Global deflation: Alter your strategy

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The deflationary pressure on the world economy will not go away easily. And companies will carry on restructuring – the large ones will want to work with fewer people. Chances are high that cheap money will be around for the foreseeable future. Negative interest rates are already there, and the possibility that they will hang for some time is high. Interest rates on savings accounts for individuals are very low but still in positive territory, save for a few exceptions. Cash-rich companies today have to make do with negative rates much more often.

GLOBAL INFLATION If interest rates on savings drop below zero, at a certain point individuals might be tempted to take their money from the bank and put it in safes. But to buy or rent a safe also costs money and to pay in cash costs more time and money than paying online. In conclusion, even individuals can accept a small negative interest rate on savings to compensate for the ‘money and time’ cost of cash in safes.

Where to invest your excess money in these days of global inflation?
First let it be clear that governments signal ever louder that they want us to spend our money, not to save it. And in a sense we are only as rich as the money we can spend. But it is wise to save some of it for the future: for a new smartphone, a new car, travel, housing, pension and the increased cost of living at old age.

The good news is that cheap money, particularly over a prolonged period of time, puts a floor under real estate and financial markets. And as the dividend yields on shares are so much higher than bond coupon yields, this becomes attractive. The same goes to some extent for rental income. Keep those assets, but be selective.

Look for companies that have stable income and are capable of controlling costs and handling the digital challenge, or even already embrace it. The same goes for real estate assets. For more active investors, who are ready to take on more risk, the disintermediation play can be very rewarding, but it is not easy to pick the winners. As borrowing rates should stay low, entrepreneurs and companies with a relative high leverage will be able to keep on challenging better capitalized companies or established brand names.

Risk is always an option, but you cannot beat an efficient market in the long run. Know your investor profile, your time horizon; diversify your investments and do not be too greedy, for it may blind you to the obvious risks of ‘too good to be true’ offers.

Personal ‘investment’ balance
Finally, who says that investment returns should be counted in money terms only? If you buy a piece of art and your see it every morning in your kitchen, bringing a smile on your face at the start of the day, that is invaluable in money terms. And giving money to a charity in general, or to the schooling of a child more specifically, will touch your heart and soul in a manner investment returns can never do. Find your personal ‘investment’ balance, live it and enjoy it.