May 25, 2024

The increase in cheap financing opportunities in global markets and the slowdown in economic growth caused interest rates in developing countries to fall to historically lowest levels in 2012. Turkey, which became an investment grade country with Fitch’s rating upgrade, became one of the countries that benefited the most from the global wave.

There are three basic strategies that investors can follow in this “new normal” period, when high savings, who are accustomed to receiving high real interest rates by making short-term deposits, become fish out of water.

(I) Continuing to stay short-term, confident that the fall in interest rates is temporary. (II) Turning to low-risk real-return assets, fearing that expansionary monetary policies will eventually increase inflation. (III) Trying to increase returns by turning to risky assets.

Let’s examine these strategies in turn, each with its own risks and opportunities.

(I) Continuing to stay in the short term, relying on the fall in interest rates to be temporary: High wealth individuals and companies are accustomed to earning relatively high returns at low risk by staying in short-term deposits. It is not easy to give up on this strategy, which has yielded good results for the past 20 years, in the short term. However, let’s underline that the upcoming period will be very different from the past. We are facing a period of low interest rates that will last for many years. Spending this process in the short term means that a small part of your wealth will melt down in real terms.

 (II) Turning to low-risk real-return assets, fearing that expansionary monetary policies will eventually increase inflation:

The economic history of the 20th century shows that expansionary monetary policies will lead to an increase in financial asset values ​​in the short term and to inflation in the prices of goods in the medium and long term. Investors who believe that the current bubble, in which the balance sheets of developed countries’ central banks have risen several times, will eventually increase inflation, can protect their wealth in real terms by investing in CPI-indexed government securities.

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