That´s great news. You have money and want to invest it. And at the same time a challenge if you are currently looking for a safe and profitable investment. High inflation -and thus rising capital market interest rates-, hardly any economic growth, war in Europe and, above all, the climate crisis. All of this makes investing difficult. But it also creates opportunities.
Nevertheless: You act in the spirit of the deceased and legendary founder of the investment house Templeton. When asked about the right time to invest, he is said to have said:
"...the best time to invest is when you have money."
However, it is not only Sir John Templeton's opinion that speaks for the investment at this point in time. This article gives good reasons for entering the capital market in all its diversity, and maybe right now.
Our "Funds in focus" page also shows interesting investment ideas. Take a look.
Interest rates lower than inflation. What to do?
Since the early 1980s, the interest rate on interest-bearing investments has fallen steadily. Today, hardly anyone can remember what used to be 14% per year – risk-free. At some point, the market began to speak of a risk-free interest rate. Even key figures - for example the Sharpe Ratio - had this interest rate as the basis for calculation.
And suddenly the capital market interest rates rise
In the course of 2022, the turnaround in interest rates that was very often forecast and even desired by many took place.
What happened? The rising interest rates are the reaction to the high inflation rate. Double-digit inflation rates have not been observed in industrialized countries since the 1970s and have been forgotten. And suddenly inflation lives again. The mark of 2 percent p.a. currency depreciation, which the European, Japanese and American central banks have declared as a target, is exceeded many times over. What does that mean for you?
Rising inflation = rising interest rates?
The major central banks in Europe and the USA - the European Central Bank ECB, the Federal Reserve Bank FED - assumed a temporary price increase for a long time and have kept interest rates on investments low. They now assume persistent inflation and are reacting with strong and frequent interest rate hikes.
Are capital market interest rates already sufficient?
In Germany and Austria you currently receive around 3 percent interest p.a. if you lend your capital to the state for 10 years. In Italy you get about 4% p.a. for the same period. In the US a bit less (in USD).
Sounds good. And yes, for the investor in government bonds it is about 3 percent more than in 2021. BUT: inflation is higher. Nothing remains of the interest received. On the contrary. you lose money In fact, you're getting poorer! In nominal terms, you receive interest, but in real terms your money is actually worth less.
Monetary values vs. substance values
So if you "invest" your wealth in monetary assets like bonds, savings accounts, or time deposits, it's very, very likely going to be worth less. By investing in value stocks like gold, real estate, private equity and stocks, you increase the likelihood of preserving your wealth. However, real estate is so popular that it now only brings little income with great effort. In addition, rising interest rates could also bring difficulties for the real estate markets.
Asset management and investment consulting
A multitude of different asset classes -assets- open up the royal road to prosperity and returns. It is important to pay attention to many things here.
- The asset allocation answers the question: how high is the proportion of bonds, stocks, commodities, private equity... in the entire portfolio? It also depends on your risk/reward profile.
- The correlation answers the question: how do the individual asset classes react to each other?
- Within the individual asset classes, the term, the payout profile, security, diversification and many other things must be taken into account.
It is all the more important today to have an asset manager or advisor who combines a variety of investment types (asset classes) in such a way that it suits your investment profile. So you have time to enjoy the yields. Make an appointment for a free wealth strategy consultation.