But there is a sting in the tail, which is when they discuss risks to this scenario. The IMF report warns of a key risk being a ‘cascade of disruptive adjustments’ once the US Federal Reserve finally begins raising interest rates, and it becomes harder and more expensive to take out new debt and to roll over existing loans.

 

A wave of defaults, bankruptcies and, at worst, another round of bank insolvencies may follow. There’s plenty of doom and gloom to be found in such a scenario. As such, investors should be ready: ensure that you have a diversified portfolio. Preferably, hold some cash and avoid long duration bonds, and – if possible – exposure to banks.

 

With a defensive portfolio, you should just sit tight if there is a market sell-off. Invariably markets recover -- while there is a significant risk of missing this if a portfolio has been liquidated. The bright side to this is investors can benefit from any sell-off through buying bonds and equities at cheaper prices, thanks to the effect of ‘pound cost averaging.’

 

The shifting dynamics must be monitored carefully to be able to take advantage of opportunities that will present themselves and to mitigate the avoidable risks.

 

 

Tom Elliott, is international investment strategist for deVere Group