The Importance of Saving in a Consumeristic Economy

An interesting idea

CAP Funds and the New Frontiers of Savings

Recently, topics related to the concept of savings have once again begun to resonate within the circles of economists from various schools of thought. The question of how to cope with these times, in which the specter of recession is becoming increasingly tangible, is starting to challenge experts. However, a viable answer might be found within the frontiers opened by the advent of new financial instruments.

CAP Funds: Why Take an Interest?

The most significant innovation in this area is represented by the so-called “Capital Accumulation Plans,” otherwise known as CAP Funds. Their operation is based on the traditional idea of savings funds but with substantial variations.

Before delving into the details, it is useful to reflect on the macroeconomic context in which these new instruments are developing.

Periods of economic uncertainty, like the one we are experiencing, are often accompanied by a significant increase in the inflation rate. The sudden reduction in the purchasing power of money erodes the savings of families and businesses, reducing their spending and investment capacity, leading to a depletion of the real economy’s value, a contraction in productive capacity, and, ultimately, an increase in unemployment. Even if Central Banks intervene with monetary tightening and other more or less incisive measures to overcome the stagflation period, inflation would continue to have lingering effects for a long time.

At this point in the economic cycle, those with excess liquidity aim to invest to recover the lost purchasing power: some will decide to purchase government bonds, others will follow mega-trends in hopes of an imminent market recovery; choices will substantially depend on each individual’s risk tolerance. Among these investors uncertain about the economy’s performance, there will surely be some who realize the need to diversify their investment portfolio, prompting them to consider opening a CAP Fund.

The “Capital Accumulation Plans” follow the philosophy of savings funds but do so in a more democratic way: many banks offer them to their account holders, providing easy-to-understand informational brochures, the so-called “KIDs,” which highlight the fund’s composition, based on which the risk level is also calculated on a scale from 1 (minimum risk) to 7 (maximum risk). The idea is to give even the inexperienced a chance to approach the world of finance.

Should prospective investors decide to open a CAP Fund, the amount they choose to invest will be divided into installments and automatically withdrawn from their account on the chosen day and based on the desired time interval, whether it be monthly, quarterly, etc.

CAP Funds and the History of Capitalism

At this point, the attentive reader might question the actual necessity of making new instruments available to address a need, that of saving, well-known to both experts and outsiders.

One does not need to go too far back in time to find the answer; it is sufficient to observe with careful and critical spirit the economic circumstances that have characterised the capitalist system over the past three centuries. Karl Marx was among the first economists to understand that capitalism, by its nature, needs to continually innovate in an endless “autopoiesis” if it intends to survive the most challenging of tasks: keeping pace with the times dictated by technological advancement.

To ensure this “autopoiesis” is fully realised, there is a need to constantly adapt investment instruments to make Business and Finance dynamic. Should traditional techniques become obsolete, which is not uncommon, something new must be devised to meet the changing needs of investors.

CAP Funds: Composition and Returns

Having analysed the historical perspective and the theoretical foundations underlying them, the reader will now be able to fully understand the functioning mechanism of CAP Funds.

In terms of composition, they mainly include:
- Shares of companies operating in various sectors and listed on the stock exchanges of several countries;
- Bonds with different ratings, also from various nations, and ETFs.

Additionally, they include derivative instruments such as futures on the money market, commodities, currencies, etc. These instruments carry higher risk, so the portion of the portfolio they constitute will vary based on the risk level the investor decides to assume at the time of subscription.

Regarding RETURNS, as with other types of funds, those related to CAP Funds are subject to variation based on the economic situation at the time of their creation. However, similar to other instruments, the likelihood of recording capital gains increases the longer the investment horizon. In general, it can be confidently stated that the significant diversification in the composition of such instruments makes sudden fluctuations in returns highly unlikely.

CAP Funds: Conclusions

Accessibility and flexibility are the most immediate adjectives to describe a system that not only can open new frontiers in savings but also lays the foundation for a “democratisation” of the financial system. It is now ready to adapt to the needs of that plethora of account holders eager to make their earnings profitable, even if they are not insiders.