Martin Hawes: Anyone's call so spread risk

Martin Hawes

I am always doubtful, even suspicious, when financial advisers and commentators are certain they know what will happen in the future.

Robert Kiyosaki's reported comments that the global economy will soon see hyper-inflation and that our response should be to get out of cash-type investments to buy silver has my eyebrows raised.

Kiyosaki might be right - the globe may fall victim to some kind of Zimbabwe-style inflation. Then again, the other commentators who say there will be deflation may be right.

Or economists who say that we will soon come out of global recession and economies will strengthen may be making the right call.

No one knows what will happen - we can all have fun speculating, but any number of different scenarios could play out. Anyone who claims to be certain of the future is either seriously misguided or one-eyed.

The key to successful investment is to acknowledge all the risks you face, then match those risks with investment assets that will mitigate them.

I think there is quite a high risk of inflation, so I own some gold, silver and commercial property. However, I also see a risk of deflation, so I hold cash (cash will certainly not be "trash" - as Kiyosaki calls it - if we have 20 years of deflation as Japan has had).

Of course we face many other risks and liabilities that require an investment asset to alleviate.

For example, New Zealand's small and brittle economy could decline or even crash if foot and mouth disease took hold. To mitigate this risk, you should have some money offshore.

You cannot cover all risk any more than you can have a bob each way on every horse in a race - you need to target the ones that are most likely and will have the greatest impact.

Like Kiyosaki, I think investors' biggest risk is that of inflation, with its rust-like effects on bond and cash investors but it would be stupid to ignore other risks.

Each investor needs a risk analysis that covers not just the economic situation, but his or her own situation.

I would hate to see a client become so certain they knew what was going to happen that they invested all their money accordingly - that's the casino equivalent of putting all their money on the roulette wheel's red 3 square.

Martin Hawes is a financial adviser. His disclosure document can be found at www.martinhawes.com