Best Safe Haven Assets to Protect Your Wealth

Investors around the world are getting worried about recession in 2023. When the economy doesn’t perform well neither do companies across sectors. This leaves conventional assets like stocks—that tend to grow the value of your money over time—a tough way to grow wealth, at least in the short term.

But safe haven assets are supposed to provide investors with a store of value during times of market instability and economic turmoil. These assets include gold, bonds, certain stocks, and even cash, which are considered to have lower risk. In this article we’ll further get into what safe haven assets are and discuss examples and tips on how to approach this type of investment.

What Are Safe Haven Assets?

Safe haven assets are investments that help reduce risk in your overall investment portfolio. An investor may choose to buy safe haven assets since they’re expected to maintain their value over time and particularly grow their value in an economic downturn or when the stock market is volatile. As concerns of an economic recession in the U.S. and around the globe grow, these assets can protect wealth during a period of economic uncertainty.

Safe haven assets tend to be great for portfolio diversification. This is because of their characteristics of being high liquidity, or their ability to be easily bought and sold on the open market. High liquidity allows investors to convert to cash, if needed.

These assets, like gold for example, are in limited supply with continued demand which allows its value to steadily grow over time. Lastly, regardless of the economic climate, safe havens can yield a return on investment over a long period of time because of their high quality and consistent demand.

4 Best Safe Haven Assets

1. Gold

Gold is widely considered as the most common safe haven asset among investors. It’s a precious metal whose historical performance has held up during periods of economic volatility. Gold is a financial bastion in a diversified investment portfolio when other assets like stocks perform poorly.

Circling back to characteristics, gold serves as a store of value, is in high demand throughout the world, and is in limited supply. Put that all together and that makes an asset whose value increases in the long run, in both good and bad economic times.

2. U.S. Treasury Bonds

Government bonds are another chief safe haven asset. Investors use bonds to hedge against macroeconomic pressures and stock market fluctuations. Bonds serve as a stable part of an investment portfolio since their performance is negatively correlated to that of stocks. That said, if stocks are performing poorly, bonds shouldn’t be performing as badly.

Similar to gold, bonds are liquid assets that can be bought and sold easily. Furthermore, because Treasury bonds constitute a portion of virtually every investor's portfolio, the assets are in high demand by investors of all ages around the world.

But the standout feature of bonds that’s particularly popular is that bonds are low risk. Since government bonds are backed by the full faith and credit of the U.S. government, it’s considered that these government-backed assets essentially have no default risk.

3. Defensive Stocks

Defensive stocks are shares of companies that are considered essential. As a result, they are businesses that can hold up in the face of an economic downturn. Stocks tend to be sensitive to a tough economy but there are several sectors that can maintain their value or perform less poorly than the broader stock market. These include utilities, healthcare, and consumer staples like food and beverages.

Of course, no one can predict exactly how certain companies in individual sectors will perform in different environments. But the fact is there are areas of the economy that are necessities, such as utilities. Utilities include companies that work in water, gas, and electric. People tend to keep paying their utility bills regardless of how the economy is performing. The same goes for healthcare. Consumers will likely keep buying their prescriptions, go to the doctor if they’re sick, or do medical procedures to get better.

4. Cash

Investors need to consider that while you can take a position in stocks, bonds, and precious metals, cash is also a position. Choosing to keep a portion of your money in cash can be a suitable move if you believe an economic downturn is on the horizon and you want to have an extra amount of dry powder for rainy days.

Cash does not offer a return on investment like the other assets on the list. In the long-term this could pose a challenge since inflation (the steady rise in prices) can reduce the value of the dollar. However, keeping cash on the sidelines for a short period of time is generally not that much of a setback to an individual’s purchasing power.

3 Safe Haven Asset Investing Tips

1. Diversify:

By investing in safe haven assets, you are adding to your portfolio diversification strategy. Diversification is a widely used investing tip that can help spread risk throughout your portfolio and protect the value of your assets in a market downturn.

2. Focus on strong fundamentals:

When investing in stocks, make sure to do your research on the company's fundamentals. This means checking their historical performance to see how they performed in previous economic cycles. How much profit were they able to generate in poor economic conditions?

Also, monitoring quarterly financial earnings can offer insight into the health of a company's operations. Last but not least, it’s important to assess the level of debt they carry on their balance sheets to make sure they aren’t over leveraged.

3. Stay invested for the long run:

When it comes to investing in safe haven assets or investing in general, be patient and allow your investments to grow value over time. Safe assets are best served as a buy and hold investment rather than trading them in and out of the market.

Remember, safe havens are considered a store of value. They are generally not known for yielding high levels of returns like stocks, for example, which tend to be the growth part of a portfolio.

Takeaway

Safe haven assets can provide a considerable level of protection in a weaker economy and stock market downturns, a scenario that has been slowly playing out recently. By adding safe havens like gold (or other precious metals), government-backed bonds, high-quality defensive stocks, or even keeping some of your money in cash, you’re taking the necessary steps to safeguard the long-term value of your money.

Always remember that past performance does not indicate future performance and that no single economic period is necessarily the same. However, the past performance of these non-correlated assets could be helpful in informing how to navigate the current challenging environment we’re in.

Written by Paulina Likos

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