Investing

A few weeks ago German 3 year Government bond yields dropped into the negative. That means investors were so scared of the financial environment they basically said to the German Government “we’ll forego any interest on our money and pay you to look after it”.

But the world’s best investor is warning of the pitfalls of locking in to such low interest rates.

Warren Buffett, and his chief investment officer at General-Re New England Asset Management, say “Sovereign bond yields in putatively safe countries are an excellent way to grow poor, at accelerating rates over time.”

Basically what they’re saying is this fear in the market will not last forever and the investment cycle will turn… as it always does.

Central Banks and monetary authorities are pumping trillions of dollars into the global economy to kickstart a return to growth. At some stage that stimulus will start to work, economies will grow, inflation will start to rise and so will interest rates.

When interest rates start to rise, investors holding today’s low rate bonds could be hit with massive capital losses if they try and get out early.

It’s a sobering warning to keep everything in balance.