The interest rate turnaround is coming: Which alternative investments are now worth a look at
As soon as investors have become accustomed to significant interest rates for investments such as overnight or fixed-term deposits, central banks around the world are tending to change their course again. As a result, interest rates could fall significantly as early as 2024. Investors should therefore react now and focus their portfolio for the future. But which asset classes are particularly suitable for this?
Interest rate cuts a matter of time
In June 2024, the US Federal Reserve Fed did not yet shake the interest rate level of 5.25 to 5.5 percent, but the ECB (European Central Bank) lowered the key interest rate down 0.25 percentage points to 4.25 percent for the first time in almost five years and the deposit rate, which is important for banks, from 4.00 to 3.75 percent. Two thirds of professional ECB observers expect a total of three steps this year: a second after the summer break in September and the last one at the December meeting of the Central Bank Council.
The US Federal Reserve could soon follow suit: Key interest rate projections signal an interest rate cut by the end of 2024; the key interest rate projection for 2025 is also higher at 4.1 percent than it was in spring.
Several market participants would benefit from the interest rate turnaround: On the one hand, the construction industry and building owners, as loans are becoming cheaper again. On the other hand, lower interest rates help the entire economy because investments generally become cheaper as a result. In addition, consumers' willingness to consume is generally increasing, whose purchasing power is increasing.
Savers, on the other hand, are losing out. In their Monthly interest evaluation, the magazine “Finanztest” notes that the interest rate on popular savings products fell further in June 2024 is. And this is despite the fact that the evaluation was carried out at the beginning of June - and thus before the latest ECB interest rate cut of 0.25 percentage points. In the meantime, there is no longer a single offer with a four before the decimal point - neither for overnight deposits nor for fixed-term deposits.
Readjust the portfolio — but how?
The question that private and institutional investors are now asking themselves is therefore: Where can I get as much return as possible with the lowest possible risk? The short answer is: for stocks and alternative investments.
In fact, the “rule” applies on the markets: interest rates down, share prices up. While this is not always true, equities tend to benefit from falling interest rates as investors reallocate their portfolio towards potentially higher-yield forms of investment. Technology and growth stocks in particular have developed excellently in recent years, thanks in part to AI. For this segment, falling interest rates are generally particularly beneficial, as capital-intensive companies benefit to a large extent from cheap loans. In addition Experts assume that even strong stocks (value) will pick up steam again in the event of a turnaround in interest rates could. Accordingly, diversified equity funds would represent a profitable form of investment in an environment of falling interest rates.
Government bonds from countries on the geographical and economic edges of the Eurozone, such as Greece, Portugal, Spain and Italy, could also be worth a look. That is loud Experts from JPMorgan Because lower interest rates typically reduce the costs of taking on new debt, which in turn reduces the financial burden on these countries and makes their bonds more attractive.
But it is also worthwhile for private investors to “think outside the box”, because alternative investments are on the rise in addition to stocks, bonds and funds. Since the historical barriers to entry are sometimes thanks to Low-threshold accessible platforms such as FINEXITY have fallen, retail investors can also discover the potential of alternative investments for greater diversification, stability and a potentially higher total return.
Alternative investments as a portfolio addition
There are various forms of alternative investments. For example, real estate investments in residential, commercial or vacation properties can provide stable rental income and increases in value. Private equity, i.e. investments in unlisted companies, often opens up higher growth opportunities and infrastructure investments in projects such as energy supply or infrastructure can also generate stable income. Investments in tangible assets and collectibles such as art, classic cars, fine wine, luxury watches, stringed instruments and diamonds also offer attractive return opportunities.
The bottom line is that alternative investments can be an important part of a diversified portfolio. This is because they not only offer attractive return opportunities, but also enable a wider diversification of the portfolio. In addition, they often offer better protection against inflation and have a low correlation with traditional financial markets, which can improve portfolio stability. These factors make alternative investments an attractive option for investors who want to adjust their portfolio for the future.
With FINEXITY can even invest in alternative investments starting at just 500 euros. In the past, real estate projects, private equity or collectibles were primarily accessible to institutional investors due to their high price levels and significant barriers to access. But thanks to digitization or tokenization into many, small shares, FinExity investors can now also expand their portfolios to include alternative shares and thus secure attractive return opportunities beyond traditional markets.
