Safe-haven assets in 2022 – What are they and how can you invest in them? –
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Market volatility can shake investor confidence, especially in risky investments such as stocks – which is why many investors tend to shift their money to safer investments when markets become uncertain.
The volatile stock market, along with analysts’ forecasts of a recession, has prompted many investors to take a more conservative approach to investing.
Safe havens are favored by investors who wish to limit their exposure to risk in times of market instability. Traders are able to prepare for drastic market moves if they can identify assets that are likely to appreciate.
More stable (albeit lower-yielding) investments can help protect your money in a downturn in the market. Some might even offer modest growth, depending on your portfolio structure.
If you’re looking for a place to park your money to get through this period, this article suggests a few safe-haven assets that offer lower risk and stable returns.
What are safe haven assets?
Safe havens refer to low-return but stable savings and investment options that help preserve your money during tough economic times, while offering modest growth potential.
These safe havens often exhibit at least one of the following characteristics.
- There is a demand for using the asset in the long term, and this demand is greater than the supply.
- They are liquid and can be easily converted into cash at any time.
- They will not become obsolete, replaced or deteriorated over time.
Keep in mind that despite the advantages of safe havens, they also have disadvantages, namely slow growth and inflation. The Monetary Authority of Singapore had said that “for 2022 as a whole, MAS Core Inflation will average around 4% and CPI-All Items Inflation around 6%.” The average inflation rate in Singapore is around 2.5% per year, but it has increased in almost every area over the past year, from food to fuel to utilities. Safe-haven assets and tools can provide steady returns, but returns are slow and may not be enough to deal with high inflation.
Note that although they are called safe havens, none of them are 100% safe as investments always carry some risk. Even savings accounts carry their own risks, in that your account provider may go bankrupt even if your capital is secure. Explore the following options, after doing enough research.
What are some financial havens?
High Yield Savings Accounts
High yield savings accounts are just about the safest type of account for your money. They have high liquidity and immunity to market fluctuations.
However, if inflation is higher than the annual percentage return of your account, the purchasing power of your money could erode. Even though a high-yield savings account may offer maximum interest, it still doesn’t have the same growth rates or potential as other (often riskier) types of investments. Therefore, your savings in a high yield account probably won’t be able to keep up with inflation.
That said, a high-yield savings account is still considered one of the safest havens during a market downturn.
Many investors view gold as the ultimate safe investment. Although it can experience similar drastic price swings in the short term, much like stocks and other risky assets, research suggests that gold can retain its value over the long term.
Gold is a monetary asset that is traditionally a good hedge against inflation over the long term. However, this does not always protect you. What it does is add stability and diversity to your investment portfolio, especially during turbulent economic times, making it a safe haven. Diversification mitigates financial risk and provides some financial protection in the event that an asset class underperforms.
Gold tends to have an inverse relationship with other asset classes. For example, if stock markets dip due to rising inflation and market uncertainty, gold may generate higher returns.
There are several ways to invest in gold. Check out our gold guide.
However, note that exposure to gold is not entirely without risk. As with any asset class, the price of gold is subject to supply and demand and therefore fluctuates. There is always a possibility of losing your initial investment.
Bonds are traditionally a less volatile and safer class of investment than stocks and shares. They can be traded on the market just like stocks and shares.
Government bonds are basically loans issued by the government (while non-government bonds are issued by companies and financial institutions), which makes them even safer. (The Singapore government has a AAA credit rating.)
Buying a bond is lending money to the bond issuer in exchange for interest payments over the term of the bond. Interest payments are known as “coupons”, and the investor receives them in addition to the original loan when the bond matures.
Since the investor will know in advance the return he will receive from his investment, bonds are also called “fixed income securities”.
The interest rate an investor receives may differ from bond to bond. Riskier bonds pay higher interest rates, but also have a higher probability of not returning the investor’s initial investment.
You can also invest in fixed income securities through exchange-traded funds (ETFs) and investment funds through trading apps, robo-advisors, and investment platforms.
Read more: What are Singapore Treasuries and are they a good investment?
Let’s be clear: investing in real estate is certainly far from risk-free, as returns are subject to the vagaries of the real estate market, the law of supply and demand and other factors such as interest rates. interest and government policies, to name a few.
Yet real estate is essential to the economy and to survival. People will always need a roof over their heads, or a retail store to do their business, and businesses will need a distribution center to store their goods, etc. Therefore, there is always a demand for real estate.
Additionally, as most properties are leased on a long-term basis to tenants who are contractually bound to pay the rent agreed upon in their lease, real estate therefore generates predictable and consistent cash flows, making it a stable investment.
According to a recent Credit Suisse report, “Singapore Real Estate Investment Trusts (S-Reits) are expected to be resilient over the coming year and act as an inflation hedge amid growth concerns. world”.
Driven by new land acquisitions, improving occupancy rates, lower rent rebates, and positive rent reversions as borders and the economy reopen, S-REITs have seen growth. annual distributions per unit.
There are many ways to invest in real estate, either directly or indirectly. In addition to buying a building or unit and renting it out (which includes all associated fees, mortgage, and purchase price), one can look at REIT-focused robo-advisor funds like Syfe REIT+, or specialized real estate investment funds that focus on retail. , industrial and commercial buildings.
Note that, as with any form of investment, the value of property investments as well as the income they provide can fall and rise depending on the performance of the economy – demand for property increases during boom times, while the reverse applies during downturns or recessions.
Although they are known as safe havens, ultimately there is no completely risk-free investment. Even those described above carry their own risks. Therefore, the key is to assess your individual needs before building a portfolio that provides diversity and stability while allowing you to realize capital gains.
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The article originally appeared on ValueChampion.
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