I had a very nice dinner a few days ago with an investment manager I have known for 12 years. We meet regularly and he is one of the investment managers in London that we, as a company, use for some of our clients. So we know each other professionally quite well and one of us always acts as devil’s advocate to the other one’s position in discussions. It is a great way of getting your point of view tested. Yes, we did talk about Brexit, but the more important issue was the fact that long term interest rates are likely to stay low for a very long time in Spain and in Europe. So here are some thoughts about what these low interest rates mean for our savings and investing.
First, Brexit. Brexit is on everyone’s lips and quite understandably so. Whether you love it or hate it, no one seems to be able to work out what is going to happen. I admit to not being able to work out where it will end. The Brexit outcome is incredibly important to us as individuals and businesses. Yet what about for our savings? Britain is the sixth largest economy in the World. Sounds important. According to the World Bank, the World economy is $86 Trillion. Britain’s economy is $2.8 Trillion. So Britain represents just 3.26% of the World economy. Which means we still have 96.74% of the World economy where we can invest!!!
Perhaps the more important story for savings and investments is the impact of very low interest rates that could stay low for decades. My dinner guest gave good insight into the future of low interest rates. This insight is important to us as individuals with savings and investments.
In October 2007, interest rates in the UK fell from 5.5% to 0.5% in May 2009. Interest rates in Europe followed a similar path. The ECB in July 2007 cut its interest rate from 5.25% to 0.75% in May 2009. The ECB rate has now fallen to just 0.25%.