Negative interest rates - an analysis of the available options
More and more private and institutional investors are confronted with the issue of negative interest rates. The allowances at banks are becoming smaller and smaller. What to do? We have examined the proposals offered by banks and asset managers. Three sensible options and many dangers become apparent.
ZWEI Wealth has investigated what banks and asset managers recommend to their clients as a strategy for dealing with negative interest rates. Most of the recommendations involve a significant increase in risk for clients. Of the investment proposals examined, only 35% can be recommended. With the remaining suggestions, clients run the risk of avoiding negative interest rates, but ultimately paying an even higher price in a different form.
The most important findings in the overview
From the investment proposals examined, five categories of risk and three sensible options can be named.
Categories of risk
- No financial plan (liquidity risk)
- Bonds in funds and ETFs (illiquidity risk)
- Blending in bad risks to increase the expected return (default risk)
- Blending in too many equities (valuation risk)
- High fees (cost risk)
Three sensible options
- Distribute cash among several banks
- Liquidity portfolio consisting of direct bonds with an expiry structure matching the individual financial plan
- Value preservation portfolio with bonds, shares and possibly options strategies
The advisors at ZWEI Wealth will be happy to work out the right solution for you and organise the best offers from banks for you. We look forward to hearing from you.