As part of a new series showcasing insights from top financial experts, this article was contributed by financial strategist and founder of Weipedia, Wong Kon How.
Passive investing strategies work until 2021
Passive investing is defined as buying quality assets and holding them for the long term, expecting them to appreciate. This strategy has worked well because global interest rates have been declining since 1981, encouraging borrowing. However, this global trend is changing, and it is likely that interest rates will continue to stay higher for longer. Does passive investing still work in times like these?
Source: TradingView
Equities in West and properties in East ballooned since 1981
With the decline in interest rates since 1981, equities in the West and properties in the East have increased manifold.
Source: TradingView / TradingEconomics
4 Reasons inflation and interest rates may stay high?
• Debt
• Dollar
• Inflation
• Bond
With the ever-increasing US debt and no signs of decrease, it will only lead to a dilution of the Dollar. Comparing beyond the dollar and emerging currencies, developed countries' currencies like USD/SGD and USD/CHF have strengthened against the USD in recent decades. Dollar weakness contributes to inflation. US Bonds are another worrying sign; they have remained at their lowest points in recent years, signaling diminished trust in the Dollar. This could become a vicious cycle.
Source: TradingView
When we have an insight into where inflation and interest rates are heading in the long term, the passive investing strategy that worked over the last four decades may not guarantee equally effective results in the coming decades.
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