Why Mohamed El-Erian favours cash over equities for now
Cautious approach: Mohamed El-Erian © BloombergSimply sign up to the Investments myFT Digest -- delivered directly to your inbox.
Mohamed El-Erian, a leading economist, has said he feels “uncomfortable” investing his personal wealth in the stock market and has diversified away from equities as central banks battle to tame inflation.
In an interview with the FT’s Money Clinic podcast, El-Erian said he had adopted a “barbell approach”, allocating more of his personal portfolio to low-risk cash and cash equivalents paying decent rates of interest, while at the same time increasing his exposure to much higher risk distressed debt situations to balance this out.
“If you are uncomfortable in the stock market — as I am, by the way — then there’s a really good place to park your money where you can get paid 4 to 5 per cent on your money and that will compound,” he said, extolling the virtues of top interest-paying cash savings accounts.
“And then on the other side, there’s a lot of opportunities in what’s called distressed investing in private credit and things like that.”
He stressed that he was able to take this position as an experienced investor, cautioning that the barbell approach would not be suitable for novice investors.
El-Erian is chief economic adviser at Allianz, the parent company of Pimco, a big provider of bonds and fixed income investments, where he formerly served as chief executive. He is a contributing editor to the Financial Times.
“The time will come when I’ll be much more comfortable increasing my equity exposure, but I’ve been quite cautious,” he added, referring to volatility in both the equity and bond markets as rates are expected to stay higher for longer.
“Slowly, over the next few years, we’re going to go back to something more normal where traditional correlations and therefore traditional risk mitigation come back . . . I can tell you about the destination, but the journey is really painful.”
You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.
Given the current outlook, he said, the three qualities investors needed the most were resilience, optionality and agility.
“Resilience, meaning you can absorb a mistake. Optionality, an open mind. You need to recognise that there are certain things you don’t know. You need to think differently. Finally, agility; the ability to move quickly, and just to be clear, this is not just for investing. I think both governments and CEOs have to ask themselves every day. How’s my resilience? How’s my optionality? How’s my agility?”
El-Erian also spoke about the themes of his latest co-authored book Permacrisis: A plan to fix a fractured world, and revealed that his earliest money memory was playing games of blackjack with his uncle growing up in Egypt as a young boy of five or six. “He had, compared to me, an infinite amount of money, so ultimately he always prevailed,” he said.
To listen to the full episode, click on the podcast player above or search for “Money Clinic” wherever you get your podcasts.
{"contentId":"2c060be2-4871-4704-97cf-86806007bb97","focus":["56f3a4f4-2a28-4a03-8bcc-cabf82c4015b","573cc1d3-b359-4548-a69a-4aa0b3818c1b","58330e4f-443d-4064-b617-36a297986b79","62d17def-eaa9-4ef5-bd89-fe669fa3c152","67ad3178-01ca-47bd-bac2-c097941f00df","77b28b2b-7a5c-4103-a86f-9af8ba039296","7982616a-e179-45f1-86f6-948f1fc35523","ab6d1965-3354-4d9e-ad4d-a4486b027388","d17153e9-f07d-49ad-8dbd-4cb23d6bbc9b","a579350c-61ce-4c00-97ca-ddaa2e0cacf6","29e67a92-a3b8-410c-9139-15abe9b47e12","3e2eb1c1-7ecd-4600-8cbb-c02ba53ced4b","6aa143a2-7a0c-4a20-ae90-ca0a46f36f92","6b683eff-56c3-43d9-acfc-7511d974fc01","6cc4c4ed-ef61-4c71-a5bb-f454fb5010a8","82645c31-4426-4ef5-99c9-9df6e0940c00","b588a22d-286c-4913-bd59-e05a8d503023","ec4ffdac-4f55-4b7a-b529-7d1e3e9f150c"],"authorConcepts":[{"id":"a5eb8691-820a-4690-9902-aefa136d37c5","prefLabel":"Claer Barrett","types":["http://www.ft.com/ontology/core/Thing","http://www.ft.com/ontology/concept/Concept","http://www.ft.com/ontology/person/Person"],"type":"PERSON","directType":"http://www.ft.com/ontology/person/Person","isPackageBrand":false,"predicate":"http://www.ft.com/ontology/annotation/hasAuthor","url":"https://www.ft.com/claer-barrett","relativeUrl":"/claer-barrett","predicateName":"hasAuthor"}]}Copyright The Financial Times Limited 2023. All rights reserved.Reuse this content (opens in new window) CommentsJump to comments sectionPromoted Content Follow the topics in this article- Investments Add to myFT
- Global inflation Add to myFT
- Savings accounts Add to myFT
- Asset allocation Add to myFT
- Personal Finance Add to myFT
Owl Media Group takes pride in providing social-first platforms which equally benefit and facilitate engagement between businesses and consumers and creating much-needed balance to make conducting business, easier, safer, faster and better. The vision behind every platform in the Owl Media suite is to make lives better and foster a healthy environment in which parties can conduct business efficiently. Facilitating free and fair business relationships is crucial for any thriving economy and Owl Media bridges the gap and open doors for transparent and successful transacting. No advertising funds influence the functionality of our media platforms because we value authenticity and never compromise on quality no matter how lucrative the offers from advertisers may seem.
Originally posted on: https://www.ft.com/content/2c060be2-4871-4704-97cf-86806007bb97