Since the beginning of 2024, savers and investors have noticed a significant reduction in the returns on their short-term investments. They have gone from enjoying double-digit returns in previous years to seeing rates that are currently around 7%.
The reason behind this transition is often forgotten. High interest rates in Mexico, which exceeded 10% for almost two years, were the Bank of Mexico’s response to post-COVID inflation. Now, with inflation controlled below 4%, those levels are no longer justified, which has led the central bank to reduce its interest rates.
Precisely because of the attractive returns offered by high rates, the average investor was tempted to forget the benefits of diversification and concentrate excessively on short-term instruments. However, the situation has changed radically: the imminent downward trajectory of rates makes it urgent and relevant to look for other investment options to protect the purchasing power of your money.
Below are some concrete ideas for navigating the current low-rate environment without underestimating the risk of an inflationary spike. The objective is to incorporate instruments that can generate returns higher than those in the short term and others that offer protection against inflation:
● Indexed Bonds/UDIBONOS: these government instruments are specifically designed to protect capital against inflation. The face value of the bond is adjusted for inflation and pays a fixed real interest rate.
● Long-Term Bonds: When the central bank cuts rates, the price of existing bonds with higher rates tends to rise. Investing in long-term government or corporate bonds (5, 10, 20 years) allows you to “capture” a higher return. Profits are sought not only from the interest, but also from the appreciation of the bond’s capital.
● Companies with Pricing Power (Stock): These companies can raise their prices without losing important customers, allowing them to protect their profits from rising costs. This power comes from three key factors: a strong brand with loyal customers, unique products or services that are difficult to substitute, and a dominant position in its market.
● Real Estate Sector (FIBRAs): they offer a double benefit: in times of low interest rates they become more attractive due to their dividends and lower financing costs, while in periods of high inflation they protect capital and returns through the adjustment of rents and the capital gains of the properties.
● Growth Sector (Stocks): Reducing interest rates makes the future earnings of growth companies worth more today, while reducing their financing costs for expansion, which should be reflected in higher share prices.
● Raw Materials (Gold): historically has acted as a store of value. Although it does not generate interest, its value tends to rise when there is economic uncertainty or unexpected inflation.
It is crucial that the investment in these assets is made within a well-structured portfolio. The key is to maintain healthy diversification that reduces volatility.
Ultimately, the true goal of any investment is not nominal return, but rather the preservation and growth of purchasing power. With inflation controlled but latent, and with interest rates on a downward trajectory, a window of opportunity opens to reconfigure the strategy. The risk profile must be evaluated, diversified cautiously and ensure that the assets work today so that the objectives can be achieved tomorrow.
*Private Banking, BBVA Wealth and Private Banking
