Now is the time for investors to put cash to work and diversify holdings across asset classes and geographies, according to the head of Asia and Middle East investment advisory at St. James’s Place, who warns about the growing risk of negative real interest rates.

SJP’s Martin Hennecke is advising investors to review their investment strategies in the face of central banks coming under pressure to set interest rates artificially low to stimulate economies and manage national debt, which could lead to inflation outpacing returns from deposit funds.

Hennecke said negative real interest rates is a global phenomenon, highlighting Japan’s headline inflation rate of 3.1% and 0.5% interest rate, while UK inflation is currently at an 18-month high, adding that central bankers and politicians won’t openly admit high sovereign debt levels incentivise artificially low interest rates, which can pose a risk to savers.

He said: “While cash may seem safe due to the absence of volatility, this same feature can make it dangerous for investors with overexposure because value erosion happens gradually.

“It is often only recognised when it’s too late, as money is being spent later and the realisation hits that costs have gone up.

“We strongly recommend diversifying investments by both geography, asset class, and style, being mindful of the fact that each asset class will be subject to different types of risk, how it all fits together and be resilient in different economic scenarios including various tail risks.”

Hennecke pointed out that cheaper opportunities outside the US – the most popular market – should not be overlooked. He noted that while emerging markets have trailed the US for around 15 years they are on course to stage a comeback, while there are also selective opportunities in Japan and Europe, and in smaller cap stocks globally.

“Long-term, equities tend to be a relatively inflation-proof asset class, but it’s important to be able to put away monies for the longer term to be able to ride out swings, accept a degree of volatility and not be swayed by recency bias when selecting equities investments,” Hennecke added.

“Investors should look for opportunities in a process-driven way, underpinned by valuation and a sound diversification strategy.”