No more time deposits?

The past few years have been unusual in investing. First, we had inflation again, something the Western world hadn't experienced in over 40 years. The orthodox reaction of central banks was to raise rates to levels not seen in years. Thus, short-term interest rates became an attractive investment for many savers, especially in Chile. Why take the risk of being exposed to long-term stocks or bonds if the time deposit (DAP) gave me double-digit returns?

Today the reality is quite different. The rates on 30-day time deposits do not exceed 6% in annual terms, that is, roughly half of what we had a year ago. The financial industry's response is to propose new alternatives, more risk, seeking a “better” rate. That way of tackling the problem is not the right one. Portfolio structuring should be relatively indifferent to the level of rates we have in the economy.

What matters for planning investments should be the long-term objective, liquidity needs and risk tolerance. Just as it isn't right to sell all your stocks because they rose a lot, it's also not reasonable to invest only in time deposits because rates are cyclically high, nor to exit them entirely when facing a normalization. The focus must be structure and planning; there's no room to improvise.

This column was originally published in La Segunda [LINK]