Heightened fears about inflation are overplayed and could negatively impact investors’ portfolios, warns the CEO of one of the world’s largest independent financial advisory and fintech organisations.
The warning from Nigel Green, chief executive and founder of deVere Group, comes as the U.S. Federal Reserve this week upgraded its growth forecast to 6.5% from 4.2% previously for 2021.
Mr Green says: “As the world increasingly looks towards a post-pandemic global economic rebound, inflation fears have been heightened in recent weeks.
“These concerns are now likely to be exacerbated as the Fed, the central bank responsible for the world’s largest economy, has dramatically upgraded its outlook. This can be expected to further fuel rhetoric about inflation.
“It will be argued by some that as inflation climbs, we will have higher interest rates and this could lead to lower stock prices.”
He continues: “I think that we should expect a short-term jump in prices as economies re-open, however, longer-term inflation fears, due to pent-up demand are premature and are being overplayed.”
Earlier in the week, giving an example to illustrate this point, Mr Green said, “people might book one trip away, but they are unlikely to book five or six in one hit.”
He goes on to say: “History teaches us that a diversified portfolio has typically beaten inflation over time. This was true even in the 1970s – a time when inflation fears were rife in many quarters.
“Back then, the Fed was late to step in. Should inflation jump too far now, the Fed is highly unlikely to repeat the same mistake.
The deVere CEO concludes: “Investors should certainly keep an eye on inflation. But the fear of it is arguably more dangerous to investors than inflation itself as they could be put off investing in stock markets, meaning they could miss out on good returns during the economic rebound.”