Is "principal guarantee" reassuring?

2025年11月21日 2025年11月21日

tsuzukizeirishi

Are financial products that advertise "principal guaranteed" completely risk-free?

Many people would be skeptical of products that offer

"principal guaranteed, 10% annual interest, and monthly distributions."

For example, what about products with guaranteed principal, like a bank term deposit?

Let's consider a product with a 1 million yen balance, 1% annual interest rate, and a 10-year maturity.

You'll earn a profit of 10,000 yen per year, and your 1 million yen principal will be returned in 10 years.

At first glance, there seems to be nothing to be worried about.

However, this assumes that prices will remain the same 10 years from now as they are now.

What happens if prices are rising?

As an extreme example, if a loaf of bread that cost 100 yen costs 1,000 yen in 10 years,

the effective value of the yen will have decreased.

Even if you deposit 1 million yen and get back 1 million yen at face value in 10 years,

its value will effectively be 1/10 of its original value.

Creditors (those who lend money) lose money,

but debtors (those who borrow money) gain.

If the scale used to measure the value of something doesn't function properly,

even "principal guarantee" requires caution.

Money itself has no value, just as a medium of exchange.

Its value is based solely on mutual trust.

If that "trust" in a credit economy collapses,

the world would change completely.