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A brief history of interest rates

Negative real interest rates are not as unusual as you might think
A brief history of interest rates

“To understand the man you have to know what was happening in the world when he was twenty,” said Napoleon Bonaparte. He was right, and this fact influences our investment decisions, perhaps for the worse.

The point is that our ideas of what is normal, and therefore of what to expect, are shaped by our formative years. Those of us who grew up in the 70s and 80s think it normal that Liverpool should be challenging for the league title, for example, but strange that Man City are doing so, while teenagers have the opposite idea. This might help explain differing attitudes to Brexit. Those who grew up in the 1950s and 1960s think it normal to be outside the EU while younger people think it normal to be in it, and both vote accordingly.

This applies to our investments. Ulrike Malmendier at the University of California Berkeley and Stefan Nagel at the University of Chicago have shown that investors who experience recessions in their formative years hold fewer equities than others even decades later, while those who saw inflation tend to hold fewer bonds.

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