Negative interest rates… a guarantee to lose your money.

Negative interest rates: A guarantee of losing money on your investment? This bizarre concept has grown exponentially since it was first presented by several of Europe’s central banks in 2014.

This was introduced in an effort to stimulate growth and quickly gained traction with global central banks – now over 34% of developed sovereign bonds have negative yields. An example of how this works… If today you give the Swiss Government the pleasure of holding your $1000 for a year, you will lose 1.06% (i.e. you’ll get back $989 in a years’ time).

 

Yields on global sovereign bonds

Source: Bloomberg

Obviously, no one wants to lose money when they put it in the bank. So what are you to do with your hard earned capital? In a search for an adequate return, investors throughout the developed world are being forced to invest in riskier and riskier assets.

Sounds healthy, right? We don’t think so either.

23 September, 2016 – Dan Jenkins is NZAM’s Business Analyst.

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