Put $100 in the bank today, and it’ll be worth $99.50 this time next year.
No, that’s not a joke. It’s the reality in much of Europe right now.
I explained the situation in DailyWealth last week. And while not all banks in Europe are charging negative rates, even in the best-case scenario, you’re still earning essentially 0% on your money.
A short-term certificate of deposit (“CD”) pays less than 1%. So you get no interest on your savings account. There’s no long-term CD that generates a worthwhile yield, either. And leaving your money just sitting in a vault isn’t great…
Sure, you could store your money on your own… under the mattress or in your ceiling tiles. But that’s risky at best. And your money will still lose value, thanks to inflation.
You could try buying bonds to earn some kind of yield. But while you can still earn a more than 1% yield on 10-year U.S. Treasury bonds, that’s not the case in Europe. Your potential interest in longer-term bonds is effectively zero, too.
Once you think through all of these scenarios, the result of all this becomes clear… Money is about to pour into European stocks.
Let me explain…
The idea here is simple… Money flows where it’s treated best.
For example, if bonds pay 10% yields, that’s major competition for stocks. There’s no incentive to own riskier assets such as stocks.
But when bond yields are low, investors are willing to take the extra risk in search of greater returns. And with banks charging customers to hold deposits, money is treated absolutely terribly as cash in Europe.
This wasn’t the case a decade ago…
You could earn a 5% yield in European bonds back then. That’s a handsome return for an asset that’s low-risk relative to stocks.
If you were looking to sit back and let your cash work for you, it was a darn good yield. But since 2011, that yield has crashed.
It’s down from 5% to less than 0.04% today. This collapse in yield made bonds unattractive compared to stocks. And we saw a big shift in Europe’s stock market as a result…
The STOXX Europe 600 Index, which tracks Europe’s 600 largest companies by market cap, is up nearly 140% since the end of 2011. Check it out…
You can see the massive rally in the chart above. A triple-digit gain is darn impressive. But it’s also completely understandable in a zero-rate environment.
You haven’t missed the opportunity, though. Today, we have a similar catalyst…
With European banks charging customers for large deposits, folks are rethinking what they do with their money. And that doesn’t just apply to their investment capital… It applies to all of their capital.
Again, earning 0% in the bank is one thing. A bank is effectively just a safer place to store your cash than your home. But when you’re losing money each year in your savings account, that’s a different story altogether.
This should drive lots of new money into Europe’s stock market. And it could propel the market to incredible heights.
I know lots of folks only want to invest at home, in the U.S. But European stocks are primed for a major move higher. You should at least consider putting some cash to work right now.
Good investing,
— Steve
Strange change at your bank [sponsor]At least 41 major US banks have just made a drastic change to the way money in America works. It could have some major implications for you, your money and your retirement. But it's crucial you understand what's happening, before these changes get applied to your bank account. Here's everything you need to know.
Source: Daily Wealth