset—no asset is completely safe from nominal loss. Investors should be aware of the risks associated with all investments—even those that are considered "risk-free." Investing in risk-free assets can still be a safe choice for investors, but it is important to remain knowledgeable about the risks associated with these investments and make sure that the returns are worth the risk.