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A simple understanding of macroeconomic factors for investors

Shane F

2022-04-01

capital gain success fee, global property investment, inflation, Initiation fee, interest rate, investment, investment returns, return on platform, success fee

Determining the interest rate, inflation, and platform returns

Wealth Migrate’s FinTech platform means investing in offshore real estate is more accessible and convenient, your wealth isn’t tied up in red tape with our global compliance processes. We’ve enabled a method to create wealth that doesn’t involve hidden fees or extra intermediaries.

All investors learn a new language when it comes to creating wealth by understanding how markets work, and in this way, macroeconomics is a crucial part of learning to invest. Macroeconomics is broadly defined by The Economic Times as the “branch of economics that studies the behaviour and performance of an economy as a whole.” [1]

What is inflation?

The quantity theory of money holds that “money supply and price level in an economy are in direct proportion to one another.”[2] These two factors exist in a seesaw effect, where if the money supply is too big, purchase power decreases and prices rise. Therefore, inflation deals with the supply of money in an economy, relying on purchasing power and the rise in prices. 

Inflation measures how much more expensive goods and services have become over time.[3] This is determined during a defined period and is typically set to 12 months. It’s a measurement of the average rate of increase in prices or the cost of living over a defined period, where inflation refers to prices on the rise.

For the households in a country, the cost of living is determined by the price of basic goods and services that each person needs to pay for, this includes housing, food, taxes, and healthcare.[4] The cost of this basket is known as the consumer price index (CPI), which tracks the change in prices. 

Consumer price inflation is the rate of change in the CPI over a set period and is the most common measure of inflation.[5] For example, if the base year CPI is 100 and in 2021 the existing CPI is 110, CPI inflation for 2021 would be 10%.

How does the interest rate work?

Raising or lowering inflation has an inverse effect on the base interest rate and depending on the action taken, this can either boost savings or spending.[6] This is a simplistic explanation of how inflation influences the interest rate as other factors may also play a role in macroeconomics. The increase or decrease of the interest rate affects the economy in a variety of ways but specifically in the cost of borrowing for commercial banks.

What happens when the interest rate increases?[7]

This raises the cost of borrowing for commercial banks and results in the banks upping their own interest rates, which encourages the population to save and gain higher returns with the cost of borrowing becoming expensive. The knock-on effect of lowering spending in an economy causes economic growth to slow. With more cash held in bank accounts and less being spent, money supply tightens and demand for goods drops – a lower demand for goods should make them cheaper, lowering inflation.

What happens when the interest rate decreases?[8]

This drops the cost of borrowing for commercial banks and results in the banks reducing their own interest rates. The knock-on effect is that interest rates on both savings accounts and loans are low, making borrowing and spending appealing, but not saving. It causes economic growth by widening money supply and increasing spending on goods and services – a higher demand for goods should make them more expensive, increasing inflation.

How does a platform return work?

Everything you need to know before investing is on the deal itself in the meta-marketplace. When browsing through the deal be sure to view the deal overview as this contains our recorded webinar with specific details from our team, as well as the investment summary, market summary and risk category. 

When you invest in one of our deals there is also an initiation fee cost. All our deals transparently display the fee charges, and the investment will take this into account and inform you of what this charge is.

Here’s a breakdown of our fee structure:

  1. Initiation fee: An upfront fee charged at the start of the investment covering the costs of sourcing and due diligence for the deal and setting up the deal-specific legal structure that enables global investors compliant access to the deal through the most tax-efficient structure.
  2. Success fee: A percentage-based fee only charged on profitable dividends or interest to cover ongoing costs of the legal structures. If the deal is not profitable, these costs are covered at risk by our marketplace.
  3. Capital gain success fee: A percentage-based fee only charged on profitable gains. This fee is how we make money, by only getting a reward on successful deals and ensuring our interests are aligned with our investors.

When you browse a deal on our marketplace the projected returns calculator takes your initial investment amount (generally $97 USD) and includes the initiation fee. 

To give you an estimate of the projected return for the investment, the calculator will include the average for the following factors (if applicable):

  • Cash flow percentage
  • Annual dividends or interest
  • 10% success fee
  • Return of capital 
  • Capital gain
  • Capital gain success fee
  • Projected cash-on-cash return
  • Projected internal rate of return

For example, this is what one of our investment deals, BNP US Equity Memory Profit Autocall (Shariah Compliant) March 2022, will yield in platform returns when you invest $97 (USD). The image below is how all the projected returns are broken down for each individual investment on our meta-marketplace.

This quick overview of investing belongs to an educational series that we provide to our investors. For more information, view further articles on our blog that cover how to invest in Wealth Migrate’s platform, and how our processes protect your information and financial transactions.

 [1] The Economic Times (March 2022). ‘Definition of macroeconomics?’. Retrieved from The Economic Times.
 [2] The Economic Times. (March 2022). ‘Definition of quantity theory of money?’. Retrieved from The Economic Times. 
 [3] Smialek, J. (January 2022). ‘Inflation has arrived. Here’s what you need to know.’ Retrieved from The New York Times.
 [4] Banton, C. (March 2021). ‘Cost of living definition’. Retrieved from Investopedia.
 [5] Oner, C. (2022). ‘Inflation: prices on the rise’. Retrieved from International Monetary Fund.
 [6] U. S. Wealth Management. (March 2022). ‘How do interest rates affect investments?’. Retrieved from U. S. Bank.
 [7] Wessel, D., and Powell, T. (November 2020). ‘What are inflation expectations? Why do they matter?’. Retrieved from Brookings.
 [8] Wessel, D., and Powell, T. (November 2020). ‘What are inflation expectations? Why do they matter?’. Retrieved from Brookings.