24 May 2011

Today's War: Savers versus Speculators

When the manager of the world's largest bond fund says that people are facing 'financial repression' it highlights the battle between the ordinary citizen-savers and the speculators who caused a near-collapse of the financial system and the ensuing artificial depression of real interest rates. Despite this deplorable consequence of poor financial regulation investors should not be tempted into risky investments in order to make up for the low interest rates they receive at the moment. While a return of 1 percent a year may be hurting in the pocket it is nothing compared to a much larger loss in ill-conceived gamble in speculative shares or 'investment products' marketed by aggressive salesmen that are only out to cash in on fat sales commissions. It would take years to make of for a loss of only 10 percent of principal and the risk for much higher losses cannot be excluded.