The huge pressure on interest rates in the last years has stopped traditional returns on savings accounts. Hence, careful and wise investors are now looking for alternatives.
Our capitalist system is under pressure. For years, interest rates have been low and even negative. People are desperately looking for investment opportunities to avoid evaporation of their financial assets. Central banks are making investors feel like walking through the desert. In the past, they were in a green and juicy grassland. Simple savings account, savings bond and eventually risk-free stocks were enough to keep assets at the same level and maybe even increase them. Most investors in Europe have built their savings this way like prudent “good housefathers”. Those days are now behind us. The nice green grassland has been replaced with a dry desert full of snakes and fata morganas. The nice and prudent “good housefathers” are becoming desperate hungry speculators.
Why is that so?
In a dry desert people are desperately looking for a glass of water. If they get something to drink they are not too demanding and they don’t look closely at what they have. You see the same thing with savers who are desperately looking for products with some return. They literally buy everything they can without actually knowing what they are doing.
How did we get so far?
The low interest rates are the result of the central banks’ policy. An extremely large amount of debt has been accumulated. One of the criteria of the Maastricht Treaty in 1992 was that the national debt of EU member states should not exceed 60 percent of GDP. Currently, the European Central Bank has already bought up more than 70 percent of GDP in debt securities. The financial agreements are therefore not respected. It is as if a maximum speed of 100 kilometers per hour has been set, but there are no more flashers at 130 kilometers per hour.
Then, what should central banks do?
Central banks should only intervene in emergencies, but nowadays they do it almost daily. This has led to unhealthy misalignment of the financial system. Compare it to the functioning of the electricity switch box at home. The main fuse should only blow in an emergency. If the main fuse is blowing every day, there is something wrong with the electricity network. We might flounder for another ten years, but it is also possible that the financial system will collapse over time. Consumers must therefore take all possible scenarios into account, especially when it comes to their personal finance. And above all, they must be able to survive any scenario.
What are the solutions for the future?
Investors are not prepared for the current financial system, like a dry desert. They should be coached. But good coaches are lacking. Bankers, for example, cannot be trusted just like that. There are unhealthy incentives in the present banking system whish is under pressure. Nothing is earned anymore on interest-related products, but rather on risky products, the reason why banks are trying to sell them more. Actually, there should be a survival kit that allows people to manage their personal finance, a handbook on how to survive in the desert.
What should this survival kit contain?
First, always keep on diversifying. It's like chess: you never know what your opponent's next move will be, so it's best to consider as many scenarios as possible. Even if the financial system collapses, you need to have something on the side. Real estate, stocks, cash, gold and bonds (much less than before) are the assets you must look at. You can then possibly bet on bitcoin for the part you would spend on gambling.
Is this the reason why people invest so much in real estate?
There is indeed a large-scale invested in real estate. It seems that every wealthy family has now become a real estate promoter. Such investment is not bad at all and reasonably stable in value, but unfortunately overvalued today. This is equally true for other assets, such as gold, rare cars or art. Investing in hard assets has always been around. In the past, people used to buy, for example, expensive furniture or a painting that could be sold in case of an emergency.
Can saving maybe disappear one day from our human behavior?
Securing the future is a kind of instinct. Recently, the impression has been given that the government will always provide a helping hand, but as a private individual you should not assume that. You are in the best position to organize your future. No government can do that better than you. That is why saving is not such a bad strategy at all, just call it a survival strategy.