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A year or two ago, the banking sector had to revise its terms and conditions. What was changed? The introduction of the possibility for customers to experience negative interest rates. The proponents of the ECB aimed to stimulate economic growth by keeping interest rates low (even negative) to encourage the circulation of money. However, with prices rising significantly and even the staunchest critics acknowledging the presence of inflation, interest rates have gradually turned positive again throughout 2022. But are they significantly positive? Not really.
In March 2016, the news broke: the European Central Bank decided to set the interest rate at 0 percent. Why? Because the ECB was struggling to kickstart the economy and the inflation rate of -0.2 percent was far from the desired 2 percent target. However, it is now evident that we have far surpassed that goal. In the Eurozone, we have witnessed remarkable inflation peaks of over 10 percent, prompting the ECB to raise interest rates in 2022. Just this week, in Frankfurt, the decision was made to increase the interest rate by 25 basis points to 3.5 percent after the second quarter of 2023. This news emphasizes once again that the ECB anticipates further increases in the future. Good news for the affluent individuals who have already accumulated their wealth. However, savings rates are not yet as high as the ECB's percentage, as banks can only apply these rates to new contracts that need to be concluded in large quantities. But the allure of traditional interest-based income is resurfacing.
The question, however, is whether this is truly what you desire. With these fluctuations and the expectation of inflation in the coming years, it seems unlikely that this savings interest will be sufficient to sustain your endeavors. So, how can you ensure that your money works for you?
For quite some time now, we have been advocating for investing in stocks, which the past decade has proven to be a wise choice. Everything has been on the rise, and even the newer sectors have performed exceptionally well. But just when even the affluent were seduced by the allure of the tech sector and poured substantial sums into the NASDAQ, they were bitterly disappointed in 2022 with a daunting negative return of 33.1 percent.
But don't panic! The NASDAQ is slowly recovering to its previous levels. As long as you diversify your investments, both geographically and across different indices, you need not worry excessively, and that desired return of 7, 8, or even 9 percent can become a reality. When comparing it to the realm of savings, it can be confidently stated that future interest rates have no chance of competing with the reliable returns offered by the stock market. Even though the market may occasionally seem indifferent, its results are undeniably convincing. Furthermore, this standpoint is reaffirmed by a recent study revealing that the most successful investors are those who are no longer with us, rather than the crypto day traders.
Naturally, we understand that your portfolio may benefit from further diversification beyond stocks. Therefore, it is intriguing to expand your portfolio with assets outside the traditional stock market. Consider investing in various properties across different continents. This not only adds diversity to your holdings but also diminishes the financial distance between different parts of the world. Additionally, you may contemplate investing in tangible assets such as valuable vintage watches. These watches not only appreciate in value but can also serve as stylish accessories. Let us not forget the pleasures of quality wines and whiskies, such as Macallan, Ardbeg, or other hidden gems. You can include them in an external investment club or add them to your own private collection. Okay, perhaps the latter might entail capital depreciation, but it is an incredibly enjoyable indulgence.
