The Fed chief Jerome Powell has just outlined a highly anticipated shake-up of the monetary policy of the world’s de facto central bank.
The Fed will keep interest rates at almost zero for the foreseeable future, possibly for more than five years, and it will take a more casual approach toward inflation, even championing a modest rise above its 2% target.”
This will add fuel to global equities which are already on fire, having hit a record high on Wednesday.
In this climate, holding bonds and sitting on cash will simply not provide the returns investors seek.
Against this backdrop, many more will pile further into equities, which appear to be on a winning streak. But investors must beware of the lack of balance in the stock markets.
A failure to recognize how unevenly distributed the gains are could prove to be a costly mistake.
Not all stocks represent the same opportunities as others. Investors must bear this imbalance in mind.
Indeed, the equities boom is driven by a handful of companies, mainly in Big Tech, which are accounting for a significant and disproportionate level of the capitalization of stock indexes, including the benchmark S&P500 index.”
Therefore, buying an exchange-traded fund, or ETF, which are investment funds traded on stock exchanges, could expose investors unnecessarily.
The Fed’s announcement could provide investors with lucrative rewards — but in these unusual times, serious and joined-up planning is required to take full advantage of the opportunities. Working with an experienced fund manager will best-position them to capitalize on these and also to mitigate potential risks of uneven markets.
Nigel Green is founder and CEO of deVere Group
. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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