[Insight & Opinion] The Era of Inflation and Interest Rate Hikes... The Value of Long-Term Installment Investing

[Asia Economy] Due to global inflation, most countries including the United States, South Korea, and the European Union (EU) are engaging in aggressive interest rate hikes and tightening measures. Following the COVID-19 pandemic, central banks around the world, led by the U.S. Federal Reserve (Fed), implemented aggressive interest rate cuts and unlimited money printing to prevent economic recession. However, these actions have backfired, causing prices of energy, raw materials, and all goods to soar.

The effects of tightening are immediately visible in the asset markets as well. The stock market, which had been reaching new highs, is undergoing significant corrections, and real estate prices, which seemed to rise endlessly, are repeatedly falling, cooling investor sentiment further. In 2020, many people experienced relative deprivation due to the rise in asset prices caused by aggressive monetary easing policies, so-called unlimited money printing. The gap between those who invested aggressively and those who did not widened significantly, leading to intensified generational conflicts, to the extent that a new term, ‘byeorakgeoji’ (sudden pauper), was coined. Many lamented that everything except their salary was rising, and the value of wage income from labor was also gradually diminishing.

However, everything has an end, and just as the moon waxes and wanes, we are now witnessing the phenomena caused by quantitative easing during the COVID-19 pandemic returning to normal. In the era of inflation, companies are actively raising wages to secure excellent talent, while real estate and asset prices, which had soared to unprecedented levels, are undergoing corrections, bringing back an era where the value of labor is recognized.

In terms of investment, the era of reckless leverage aiming for a big win is over. Long-term installment investments that endure the era of inflation and rising interest rates are gaining attention again. We recall how disheartening it was to hear stories of people who made billions by investing in cryptocurrencies or those who bought several apartments through ‘youngkkeun’ (borrowing to the limit) gap investments during times when loans were relatively easy to obtain. Now, on the contrary, stories are emerging about people who lost their principal by overinvesting in cryptocurrencies and investors worried about rising loan interest due to excessive leverage.

Although the stock market has been continuously declining since the beginning of the year due to rising interest rates, we do not know where the bottom is or when the market will rebound. However, what history teaches us is that despite numerous crises and economic hardships, long-term investments in competitive blue-chip stocks have ultimately yielded excellent investment results.

In a previous column, it was confirmed that investors who invested monthly in the S&P 500 through installment plans achieved higher long-term returns than those who put their monthly savings in deposits and tried to time the market perfectly during crashes. In this era of inflation, I hope investors can prepare for a comfortable retirement by faithfully focusing on their main jobs and investing long-term in global blue-chip stocks through installment plans.

Namgi Kim, Head of ETF Management Division, Mirae Asset Global Investments

This content was produced with the assistance of AI translation services.