Prepare financial plans for negative rates, advice group says

Nigel Green, founder and chief executive of advice and fintech organisation deVere Group, has made the comments as the English central bank voted to keep UK interest rates at their current record low of 0.1 per cent.

The Fed on Wednesday said it would likely retain its interest rate near zero until the economy reaches full employment and inflation runs moderately above its 2 per cent goal for some time – which is expected to keep the cash rate low for at least five years.

“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 US 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,” Mr Green said.

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

He believes that financial planning strategies will need to adapt for individuals committed to growing and protecting their wealth.

“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,” Mr Green said.

“In an almost zero interest rate era – or perhaps a wide negative interest rate era looming – it’s not enough to think that you can rely on the strategies of before.

“For instance, so-called low-risk bonds, such as US Treasuries, once the bedrock of investment portfolios, are not providing the returns they once did. Indeed, yields have been at historic lows, prompting many experts to openly question their value.”

Cash is not king at the moment either, he said, while stocks are offering their own complexities.

“Cash sitting in accounts is most likely earning you almost nothing. It will definitely not be generating decent income,” he said.

“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.”