Back where we were sweet summer children, in December of last year, we discussed some alternative safe haven investments for small investors. Since then, the COVID-19 pandemic has turned just about everything on its head, even compared to past economic downturns. On that note, people who chose #2 on December’s list didn’t do too badly, and ironically, #5 should always be under consideration.
Still, it’s fair to note that this recent pandemic has overturned a lot of notions of just what a safe haven might mean, and yet, it’s important to proceed ahead with new information and insights that nobody had several months ago. With that in mind, dig deeper into investments that can still provide a measure of safety and even, what a safe haven even means.
Are There Safe Haven Investments in a Pandemic?
First, you should take a moment to make sure you understand what safe haven really means.
Defining a Safe Saving or Investment Vehicle
In general, you can define a safe haven as a place to put money that can protect it — and hopefully, provide some growth — during volatile and unpredictable economic times. In other words, these so-called safe savings vehicles will either grow, outperform the general market, or at least, hold their value.
Even though plenty of advisors have suggested that cash may provide the only safe haven during the next several months, that’s not a satisfactory answer to many people.
While prudent savers and investors may want to hold onto some cash, inflation and fluctuating currency values may not help cash meet the true definition of a safe investment because it can lose value.
How Have So-Called Safe Investment Performed During the Pandemic?
Venn took a deep dive into five assets that are usually considered alternative, safe havens during tough economies. This lists highlights the most important points of their research:
- Safe havens: As safe havens, they used bonds, safe-harbor stocks, Bitcoin, precious metals, and currency.
- Time period: They also chose the equities market as their barometer of the steepest decline of the crisis. This ranged from near the end of February when equity losses started to when they had reached a peak loss near the end of March.
So, take a brief look at how everything performed for this one-month period when the equity markets soured:
- Government bonds: Except for Europe and Japan, most government bonds held their own during the testing period. Around March 9, investors even fled bonds for cash because they needed to cover themselves on other trades, but they picked up again about 10 days later.
- Precious metals: Gold, silver, and other precious metals are generally considered safe havens, but they’re also equities. Even though they’ve picked up after the survey period, they didn’t fair that well during that late-February to late-March time period. As with the short drop in Bonds, Venn blamed that on some panic selling in order to cover other losses.
- Currency: At least, the USD held its value better than other safe-haven currencies, like the Swiss franc and Japanese yen. Again, Venn credited some of this to investors selling other assets for cash, and also, existing trust for the dollar as the ultimate safe-haven currency.
- Bitcoin: During the time period measured, Bitcoin did not hold up so well, though it’s regained some value since then. At the risk of sounding repetitive, Venn attributed early losses to panic selling, which may have come from a need to cover other losses. They also mentioned it was worth a note that Bitcoin climbed about 44 percent by May.
- Safe-haven stocks: Typically, safe havens refer to refuges from a volatile stock market. However, investors may trust certain kinds of stock to remain steady, even when others fall. Mostly, they put healthcare, utilities, and non-discretionary purchases, like food and toilet paper, in the category of things people will need in any economy. As expected food and healthcare outperformed the indices. At the same time, utilities struggled, no doubt because of lower demand from businesses.
How Did Tech Stocks Do During the Pandemic?
It’s worth noting that according to CNN, many tech stocks held up pretty well too. In this particular crisis, lots of businesses sent their employees home to work remotely, and they needed additional tech to support them. Also, as a group, tech-based companies were generally well-prepared for the disruption of working remotely.
What About Real Estate?
Real estate describes such a broad topic that it’s impossible to group it all together for a discussion like this. Lots of commercial real estate struggled as business tenants had problems with their rent. On the other hand, some real estate investors like the idea of farmland or rental homes during uncertain times.
A solid strategy for some people with excess cash may simply be to get ahead on their own mortgage to reduce debt. People who don’t think they’ve got enough cash on hand but live in good real estate markets might decide that it’s a good time to downsize or consider refinancing.
So, What’s the Best Safe Haven?
In any case, it looks like most of these safe havens held up fairly well with some turbulence. Investor needs to cash out and in some cases, lower demands for the products they represent, may have generated some of the dips. The main conclusion is that it’s interesting to note what did well when equities crash; however, the next economic downturn could have unique characteristics that support these or other types of assets.
Lacking a crystal ball about the duration of the pandemic crisis or of course, the nature of the next downturn, investors and savers need to exercise some prudence, keep up with trends, and spread some risks.
As JP Morgan put it in a recent report, there probably isn’t one solitary safe haven investment for prudent investors. During times like these, savers and investors need to focus on some diversity to maximize returns while including a safety net.