Saturday, November 1, 2008
Zero interest rate and deflation: how would you make money in such world?
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We want you to think about thes question below, and write your answer in the comments section or email it to us for publication consideration on this blog.
How would you make money in such world: Zero interest rate and deflation?
We ask the question because the traditional way to invest will lead to losses at worse, and at best no change at all in account size (negative growth or no growth).
We will provide our answer but you must subscribe if you are not a subscriber. You must think about this, as all traditional investmenet strategies used in retirement funds assume inflationary world, and positive interest rates.
But what if the next decade is different?
We know a lot of people who did go through the above context without adjustement in their mental plans: they are called japanese, and they have lived this this for close to 20 years now!
The last 20 years, the japanese did however have the luxury to invest in an inflationary world with positive interest rate via US, european and asian markets.
But the situation we raise in this post is a world wide situation! Thefore the answer of moving to other markets will not make it. One need to change investment thinking at the fundamental level.
How would you invest (do not answer by simply writing it will not happen!)?
If you are planning for retirement via investment in markets or if you are already living in retirement on your market investments, we cannot think of a more pressing and important question to ponder than the question we ask in this post.
Profits originate in our heads, and are the mental equity. No thinking is free.
PS:
In investing and trading, a man's mental equity (despite his genuine thinking from an effort and time point of view) can be negative because the mental equity of his opponent is positive. It is all relative.
How would you make money in such world: Zero interest rate and deflation?
We ask the question because the traditional way to invest will lead to losses at worse, and at best no change at all in account size (negative growth or no growth).
We will provide our answer but you must subscribe if you are not a subscriber. You must think about this, as all traditional investmenet strategies used in retirement funds assume inflationary world, and positive interest rates.
But what if the next decade is different?
We know a lot of people who did go through the above context without adjustement in their mental plans: they are called japanese, and they have lived this this for close to 20 years now!
The last 20 years, the japanese did however have the luxury to invest in an inflationary world with positive interest rate via US, european and asian markets.
But the situation we raise in this post is a world wide situation! Thefore the answer of moving to other markets will not make it. One need to change investment thinking at the fundamental level.
How would you invest (do not answer by simply writing it will not happen!)?
If you are planning for retirement via investment in markets or if you are already living in retirement on your market investments, we cannot think of a more pressing and important question to ponder than the question we ask in this post.
Profits originate in our heads, and are the mental equity. No thinking is free.
PS:
In investing and trading, a man's mental equity (despite his genuine thinking from an effort and time point of view) can be negative because the mental equity of his opponent is positive. It is all relative.
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3 Comments:
nobody knows that the environment will be deflationary. but if one trades in and out reasonably quickly, than one should be able to make money regardless of inflation/deflation.
"nobody knows that the environment will be deflationary."
I think the post's point is what if it turns out to be the case? Are we representing that scenario in our investment plans.
I admit I have not given it any thoughts before. The first time I understand why bond rise in price even when interest rate is close to zero.
deflation = short gold
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