Investors need to revise their portfolios sooner rather than later after the Bank of England flags up a long and deep recession on the horizon, says the CEO of one of the world’s largest independent financial advisory organisations.
The warning from Nigel Green of deVere Group comes as the central bank’s Monetary Policy Committee announced interest rates are rising from 1.25% to 1.75%. Interest rates are now at their highest level since December 2008 after the biggest single rise since 1995.
He affirms: “In efforts attempt to cool even higher peaks in inflation of a staggering 13%, the Bank of England has confirmed the largest rate rise in a quarter of a century.
“But the biggest, most alarming story here is the central bank’s prediction of a recession which could be deep, long and painful."
He continues: “The Bank of England’s flagging-up of a full-on recession comes at the same time the UK is experiencing a 42-year high rate of inflation.
“This means the spectre of stagflation is drawing near. Stagflation can be viewed as a worst of both worlds scenario."
It’s not just the UK either. Major economies around the world are experiencing slower growth, the IMF has downgraded its forecasts, and a global recession appears to be looming.
Recently, the deVere CEO noted: “In such times as these, investors tend to move away from riskier assets and towards perceived safe assets. But this also needs to be considered carefully.
“For instance, cash is often considered a ‘safe haven’ during periods of volatility but it’s going to be negatively impacted by soaring inflation. Rampant inflation means excess cash in your bank accounts will lead to losses in real value. Hardly a safe haven then for those wanting to build long-term wealth.”
As the risks of a global recession ramp up, there remains one clear way for investors to maximize returns relative to risk: the time-honored practice of portfolio diversification.
“A considered mix of asset classes, sectors, regions and currencies offers protection from market shocks. A good fund manager will help investors capitalize on the opportunities that volatility brings and sidestep potential risks as and when they are presented.”
Nigel Green concludes: “Investors would do well to review their portfolios now to ensure they are best-positioned.”