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Alternatives to deposits, accounts and fixed income funds

Alternatives to deposits, accounts and fixed income funds

The other day we were preparing the publicity for a conference that we are holding precisely this afternoon, the purpose of which is to report on profitable alternatives to deposits and checking accounts, when lo and behold we ran into ‘the algorithm’.

A part of the title speaks of “risk-free profitability” and that is where we come across the new censorship: ‘the algorithm’ of a social network (the sin is said but not the sinner) considered that one could not speak of “risk-free profitability”. ”. And it automatically blocked the ad.

He didn’t even notice that, right after the colon, it put “alternatives to deposit and checking account”. Or he didn’t understand it, because for many years a deposit in a top-tier bank -and up to 100,000 euros in any bank since the Guarantee Fund (FGD)- has offered positive returns without assuming risk.

The commissions ‘to the Spanish’ eat, not only the low profitability of the fund, but also the client’s assets

And, more recently, remunerated current accounts. The last few years of zero returns on deposits and accounts are the exception, not the rule. But ‘the algorithm’ doesn’t know that.

Worse still: even those who know the least about finances know that money market funds invested in public debt of developed economies have been offering positive returns without risk for a whopping 50 years. It is only very recently that we have entered a period of zero or even negative returns. And that it will last for some time, it is true, but nothing comparable to the decades of positive returns without risk.

What’s more: in many countries there are insurance company products that even today offer positive returns without market risk. In Europe, this type of saving has had and still has enormous weight. But nobody explained it to the algorithm.

Aside from poor historical programming, another problem with algorithms is that they don’t understand nuance. It is not possible to get a high return – or even a medium return – without risk, but there has always been the possibility of getting a low return without risk. Or a low return with little risk, which, in practice and in the medium and long term, is almost the same.

Medium and long-term fixed income funds have a real viacrucis left

Although I would love to write about what kind of society this is in which an algorithm decides what is true or what is false – based, moreover, on limited and sometimes wrong information – my job is to advise people when it comes to making your investments, so let’s eliminate the confusion created by the algorithm. Let us see that, indeed, there are low or zero risk alternatives to the deposit and the current account, especially in investments planned for a term of between one and three years.

I have mentioned the products of insurance companies. It is not easy to find them and in many cases they carry conditions on minimum amounts, etc. But they exist. And among the investment funds there are also low-risk alternatives, even if the price is a low return. But it is not zero or negative. They are not easy to find, because Spanish banks and management companies are not aware that, with the low levels of profitability currently offered by conservative assets, the ‘Spanish-style’ commissions eat up, not just the low profitability of the fund, but also the client’s assets.

Fortunately, and although the commission revolution here has penetrated less than in the rest of the world, among the investment funds there are products with very low commissions without the need to invest large amounts. Including ETFs, which, except for the Spanish treasury, are investment funds throughout the world. In fact, they are third-generation funds and are also suitable for conservative investment.

Also very important are the nuances in relation to mixed funds. Now that the bank is pressuring its clients to abandon their checking account and buy funds from the house. It is offering them mixed fixed-income funds. But for the most part they are by no means without risk. And sometimes it is very high. And not only for the part invested in equities. Imagine a fund that has 70% of the portfolio in fixed income and it is medium and long-term bonds… in the middle of a period of rising inflation!

The last few years of zero returns on deposits and accounts are the exception, not the rule

The good news is that there are low-risk and positive-return alternatives in mixed funds. But not in the ‘broad brush’ offer – the “lifelong fixed-income mixed” – offered by most banks. No, the solution lies in working with an open architecture, To access a very wide range and very low commissions. And in understanding the nuances, which are very important in mixed funds. Like the shades of colors that a painter uses and whose differences ‘the algorithm’ probably doesn’t understand either.

Last but not least, be clear that fixed income funds are not an alternative and that. In fact, substitutes must be found because their problems have only just begun. And it is a task “for yesterday”. Literally, because the relatively modest losses you’re seeing is just the beginning. Now it is due to the rise in inflation, but then tapering will come and later the central banks will turn off the tap and stop buying bonds.

Medium and long-term fixed income funds have a real ordeal ahead of them. Which makes it imperative to find substitute products for conservative portfolios. And for the conservative part of almost all fund portfolios. By the way, if you are interested in the subject and wish to attend the colloquium. You have the information on our website.