That similarity reduces the issue simply to one of cost. A security deposit box large enough to fit €1 million – a cuboid of roughly 33cm by 15cm by 30cm, four stacks of 2,500 banknotes – costs about €1600 for two years. That leaves you €998,400 at the end of the period, €2400 better than had you invested in the German government bond.
Admittedly there is probably more risk that a safety deposit box will be broken into than that the German government will go bust. I would say that both are relatively negligible probabilities though, making the safety deposit box a relatively credible idea.
Of course, in reality the number of people who would regard €1 million in cash as an annoying “problem” is pretty small. Nevertheless the example serves to illustrate the headache of being a conservative investor in a low-interest rate environment.
Investors who don’t want to buy bonds don’t necessarily have to buy riskier instruments – instead they may just start thinking about risk in a different manner. Suddenly the trade off might be between guaranteed negative returns or the chance of being burgled.
We could be about to see a whole new wave of innovation – this time of low-risk, conservative alternatives, whether they be financial products or real world solutions.
Ben Kumar is an investment manager at Seven Investment Management
