Investire | November 2021

Italians have a real love for liquid assets, so much that by 2022 Italy is predicted to have 2.000 billion euros in liquid assets on its checking accounts. Only 25% of our compatriots are confident enough to invest their money, careless of the inflationary effect currently eroding its real value.

The second love of Italians are bonds – maybe a vestige of old T-Bills? A few years ago, the ratio between bond and equity investments among Italian investors was 80%-20%.

However, since then the intense drop of interest rates has compelled Italians to look for profit in equity investments, so much that today the ratio between bond and equity investments in the portfolio of an average Italian investor is 70%-30%.

This is, in any case, still miles away from the portfolios of Anglo-Saxon investors, either more balanced or clearly inclined towards equity investments, as is the case for American investors.

Why do Italians like bonds so much?

The first reason is that those who issue bonds commit to remitting interests through fixed and recurring payments. And Italians love the certainty of coupons.

The second reason is that there is greater certainty of capital repayment for those who wait (although Italians are admittedly not the best at waiting).

To sum up, the predictability of interest flows, the certainty of capital repayment and, generally, a lower volatility than equity investing make bonds an ideal investment class to safeguard assets.

However, bond investing also means facing the risk that comes with interest rates, that is the risk connected to market oscillations. The risk of interest rates is generally determined by a changing perception of the reliability of the company or the State issuing the title. As the rating increases or decreases, there is a corresponding increase or decrease of the interest rate.

Changes in a bond’s interest rate have direct consequences on the value of the title. The same happens when the oscillation affects the entire bond industry.

A growth of the interest rates in the bond industry allows for the acquisition of titles on better terms than those acquired previously. In this instance, it might be worth selling before the expiry date to acquire new bonds on better terms.

And these are operations to be entrusted to the expert hands of a reliable financial advisor in order not to leave empty handed.

Nicola Ronchetti