Is it enough to have a million dollars to stop working?

Becoming a millionaire and enjoying life on a paradise beach in the Caribbean is a fantasy that very few people can achieve.

Obviously, the reasons are very simple: few do manage to raise this amount, and those who do have to spend a good deal of their time keeping their capital from depreciating over time.

In this sense, the latest data on inflation in the United States, which in annualized terms is approaching dangerously close to 4%, are triggering red flags among analysts and financial market operators, as very few options are available. present to prevent being eroded.

Inflation in the United States is a critical variable to consider

Few alternatives to US inflation.

Faced with this reality, the big question arises: in what to invest a million dollars so as not to lose financial capacity? The answer will depend on the risks you want to take on and the level of activity you are willing to take with the investment.

On this point, Gabriel Holand, CEO of HRGlobal, says that “the point is this: projected annual inflation in the United States is 3.6% according to the consumer price index released this week.”

“From this inflationary floor, any investment that pays less than that will suffer a similar fate, that is to say will lose to inflation“Holand adds.

This is why investing in US and German sovereign bonds is losing all the appeal it had until not so long ago.

For example, a 10-year US Treasury bond only pays 1.66%, but if you consider its German pair, the situation is much worse, since the rate is negative by 0.11%.

It is also not very tempting to put this amount in a certificate of deposit in a US bank, since the interest rates paid are around 0.5% per annum, so it barely earns around $ 5,000. per year for locking in the money.

Thus, according to Holand “to obtain bond yields close to international inflation, one must look for a security which is not” investment grade “, which implies taking a certain risk, so that many conservative investors would dismiss this possibility.

Another alternative is to dive into the American or European stock market, in particular that of Germany, a AAA grade paper, which also requires taking certain risks, given the volatility they exhibit.

You have to diversify a lot and take risks

In this scenario, one option that presents itself is “to choose an American Treasury Note, which throughout its useful life, that is to say 10 years, yields” half a point all in “, specifies the HR Global expert.

Translated this definition, it means that if u $ s300,000 are invested, they will contribute a income of $ 15,000, above inflation.

“With the remaining 70%, it would be convenient to buy a representative set of the strongest S&P 500 stocks on Wall Street, if any,” says Holand.

Why this mixture? Because that US $ 15,000 that the T Note would bring you would allow you to maintain, in the worst case, a 10% loss in stock prices.

“Therefore, far from doing the initial operations and forgetting, would oblige to the investor enter Yes go out the stock market almost permanently, ”adds Holand.

Actions are a way, but there are risks

The other option that is presented to a prudent investor would be to acquire shares of an investment fund composed of good quality shares and which also have the possibility, in accordance with its regulations, to retain liquidity in the event of a loss. problem or to invest in conservative bonds the authorized share. cash.

For its part, Mariano Sardan, CEO of FDI Global, says that “in this context of high inflation, and faced with the rate differential between US bonds and those of other countries, institutional investors are making a kind of financial bike, arbitrating between them “.

As for the local investor, “it is obvious that if he wants obligations, the rates will not protect you against inflation. This is why you have no choice but to invest in stocks. Although today the market is expensive, there are some that we can still enter, ”adds Sardans.

But what needs to be clear is that in the face of market fluctuations, in recent months, investment portfolios have moved from a defensive stance against a weak dollar to one that has gradually started to include certain elements such as than agro, energy, Provisions and the segment financial, always with traditional companies.

“If a new portfolio is to be formed today, it should tactical What strategic. To do this, it should include 35% US bonds, an additional 50% global equities and the rest in Treasuries, which have no spreads or commissions, but provide immediate liquidity, in order to stabilize any fluctuation in the portfolio. actions, ”adds the CEO of FDI.

Conclusion: $ 1 million does not mean money multiplication

Beyond the way in which the portfolio is constituted, “it is essential to be very clear on two points: the commissions that are invoiced, because there are marked differences according to the type of entity and due to the effect. Covid, the way family wealth and decision-making, ”concludes Sardans.

In short, if you get to that much desired amount, far from having a good time on a secluded beach, probably in the fight against inflation, the owner of that money spends a lot of time figuring out how to try to win, either alone or with a broker.

The same goes for the cost of a million dollars.

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