6 True Safe Havens During 2022 Market Downturns
If history has taught us anything, it is that the market can downturn fast. On one side of the stock market balancing act, a bull market rises when investors buy assets, believing they will benefit from growth. On the flip side, a bear market occurs when security values decline and investors rush to sell assets.
As war and corrections plague the market, stocks left invested could lose significantly. As a result, many investors are looking for ways to increase their investments’ security by placing their money in safe havens to hedge their bets against a market downturn. Discover these 6 safe havens to invest your funds in during market downturns this year.
1. A high-yield savings account
Maybe you like to play it safe when investing in safe havens. That’s good news since safe havens are low-risk places to stash your funds.
If you’re interested in a low-risk haven, consider placing your money in a high-yield account at Discover, Synchrony, Citi Bank, or Marcus by Goldman Sachs.
- These offer high-yield savings accounts at 50% APY and charge zero fees (some terms and conditions may apply).
According to the Federal Deposit Insurance Corporation (FDIC), your money is insured for up to “250,000 per depositor, per FDIC-insured bank, per ownership category.” This guarantee also applies to any initial funds that you deposit and any accrued interest.
The FDIC, which started in 1933 at the end of the Great Depression, was designed to stabilise the nation’s financial banking system.
Keep in mind that while safe havens have many pros, there are also some cons attached to investing in these areas.
The first con is inflation. Inflation rises at an average of 3.10% in the U.S. each year. Over the past year, inflation has soared in almost every area, from fuel to utilities, to grocery bills. The second con is slow growth.
If you place your cash in an account with no interest, your stash can only grow as you add to it. So, even though a high-yield savings account will give you maximum interest, it doesn’t have the potential to grow as fast or at as high rates as other (riskier) types of investments. At the same time, a high-yield, FDIC-insured savings account is one of the safest havens during a market downturn.
2. Index funds, Federal Treasury ETFs, and government bonds
One of the top safe havens to nest your money during a downturn lies with the U. S. government. Whether you believe that Fort Knox is stocked with gold or secretly empty, there are few more stable places to keep your funds.
Index funds differ from market ETFs in one significant way: they are not exchange-traded funds. Unlike ETFs, you can only buy or sell index funds at the price that the market sets at the end of each trading day. This makes index funds generally less volatile than ETFs.
If you’re interested in stock market investing but want to hedge your bets, do your research, and then discuss a balanced and risk-averse portfolio game plan with a reputable investment adviser to get started. You can invest in index funds that cover everything from robotics to gold mines, health care to real estate, pharmaceuticals to fintech, etc.
One of the most stable investments in safe havens involves federal ETFs or savings bonds. As debt securities issued by the U.S. Department of the Treasury, savings bonds sometimes garner low returns, but they are also fully backed by the U.S. government.
Unlike mainstream bank accounts, be aware that the FDIC’s insurance doesn’t cover stocks and bonds. You can find several market ETFs that give investors access to a broad range of government bonds. Treasury ETFs rank high for reasonable interest rates and usually give more back to investors than other types of bonds available on the market. For instance, from November 2021 to April 2022, the typical U.S. Treasury bond offers investors a solid 7.12% interest rate.
The good news is that you don’t have to pay a fund manager to perform an ETF investment for you. Instead, you can buy your own Treasury bonds. As a bonus, Treasury bonds are highly liquid. When you decide to sell your bonds, there will always be a buyer.
3. Utilities stocks
Essential utilities such as water, electricity, and waste disposal services are so common that many investors don’t even know to invest in these types of safe havens. Even during market downturns and economic issues, most Americans will do whatever it takes to keep the lights on, the heat or AC running, and keep the minimum utility standard.
- Because there is always a lot of demand for utility stocks, they are some of the safest investments you can make.
They’re the kind of defensive stock that grows during prosperity and stays above water during hard times. Utility stocks usually increase in value, but they also pay investors some of the highest dividend rewards in today’s market. These dividends offer a safe haven security option even when the stock dips or flatlines.
4. Real estate
As Mark Twain once famously said, “Buy land. They’re not making it anymore.” While real estate comes with risks, it can also offer rewarding growth. Some risks to watch out for can include tenant problems, a high vacancy rate, rental property damage, or negative cash flow. If you’re looking for a safe haven investment, renting out land to farmers is a popular option.
You don’t need to know anything about farming or even get your hands dirty to take advantage of this option. According to the USDA, almost half of the 911 million acres of American agricultural land is rented out to farmers by non-operator landlords.
Some of the world’s billionaires made their fortunes in real estate. Bill Gates owns the most privately invested farmland across 19 states. Need any further convincing? Warren Buffet, the Oracle of Omaha, doesn’t know about farming. Nevertheless, he’s owned a prosperous farm in his home state for 30 years.
5. Precious metals
It’s no secret that precious metals are a stable and popular choice for safe havens in today’s market.
Gold and silver remain two of the oldest currency forms. Global economies used to back their paper currency with gold, silver, or other precious metals. This offers continuous economic stability.
When there is a downturn in the economy, people buy precious metals like gold bullion or precious metal ETFs, which stay or even rise in value.
6. Cold, hard cash
You probably knew that this one would make a list. As the king of financial safe havens, it’s hard to argue against storing at least some of your assets safe in purely liquid form. Moreover, it’s probably a smart thing to do.
Since no investment is ever completely risk-free, cash offers a sense of security. Of course, you won’t earn any dividends or interest on your cash stash. But, likewise, you won’t gain potential growth if the cash isn’t invested in a bear market.
If you don’t feel like stuffing cash in your mattress, another option is digital assets. At the same time, holding a cash reserve is the most stable safe haven of all. It can give investors peace of mind, but it means that you have the money you need to secure your future in case an economic downturn occurs.