Safe-Haven Investments— What Are They and How Can You Invest in Them?

In times of shaky market conditions, these investment assets can provide some refuge. Here’s how you can diversify your portfolio.

Joyce Chua

by Joyce Chua on Feb 7, 2024

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Market volatility can shake investors’ faith, particularly in risky investments such as stocks — which is why many investors tend to shift their money towards safer investments when markets grow uncertain.

The volatile stock market, along with predictions of recession from analysts, has prompted many investors to take a more conservative approach to investing.

Safe-haven assets are favoured by investors who wish to limit their exposure to risk during times of market instability. Traders are able to prepare themselves for drastic market movements if they manage to identify the assets that are likely to appreciate.

More stable (though lower-yielding) investments can help to protect your cash during a market downturn. Some might even provide modest growth, depending on how your investment portfolio is structured.

If you’re seeking a place to park your money to tide through this period, this article suggests a few safe-haven assets that offer lower risks and steady returns.

Read More: Gold Goes Bullish – Should You Boost Your Portfolio Allocation For This Commodity?

What Are Safe-Haven Assets?

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Safe-haven assets refer to lower-yielding but stable savings and investments options that help to preserve your cash during difficult economic times, while also providing the potential for modest growth.

These safe-haven assets often demonstrate at least one of the following characteristics.

  • There is a demand for use of the asset for the long term, and that demand outweighs the supply.
  • They are liquid and can be converted into cash easily at any time.
  • They won’t become outdated or replaced or decay over time.

Bear in mind that despite the pros of safe havens, they also come with some cons — namely, slow growth and inflation. The Monetary Authority of Singapore had stated that “core inflation eased to 3.4% year-on-year in August 2023, considerably lower than its peak of 5.5% in January 2024”. The average inflation rate in Singapore is about 2.5% every year, but it has shot up in almost every area over the past few years, from food to fuel to utilities. Safe-haven assets and tools may provide steady returns, but the returns come at a slower rate and may not be enough to keep up with high inflation.

*Do note that despite being called safe havens, none of them are 100% safe as investments always carry some risk. Even savings accounts come with their own risk, in that your account provider may go bust even if your capital is kept secure. Explore the following options having done sufficient research.

What Are Some Financial Safe Havens?

High-Yield Savings Accounts

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High-yield savings accounts are pretty much the safest type of account for your money. They have high liquidity and immunity against market fluctuations.

However, if inflation is higher than your account’s annual percentage yield, your money’s purchasing power could erode. Even though a high-yield savings account can offer maximum interest, it still doesn’t have the same growth rates or potential like other (often riskier) types of investments. Therefore, your savings in a high-yield account will likely not 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.

Gold

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Many investors deem gold as the ultimate safe investment. While it may experience similar drastic price swings in the short run, just like stocks and other risky assets, research suggests that gold can hold its value in the long run.

Gold is a monetary asset that is traditionally a good hedge against inflation over the long term. However, it doesn’t always protect you. What it does is add stability and diversify your investment portfolio, particularly in times of economic turbulence, making it a safe haven. Diversification mitigates financial risk and offers some financial protection in the instance where one asset class underperforms.

Gold tends to have an inverse relationship with the other asset classes. For instance, if stock markets plunge as a result of rising inflation and market uncertainty, gold may generate higher returns.

There are several ways to invest in gold. Check out our guide to investing in gold.

However, do note that exposure to gold is not entirely risk-free. Like with any asset class, the price of gold is subject to supply and demand and therefore fluctuates. There is still a possibility of losing your original investment.

Government Bonds

Bonds are traditionally an investment class that is less volatile and more secure than stocks and shares. They can be traded on the market just like stocks and shares.

Government bonds are essentially loans issued by the government (while non-government bonds are issued by companies and financial institutions), which makes them extra secure. (The Singapore government has a AAA credit rating.)

To buy a bond is to lend money to the bond’s issuer in return for interest payments during the bond period. The interest payments are known as “coupons”, and the investor receives those on top of the initial loan when the bond matures.

Since the investor will know in advance the return they will receive on their investment, bonds are also known as “fixed-interest securities”.

The interest rate an investor receives may differ from one bond to another. Riskier bonds yield higher interest rates, but also come with a higher probability of not returning the investor’s original investment.

You may also invest in fixed-interest securities through exchange-traded funds (ETFs) and investment funds via trading apps, robo-advisors and investment platforms.

Read More: What Are Singapore Treasury Bills and Are They a Good Investment?

S-REITs

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Let’s be clear: investing in property is certainly far from being risk-free as returns are subject to the whims of the property market, the law of demand and supply, and other factors like interest rates and government policies, to name a few.

However, real estate is essential to the economy and one’s survival. People will always need a roof over their heads, or a retail store to get their necessities, and businesses will need a distribution centre to hold their goods, etc. Therefore, there is always a demand for real estate.

Also, as most properties are leased on a long-term basis to tenants contractually obligated to pay the rent agreed upon in their lease, real estate therefore yields predictable, consistent cash flow, making it a steady investment.

According to a recent report by Credit Suisse, “Singapore real estate investment trusts (S-Reits) are expected to be resilient over the coming year and act as an inflation hedge amid global growth concerns.”

Thanks to new land acquisitions, improving occupancies, lower rent rebates, and positive rent reversions as borders and the economy reopened, S-REITs have seen year-on-year growth in distributions per unit.

There are a number of ways to invest in property, be it directly or indirectly. Apart from buying a building or unit and renting it out (which comes with all the associated fees, mortgage and purchase price), one can look at REITs-focused robo-advisor funds like Syfe REIT+, or specialist property investment funds that focus on retail, industrial and commercial buildings.

Do note that as with any form of investment, the value of property investments as well as the income they provide may fall and rise depending on how the economy is performing — demand for property increases during boom times, while opposite applies during slowdowns or recessions.

Related: 2024 Outlook for Singapore’s Property Sector and S-REITs to Look Out For

Conclusion

Although they are known as safe havens, there is ultimately no such thing as a completely risk-free investment. Even those described above come with their own risks. Therefore, the key is to assess your individual needs before building a portfolio that provides diversity and stability while still allowing you to make some capital gains.

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