“While low or negative interest rates are still relatively new in the UK and Europe, Japanese savers have been wrestling with the phenomenon for more than two decades, since rates first hit zero in 1999.” says the FT
“In a world with low returns, as well as growing job insecurity and uncertainty about the future of public pensions, potential savers wanted to hold on to what they have rather than take risks in pursuit of high returns. “Many of our customers are older and rather than aggressive investments they want to preserve their capital,” says Mr Matsuda.”
This is a massive problem facing UK savers and investors. It’s really a story about how investors allocate capital into cash and bonds…with the expectation of minimal returns. And then find their problem is compounded if they delegate to wealth managers, private banks stockbrokers etc in pensions, ISAs and so on. For simplicity, if you are told your management fees are 1%, (Actual costs are more than investors generally appreciate), after costs how much are you left with? Nothing or negative? Most investors will not see a problem, as they have managed or mixed portfolios. If the risk of equity gives you 5% for example, you don’t see the drag on bonds in your portfolio.
Investors need to think very carefully about paying for services that don’t add value. The solution is for wealth managers to get you into equities to justify their costs! You take all the risk so they can get paid.