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Prepare negative interest rate strategies warning

19 September 2020

Investors should ensure their financial strategies are ‘negative interest rate ready’ amid the possibility of further monetary intervention, warns deVere Group founder Nigel Green.

His comments come as the Bank of England voted unanimously to leave UK interest rates at the current record low of 0.1%, but keep negative interest rates in its ‘toolbox’ of possible measures.

The US Federal Reserve also confirmed that it will likely keep its interest rate near zero until unemployment improves and inflation runs “moderately” above its 2% goal for some time.

Green says: “Struggling to ease the economic pain of the pandemic, central banks have ushered us into an era of almost zero interest rates – with some experts saying that the U.S. Federal Reserve and the UK’s Bank of England, amongst others, could be on the brink of implementing negative interest rates as other central banks have already done across the eurozone and in Japan.

“This would have been unimaginable even a few months ago.  But the shifts have been seismic this year.”

According to Green, investors should revisit their financial planning strategies to ensure they work in an almost zero interest rate era.

Green says: “Cash is certainly ‘not king’ at the moment. Cash sitting in accounts is most likely earning you almost nothing. It will definitely not be generating decent income. Meanwhile, investing in stocks offers its own complexities.

“Global stock markets have, in general terms, been on an impressive rally in recent months. But delve into the picture and all is not what it seems. A handful of firms in a handful of sectors are bringing up entire indexes.”

He concludes: “Personal financial strategies should be assessed to make sure they are suited to a new era of likely permanently ultra-low or even negative interest rates.”

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