True wealth in an anxious age
The anxieties are legitimate. Western economies carry public debt at levels last seen in wartime, and when the interest paid on that debt exceeds the economy’s growth rate, the arithmetic deteriorates (Reinhart and Rogoff, 2009; IMF, 2024). Consider, too, the rise of non-Western markets, the disruptive potential of artificial intelligence, and an ageing demographic reversing the cheap-labour tailwinds of the past forty years (Goodhart and Pradhan, 2020). It is understandable that some investors ask: should I sell everything and hold cash?
It is the wrong conclusion, and history is unusually clear about why.
How the debt story actually ends
Heavily indebted governments that borrow in their own currency rarely default outright. Instead, they let inflation and low interest rates quietly erode the real value of what they owe, a process economists call financial repression (Reinhart and Sbrancia, 2015). The mechanics are worth understanding, because this is the quiet engine that impoverishes savers. A government’s debt is fixed in nominal terms: a £100 gilt repays £100 whatever happens to prices. So if the state can hold the interest it pays below the rate of inflation, keeping real interest rates negative, the debt shrinks in real terms every year, even as every pound is repaid in full. This is precisely how the United Kingdom and other advanced economies worked down their vast post-war debts, through decades in which savers earned less than inflation, transferring value from lenders to the state (Reinhart and Sbrancia, 2015). Higher inflation also lifts the government’s tax take without any change in tax rates, because as prices and nominal profits rise, and as frozen tax thresholds drag more income into charge, revenue climbs while the debt stays fixed. The saver, meanwhile, is repaid in money that buys less.
But there is a limit, and it cuts the other way. Too much inflation is corrosive to the very growth that would otherwise repair the public finances. To tame it, central banks raise interest rates, and expensive money chokes economic productivity. Borrowing to build a factory, expand a business or buy a home becomes more expensive, and the return a new project must clear before it is worth funding rises with the cost of capital, so investment that would have gone ahead is shelved. Investment risk is just too great. Inflation, in other words, is not a costless escape hatch for a government: pushed too far it suppresses the growth, enterprise and investment on which real prosperity, and the tax base, ultimately depends. Either way, the saver in cash loses, eroded by inflation on one side, or starved of the returns that productive assets generate on the other. The price of holding cash is everything the saver didn’t earn by owning something productive instead. The lesson is uncomfortable: the asset most exposed to the likeliest bad outcome is cash itself.
Confidence, gilts and a changing world
There is a further dimension the headlines rarely explain. When interest rates rise, the government must issue new gilts at higher coupons to attract buyers, but investors only lend to a state they trust to repay in full and honour the interest along the way. That confidence is the true foundation of a nation’s borrowing costs, and it can be lost quickly. The market turbulence around the United Kingdom’s September 2022 fiscal statement showed how sharply borrowing costs can move when investors’ faith is shaken (Bank of England, 2022). Confidence, in short, is a country’s most valuable and most fragile economic asset.
This matters for a diversified investor because the world is becoming more multipolar. As emerging economies grow and deepen their own capital markets, capital will increasingly flow to wherever it is treated well, and nations are judged not only on their balance sheets but on how they conduct themselves. History rewards good stewardship and constructive partnership, and penalises the opposite. Humanity across all nations is resilient, and today’s emerging powers have long memories. For the investor, the sensible response is not to guess which country will thrive and which will stumble, but to hold a genuinely global portfolio and to think, in every sense, like a global citizen.
What the evidence shows, and what it assumes
The long-run record is stark. Over the 125 years to 2024, equities outperformed bonds, bills and inflation in every one of the 21 markets with a continuous history, delivering a real annual return of around 5% against roughly 1% to 2% for bonds and under 1% for cash (Dimson, Marsh and Staunton, 2025). In the United Kingdom, the probability of shares beating cash over any two-year period has been about 70%, rising to roughly 91% over any ten-year period (Barclays, 2024). But that record was built under one economic model: Western, consumption-led, financed by debt, and, since 1945, powered by a uniquely advantageous ecosystem. As our Investing Wisely report sets out, US pre-eminence rests less on better entrepreneurs than on an environment “partially engineered, and partially incidental, to maximise US economic advantage”: base-level security over food, energy, housing, education and defence; strong infrastructure, regulation and judiciary; a stable currency and secure banking system; and easy access to markets at home and abroad (ADL Research, 2024, p. 30). The report’s central observation is that these characteristics are increasingly present elsewhere, now paired with younger labour forces to actualise them. That widens an investor’s opportunities, but it also makes the global marketplace more competitive, and may in time lower the prices of the traditional Western stocks and bonds that dominate many pensions (ADL Research, 2024, p. 30).
The specific risk of concentration
Read plainly, this means overexposure to US and UK equities is a bet that one ageing model keeps winning while the rest of the world catches up. That is a real and unavoidable risk, and it is precisely why the drivers of return in Investing Wisely matter. For equities, financial science identifies company size, relative price and profitability as the dimensions of expected return. For the fixed income assets held to manage a portfolio’s volatility, it identifies three further drivers: term (sensitivity to interest rates), credit (the credit quality of the issuer) and currency (the currency of issuance). None of these dimensions depends on any single economy’s model; they are present wherever enterprise and lending exist. Capturing them systematically, across global markets and across both equities and bonds, is how a portfolio participates in whichever order emerges, rather than betting the family’s wealth on the one that happens to be fading.
The volatility worth accepting
Equity investors should expect falls of around 10% in most years and 30% to 50% once or twice a decade (Dimson, Marsh and Staunton, 2025). That is the price of admission for long-term real returns. And there is a deeper point: whatever shape recovery takes, it can realistically only come through companies. Governments are not going to nationalise their economies. Industry rebuilds, and resilient, well-run enterprises are the vehicle. The investors harmed by volatility are rarely those who stay invested in sound businesses; they are those who sell after the fall and miss the recovery, because losses are felt roughly twice as keenly as equivalent gains (Kahneman and Tversky, 1979). That discipline, staying the course when instinct screams otherwise, is where professional counsel earns its keep (Beach, 2019).
True wealth
What survives genuine catastrophe is productive land, real assets, skills and relationships, not sterile balances. Understand what that means: wealth is not the same as currency. For most of history, gold and silver coin was both, money in hand and wealth recognised in any jurisdiction on earth. Today’s currency is different, an instrument designed to facilitate liquidity, not to store value. Confusing the two is how savers are quietly impoverished. So invest in what endures: globally diversified ownership of productive enterprises; new skills that demand you step outside your comfort zone; and meaningful, constructive relationships across borders and cultures. Becoming a global citizen, with capabilities, networks and assets not hostage to any single economy, is the modern form of the resilience our grandparents found in land and community.
Anxiety is a reason to plan, not to flee. Diversify globally across the true drivers of return, hold a deliberate cash buffer for near-term needs, stay invested for horizons beyond six years, and put real capital into the skills and relationships no market can take from you.
Author
Mohammad Uz-Zaman TEP Chartered ALFBF
Director – Private Client Wealth Management
References
ADL Research (2024) Investing Wisely. London: ADL Group.
Bank of England (2022) Financial Stability Report, December 2022. London: Bank of England.
Barclays (2024) Equity Gilt Study 2024. London: Barclays Investment Bank.
Beach, B. (2019) What it’s worth: Revisiting the value of financial advice. London: International Longevity Centre UK, supported by Royal London.
Dimson, E., Marsh, P. and Staunton, M. (2025) UBS Global Investment Returns Yearbook 2025. Zurich: UBS AG.
Goodhart, C. and Pradhan, M. (2020) The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival. London: Palgrave Macmillan.
IMF (2024) Fiscal Monitor. Washington, DC: International Monetary Fund.
Kahneman, D. and Tversky, A. (1979) ‘Prospect theory: An analysis of decision under risk’, Econometrica, 47(2), pp. 263 to 291.
Reinhart, C.M. and Rogoff, K.S. (2009) This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press.
Reinhart, C.M. and Sbrancia, M.B. (2015) ‘The liquidation of government debt’, Economic Policy, 30(82), pp. 291 to 333.
This article is for general information and does not constitute personal financial advice. The value of investments can fall as well as rise and you may get back less than you invest; past performance is not a guide to future returns. ADL Wealth is a trading style of Peregrine & Black Investment Management Limited, authorised and regulated by the FCA (FRN 757727).
