A positive mindset is good to have in most situations, including regarding some investment strategies. However, positivity will only take you so far when interest rates are so low that you’re not getting the returns expected. Investors need to look at markets and situations realistically before it’s too late. We’ve taken a closer look at some of the truths about investment returns, including interest rates, the global labor force, inflation and how you should be thinking as an investor.
High Interest Rates Won’t Return Any Time Soon
Not even experts with an abundance of financial knowledge know exactly what interest rates will look like five or ten years from now. However, the overarching expectation is they won’t be returning to the levels they were at 20 or 30 years ago. As history has shown us, the current interest rates are more in line with being the norm for the future. It’s simply unrealistic for investors to think they will get a double-digit return on a risk-free investment today, so alternative investment strategies may be needed to reach specific goals.
Declining Global Labor Force Contributes To Lower Returns
The aging population, low fertility rates and other factors slowing population growth all contribute to the declining global labor force. The growth of productivity also has a downward projection and can impact global investments significantly. Many regions globally are projecting to experience their lowest GDP growth in two decades over the next ten years or so. Countries will have to take into consideration the declining global labor force and develop different strategies for making their economy flourish and to provide better returns for investors.
Decreased Demand Will Mute Inflation
Inflation is a major driving force of interest rates and investment returns. The decrease in demand for many industries could mute inflation for much longer than investors and financial experts think. It’s difficult to predict how demand will change in the aftermath of the COVID-19 pandemic, but this factor will be significant in measuring inflation rates in the next several years.
How Investors Should Think About Returns
When investors consider the truths about investment returns, it can almost seem like they have no choice but to have a negative viewpoint. Rather than being overly-positive or overly-negative, accepting that the global investing environment is slower than it has been in the past is a good attitude to have. On this note, taking advantage of the power of compound interest is critical, which means investing as much as you can as early as possible. Balancing your risk management strategies is also important, and understanding how market volatility works concerning more aggressive investment strategies can help you weigh your risk tolerance.
Stock Investing Info knows the markets aren’t always going to be perfect. That’s why we put together long-term investment strategies based on historical data, realistic projections and individual goals. If you have any questions or concerns about your investment strategies, don’t hesitate to reach out to us at any time.