Volatile markets can shake your confidence in risky assets like stocks commonly used as an investments. For this reason, many investors move their money to safe-haven assets when volatility hits. A more stable, lower-yielding haven that protects your money — and can even provide modest growth in tough times.
If you’re looking for a safe haven in a troubled market, these eight safe-haven assets are less risky than stocks — not to mention providing security for your investments.
High Yield Savings Account
A high-yield savings account is pretty much the safest type of account for investments. These FDIC-insured bank accounts are highly liquid and immune to market volatility. Remember, if inflation is higher than your annual rate of return (APY), your money may lose purchasing power.
Interest rates on deposit accounts are generally low – and will remain so for the foreseeable future. However, the best savings accounts can generate modest returns, even if they don’t always keep up with inflation.
Certificate of Deposit
If you don’t need instant access to cash, but want to earn more than a savings account, a certificate of dIf you don’t need instant access to cash as an investment. But looking for more than just a savings account, a certificate of deposit (CD) is a good choice for a safe investment in 2022. Also, CDs have the same FDIC insurance as other types of deposit accounts
Like others savings accounts. CDs will see lower interest rates in the years to come. While long-term CDs may have higher interest rates, keep in mind that they lock up your funds, reduce your liquidity, and often penalize you if you withdraw your money early (usually at several months’ interest). Although penalty-free CDs are available, the yield is usually lower.
Gold is considered by many investors to be the safest investment. Keep in mind that short-term price movements can be similar to those of stocks and other risky assets. Research shows that gold can hold its value for a long time.
According to David Stein, a former fund manager and author of the investment textbook Money for the Rest of Us, there are a few things to consider when looking at gold as a safe-haven investment, depending on your needs.
“It can be a safe haven because it protects against inflation in the long term, but it doesn’t protect you every year,” he said. “It’s a monetary asset, though, so if you’re interested, it can help you get out of dollar-denominated assets.”
U.S. Treasuries are widely considered the safest investment in the world. Since the U.S. government has never defaulted on its debt, investors view U.S. Treasuries as a highly safe investment vehicle.
“Treasuries have become less attractive recently because of low yields,” Matthews said. “But if you go for inflation-linked government bond TIPS, you get some inflation protection.”
You can buy government bonds in the secondary market directly from the U.S. Treasury or through an online brokerage platform. Matthews cautions against the secondary market, as dealers often charge extra, while you can buy U.S. Treasuries for free on TreasuryDirect.gov.
You can also invest in mutual funds and exchange-traded funds (ETFs) that hold only U.S. Treasuries. This frees you from the complexities of buying individual bonds and the hassle of reselling them in the secondary market when you need cash before the bonds mature.
If you want to avoid inflation and earn interest rates at the same time, check out Series I savings bonds, government bonds that can’t yield less than zero. They have an advantage over TIPS, which can even post negative returns, Stein said.
For I Bonds, “the compounded rate for the next six months is about 1.6%, which is better than a lot of the high-yield savings accounts you see,” Stein said. “Unfortunately, you can only invest $10,000 per year per Social Security number, although you can work around this by instructing your tax return to buy I-Bonds in addition to purchasing them individually.”
An important caveat, however: I-bonds earn interest for up to 30 years. You have to hold them for at least a year to liquidate them with the government, and if you cash them out before holding them for at least five years, you lose three months of interest, similar to many CDs.
If you want higher yields, consider corporate bonds. They generally offer more attractive interest rates, but also carry higher risk, as few companies have Uncle Sam’s repayment history.
To make sure you are making a safe investment, it is important to check bond ratings. Matthews recommends looking at investment-grade corporate bonds, which usually means AAA, AA, A, and BBB ratings. Anything else may have higher returns, but also higher risks.
Bonds can be purchased through online brokers, but Matthews warned that many bond trades charge higher fees than stock trades.
To avoid fees and reduce the risk of corporate defaults, look for bond mutual funds and bond ETFs that invest in hundreds or thousands of corporate bonds. Most index-based ETFs and mutual funds are now available for free from most brokers, but it’s important to check and understand mutual fund loading fees.
Depending on local conditions, real estate can be considered a safe investment. Additionally, real estate can provide considerable income – again depending on local market conditions.
“Whether it’s a commercial property or a rental property, you can probably have a steady income and stay away from the ups and downs of the stock market,” Matthews said.
Long-term property appreciation remains relatively low, with a 25-year average of around 3.8%. Real estate also comes with various additional costs that other safe investments lack, such as maintenance fees and property taxes, and can require a significant up-front investment.
Some might suggest investing in real estate investment trusts (REITs) for more liquid, lower cost real estate. But REITs are risky investments and cannot really be recommended as a safe haven for your money in a volatile market.
Preferred stocks are hybrid securities that combine the characteristics of stocks and bonds. They offer the income potential of bonds, guaranteed dividend payments, and the owner’s equity and appreciation potential of common stock.
However, the potential appreciation of preferred stock goes both ways. Over time, the market value may increase more than the bond – and if the market falls, there is a greater chance that the value will fall. So why are they safe investments? Because preferred stock dividends are guaranteed in almost all cases, that means you’ll get income no matter what the stock does.
“These are probably not safe havens in terms of market risk, as capital appreciation is an issue in a down market,” Stein said. “However, with the higher dividend, you might see some income protection.”
There is no such thing as a completely risk-free investment. Even the safe investments listed above have risks such as: B. Purchasing power is lost over time as inflation rises. It is critical that you consider your individual needs and construct a portfolio that provides sufficient stability, while also allowing you to benefit from long-term growth.