Private banker Christof Reichmuth, head of the Lucerne private bank Reichmuth, takes an unusual position in the current market environment: He advises investors prioritizing wealth protection against investing in nominally-interest-bearing bonds in dollars and euros. This recommendation contradicts many of his industry peers, who continue to see government bonds as an important component of balanced portfolios.
Reasons for Rejecting Dollar and Euro Bonds
Reichmuth cites the rising debt levels in both the USA and Europe as the main reason for his stance. Even without a current crisis, debt could continue to grow, which in the event of a financial crisis increases the risk of higher inflation. In such a scenario, nominally-interest-bearing securities from regions with weak currencies jeopardize the preservation of purchasing power.
Three Alternative Stores of Value
Instead of traditional bonds, Reichmuth suggests three different “stores of value” for wealth protection:
- Real Estate: Tangible assets like real estate are traditionally considered to be inflation-protected and can provide long-term value retention.
- Precious Metals: Gold and other precious metals are often used as a safe haven, especially in times of economic uncertainty or high inflation.
- Stocks of Selected Companies: High-quality stocks from companies with strong market positions and solid business models can also contribute to value retention.
According to Reichmuth, these three asset classes offer better protection for his clients’ wealth than traditional government bonds in dollars or euros.
Implications for Private Investors
Reichmuth’s strategic approach is particularly relevant for private investors who value long-term wealth protection. In an environment of rising government debt and potential inflation, a diversified portfolio of tangible assets, precious metals, and high-quality stocks may provide more security than traditional bond investments.
His approach also emphasizes the need for active portfolio management in light of changing macroeconomic conditions, a point that is gaining importance currently.