The economy is facing some challenges this year, and some are comparing the situation to the one just before the 2008 financial crisis. The Royal Bank of Scotland seems to have taken a more pessimistic stance than most, telling its clients to be prepared for a “cataclysmic” 2016.
For this reason, RBS told clients that they should “sell everything” and these two words quickly got repeated in headline after headline. They even began trending on social media – not exactly odd for some kinds of news, an unusual distinction for words of financial advice.
But is it really time to sell everything, or is RBS overreacting? Well naturally there is no strict right or wrong answer, certainly without knowing the future, but things are not as simple as they first appear. The number of headlines parroting those two words could easily have given the impression that the whole financial system is going to come tumbling down any minute and there is a race to get out and things are, thankfully, not really quite that desperate.
Even RBS was not advocating the sale of absolutely everything – not quite anyway. The full sentence was “Sell everything except high-quality bonds.” Of course, this is not all that much more optimistic – especially when it was followed by the words “This is about return of capital, not return on capital. In a crowded hall exit doors are small.”
While the year is one in which the UK economy faces a lot of potential challenges and it is predicted that stock markets could fall significantly, this does not necessarily equate to a “sell everything” situation. Indeed Andrew Roberts, the RBS Strategist behind the advice, admits that his views on how to deal with the year ahead fall somewhat on the extreme side.
Others are giving very different advice. Indeed, some have responded to Roberts’ missive by giving advice that falls at the opposite extreme. The real thing to consider, however, is that there is no one-size-fits-all solution to anything but the most extraordinary of financial situations. The year looks to be a challenging one for the UK economy, but at present it is not remotely clear what is going to happen or how much impact that will make. If stock markets are has hard-hit as RBS fears, some industries may be hit more than others. If nothing else is taken from Roberts’ warning, it should probably be taken as an indicator that this is a time to review portfolios, seek advice, and think about what you might want to sell – either right away or if a bear market does indeed start to bite.
