Many investors who fled to safe-haven investments in the wake of stock-market uncertainty have become unwitting victims of government policies known as “financial repression.”

This global environment of low yields and slow growth, most likely to be followed by a period of moderate inflation, can hurt many asset classes and is unlikely to change anytime soon, which is why it’s critical to take action.

All around the world, economic growth has slowed while government debt has ballooned to unsustainably high levels. Financial repression has historically involved a number of government actions to reduce debt, including lowering interest rates, increasing regulations and restricting capital movements, while maintaining inflation. The goal is to create negative real (after-inflation) returns and inflate away public debt by forcing real rates below GDP growth.

There are four factors that are working against investors in the current climate. 

Concerns about losses: Investors are reluctant to take risks and those who stayed low-risk missed positive equity returns in each of the last four years and missed the opportunity to recoup their losses from 2008. Investors who play it safe and don’t move out on the risk spectrum will suffer from negative real returns

Lack of Income: In 2007, it took €2.9 million in cash to generate €100,000 in income; in 2012, it took €200 million. Equities are different:  €4.9 million in 2007 compared to €4.1 million in 2012.

Inflation and slow growth: Investors need to guard against rising interest rates.  When it happens, it could happen quickly, leading to significant losses for investors in bonds. A 10-year German Government Bond will lose on average, about 9% of its capital value for every 1% increase in interest rates.

Continued volatility: Investors need to look beyond traditional income sources; add asset classes that can provide growth and positive after-inflation returns and use dynamic asset allocation and hedging strategies

Some of these headwinds, like investors’ own fears, are within their control. Others, like low yields and inflation, require outside the box thinking. But overcoming all four requires guidance from a trusted financial adviser.