Recession not entirely bad news for investors: IFA
A weak economy is not necessarily bad news for investors, an advisory firm has claimed.
Responding to news that the UK economy has fallen into recession, Loughtons IFAs said investors must be patient with their own portfolio and remember that big crises have a habit of creating investment opportunities.
The guidance from the Devon-based advisory firm said it was important to remember stock markets look forward, while economic data looks backward.
The IFA guidance note added: “A weak economy isn’t necessarily bad news for shares, but a strong economy isn’t always good news. If the economy grows too rapidly, central bankers may be forced to raise interest rates to head off the threat of inflation. The higher cost of borrowing hits corporate profitability and consumer spending, and ultimately hurts the stock market.”
However, Anna Sofat, director of London-based Addidi Wealth, said she agreed with warnings by the Treasury select committee, which had highlighted the “perils” of the government’s monetary policy.
The select committee’s 80-page report was published in April ahead of gross domestic product figures that showed the UK has fallen into recession despite the government’s austerity measures.
Ms Sofat said: “The Treasury select committee has done a good job in highlighting the adverse effects of quantitative easing on savings rates and pensioners’ annuity rates.
“For too long, savers and pensioners have been the principal victims of the government’s monetary policy of keeping interest rates close to zero and allowing inflation to inflate away the national debt.
“But as the Bank of England has said that it intends to keep interest rates low until 2014, savers and pensioners need to make the best of a bad situation, by shopping around for the best rates and seeking advice from an IFA.”