How to seek profitability with low interest rates
SAVINGS AND INVESTMENT I August 3, 2020
Never before have the base interest rates in the European economies been so low for so long. At the end of October, the European Central Bank (ECB) decided to keep interest rates on refinancing operations at 0%, loans at 0.25% and deposits at -0.50%. And at the moment there is no sign of a rate increase, as long as the inflation outlook (0.7% in October in the Eurozone) doesn't reach the 2% that the ECB set as its target.
This climate of low interest rates plays a key role in the performance of the most conservative assets. Thus, at present more than 50% of public sector bonds issued around the world offer negative rates, that is, they return less money than is deposited. An example of this is the 10-year German bond, which in October 2019 offered an expected negative return of close to -0.6%. In the same time frame, the Spanish bond offers a 0.14% interest rate which, although it is a positive return, when the expected inflation is deducted, the real return is negative. Over the next few years, the expectation of higher returns on fixed income remains very low.
Nor can savers focus their attention on fixed-term deposits, which are barely paid anything, and no changes are expected until the official ECB rates are increased. Against this background, how can you achieve profitability with low interest rates?
In view of these forecasts, conservative investors wonder how to pursue returns with low interest rates. The answer is to look for such returns in markets other than fixed income ones and look at higher risk assets.
Bearing in mind that there is no expectation that interest rates will rise, at least until 2020, these are the keys to investment if you want to get a return on your savings.
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