XP proposes replacing the CDI with the IPCA as the main index for portfolios.

Brazilian investors track and base all portfolio returns on the CDI, considered the benchmark for risk-free assets in the market. It's true that in recent years few products have beaten this benchmark, giving the impression that it's an ambitious and well-adjusted target. But the question is whether this will always be the case.

XP, in partnership with Atlantiqis Consulting, conducted a study to analyze whether the CDI (Interbank Deposit Certificate) is indeed a risk-free benchmark in the long term. Using theories from Nobel Prize-winning economist Robert Merton, which state that assets should appreciate in the long term similarly to our financial obligations over time, it became clear that the risk-free asset should be inflation.

In Brazil, the IPCA (Broad Consumer Price Index) is the index that best tracks the increase in the cost of living for families. Therefore, the long-term objective is indeed the real interest rate. And the risk-free asset should be Treasury IPCA+ (NTN-B) and not the CDI (Interbank Deposit Certificate).

“A long-term portfolio needs to ensure you have the necessary income to cover your future living expenses, such as health insurance, children's college tuition, etc.,” says Artur Wichmann , CIO of XP Inc. “Perhaps the IPCA isn't the perfect index either, but I guarantee the CDI isn't either.”

One example provided by the study is the period between January 2019 and January 2023, when the CDI accumulated a nominal return of approximately 27%, but this gain was almost entirely consumed by inflation. In 2020 and 2021, the real return of the index was negative, at -1.73% and -5.37%, respectively.

In the longer sample, from 2010 to 2026, the evidence points in the same direction: the IMAB5, an index of inflation-linked government bonds with maturities of up to five years, delivered an average real return higher than the CDI (Brazilian interbank deposit rate) in one, five, and ten-year windows.

The evidence also appears when the horizon is extended. In ten-year moving windows between 2010 and 2026, the worst annualized real return of the CDI was 1.90% per year, while that of IMAB5 was 3.97%. In terms of average return, the difference also favors inflation-indexed bonds: 5.03% per year for IMAB5, compared to 3.07% for the CDI.

“When investing in CDI, you are contracting a series of investments with an unknown future date. You don't know what the reinvestment rate will be later on. And that exposes the investor to risk,” says Ruy Ribeiro, partner at Atlantiqis Consulting.

XP's proposal is to consider returns indexed to the IPCA (Brazilian inflation index) in the long term, since this benchmark would be aligned with the future. And, to achieve this, investors need to break free from their addiction to the CDI (Brazilian interbank deposit rate).

“We want to shift the focus away from the CDI and establish the IPCA as the primary benchmark for investors' portfolios. We understand the resistance; no addict changes overnight, but we are a financial education institution and we will focus on this,” says Rodrigo Sgavioli, head of allocation at XP Inc.

According to him, over the last 20 years, the CDI (Interbank Deposit Certificate) has yielded an average return of IPCA (Brazilian inflation index) plus 4%, which may not be sufficient for the long-term goals of some clients who, if they had aimed for IPCA returns, could have achieved higher returns.

How much each portfolio should benchmark above the IPCA (Brazilian inflation index), whether it's 4% or 8% per year, to achieve the long-term goal depends on the client's assets, their current cost of living, and how much of that they intend to maintain in the future. In other words, it's an individual analysis that XP wants to begin conducting with each client through wealth planning with its advisors.

The first steps in this direction will be taken soon, with courses for advisors, lectures at Expert, and, at the beginning of the second semester, the XP app will already have the IPCA (Brazilian inflation index) as the default for portfolio tracking. And the company's allocation report, the basis for its entire network, will start using the IPCA and giving it more prominence.

Advisors will be trained to better define short- and medium-term portfolios, which should continue to use the CDI (Interbank Deposit Certificate) as a benchmark, and long-term portfolios, which should pursue the IPCA+ (Broad Consumer Price Index), a benchmark rate compatible with the client's objective and the risk and return they wish to take to achieve it.

The idea of considering inflation in the long term is not actually innovative and is already followed by sophisticated long-term investors in Brazil, such as pension funds that pursue an actuarial target of IPCA+ or family offices that individually analyze the cost of living of the assisted family. But with the understanding that this analysis is indeed necessary for everyone, XP now wants to democratize this idea for the entire market.

According to XP, around 25% of its network already has financial planning support from their advisor, and in the B2C segment, that number rises to over 60%.