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Written by: George Prior
Ignore the risks that inflation, recession and possible stagflation pose to your money, and it could be a very costly mistake, warns the CEO of deVere Group.
However, you don’t have to “admit defeat and only seek capital preservation” as capital growth is highly achievable too, even in these challenging economic times.
The combination of a warning siren and a bullish nudge for investors from Nigel Green, CEO of one of the world’s largest financial advisory, asset management and fintech organisations, comes as inflation is eroding people’s wealth and as economies around the world are continuing to slow – which could lead to stagflation, the collision of weak growth and soaring inflation.
He notes: “We’re in the midst of a highly unconventional economic cycle. The global economy is in the stranglehold of a sudden slowdown accompanied by a dramatic jump in global inflation to multidecade highs.
“This raises the risk of stagflation— something policymakers were hoping we would never return to after the 1970s, when higher consumer prices fed into wages as workers demanded higher wages to match price increases.
“The experience of the 70s should be a warning shot about the havoc it wreaks on economies. The stagflation of that period ended with a global recession and a series of financial crises.”
In light of the economic backdrop, individual investors cannot afford to be complacent in the face of fast-changing global financial and economic conditions.
So how do you protect and grow your money when you have sky-high inflation, a recession and looming stagflation?
“To be honest, a lot of traditional investment theories have to be dismissed in these unconventional times, and some which were already dismissed need to be reconsidered,” says Nigel Green.
“Questions need to be asked. How long and deep is the recession forecast to be? Will inflation or recession be the dominant element and prevail? Are heavily indebted governments able to take the action needed to combat inflation?”
Whilst the current situation is often described as “the worst of worlds”, Nigel Green says there is reason to be optimistic.
“If you avoid complacency, there is massive opportunity too right now. But you must carefully and wisely seek it out.
“Serious investors know that recessions are the best time to build wealth.
“So don’t be one of those investors who sit on the sidelines now.”
These in-the-know investors of whom the deVere CEO is speaking “will be seeking out the potentially hugely rewarding buying opportunities” that are being presented by this volatility.
“They’re moving to pick up some high-quality stocks that have a solid future at what they will see as ‘discounted prices.’ They will not want to miss out. After all, there are always winners and losers in times of turbulence.”
Highly unusual times require unusual action if good outcomes are sought.
“For about half a century, investors have been able to create, grow and protect their wealth using the 60/40 portfolio model. 60% stocks and 40% bonds were enough to hit both goals of capital appreciation and capital preservation.
“This is no longer possible,” explains Nigel Green.
“In order to build your wealth, you should keep some in cash for everyday spending requirements, and a rainy day or emergency fund, and also consider increasing your exposure to significantly more diverse, less-familiar and, yes, perhaps more volatile, investment opportunities.”
Amongst others, these might include structured products, high dividend stocks, venture capital, hedge funds and managed futures.
The deVere chief concludes: “If you take action, and do it wisely, despite economic gloom, you don’t have to admit defeat and only seek capital preservation.
“In fact, capital growth is highly achievable too – and these turbulent times could be a once-in-a-generation opportunity.”