Your Financials - Making the most of this summer

23 June 2020

No, definitely and distinctively not the kind of summer any of us had in mind. In the news we see a lot of mixed messages, some are about the here and now, others regard our financial future.

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No, definitely and distinctively not the kind of summer any of us had in mind. In the news we see a lot of mixed messages, some are about the here and now, others regard our financial future. Parts of the economy have come to a standstill of which many hope it is temporary but in part, it will be permanent. Other parts of the economy benefit from the intravenous money drip provided by the government. Many keep their job as a condition to the employer receiving the drip. But we know this will not last. And although scientists around the globe work like crazy to find an effective vaccine, it is not there yet and it could take some time before it will. We are in a twilight zone.

The Dutch Central Bank has never recorded a larger increase in savings than it witnessed in April. We expect May (for most including holiday pay)


will have broken that record and June might be similar to April. So psychology makes us hoard in times of crisis and cash is no exception. This is exacerbated by the lack of spending possibilities in e.g. restaurants and holidays. Given the poor, if any, interest given we must be slightly masochistic. So where does the money go?

By far the most popular destination is one’s castle, the home. DIY companies’ stock is doing better than average. The number of “oversluitingen” (interest renewals) has peaked as many want to make sure their future expenses are as low as possible.


The graph above shows the number of oversluitingen per week, comparing 2020 to 2019, as recorded by HDN which records substantially all Dutch mortgage movements, including Q1 2020. The continued increase in house prices (Crisis? What crisis?) is a strong motivator for people to stay where they are. Unless you have a floating rate loan, in many cases the bank must be compensated for the loss of interest you will no longer pay. As that compensation is tax-deductible and the pile of cash being there simplifies decision making. Is that smart? Definitely, if your horizon is longer than 5-8 years, but if shorter the answer is not always positive.


Number two is the stock market. This is a graph of 23 April 2020, looking back one year. If this is your reference point, “almost nothing happened”.  We all know that is not true; astonishing amounts are being poured into “the economy” i.e. including into companies you and I invest in. The idea is that money is a bridge to the moment things will normalize. But what is that new normal? Getting the new now into gear will take several clutch movements we fear. Next to the “hope element” there is the savings excess. As there is no interest income, a lot of the excess seeps into the stock market. TINA; There Is No Alternative.

We think this recovery rate of the stock markets is artificially boosted and is unlikely to last. We are confident the new now will be found but it could take a few years and certainly not weeks. We have advised several clients to take their investments away from generic investment pools (e.g. most bank managed) into more focused funds including negatively correlating investments to protect the investment principal amount. What you do not lose, you do not need to earn again. Maybe it makes sense to have a good look at your investment portfolio and answer the question to what extent you want to be in the “average” market.

Number three is boating. Really. Many have decided not to book a holiday abroad and invest their May income (and considerably more) into something (mostly motorized) floating device. A dinghy, sloop, or more impressive. If you had one and wanted to sell, you will probably have all your operating and ownership expenses back for many years. I live close to the Zijl in Leiden; on some days it seems 1.5 meters may even be challenging on the water. But I have to admit a non-financial return can be attractive too, also for friends and family.

I hope that you and your dear ones are and stay safe. I also wish there will be a vaccine soon. I am not a pessimist but I fear it will take longer than a couple of months when governments will simply need to reduce pulling out the checkbook. Even if we have a vaccine soon, a major influencer of our outlook will be increased taxes; all that State Aid must be repaid at some point. We expect the likeliness of a financial Indian summer is high.

The holiday season is often a period of reflection. If in the next weeks you have a moment to review your situation and your positioning towards the change you may feel the need to explore options and initiate actions. If that feeling emerges, please consult your financial adviser.