Best ‘safe haven’ investments – Forbes Advisor UK

Turbulent investment markets can shake your confidence in riskier investments such as stocks and shares.

When markets get choppy like they have this year (through June 2022, the US S&P 500 index has fallen around 15% since January, while the euro zone’s Euro Stoxx is down a similar amount), investors have an incentive to move their money to relatively safer havens – at least until volatility subsides.

More stable, low-yielding investments can help protect your money and may even continue to provide modest growth in tough times.

If you are looking for alternatives to volatile markets, the following investments offer lower risk than stocks and shares, as well as potential financial peace of mind for their owners.

It should be noted that no investment is 100% safe because with an investment your capital is always at risk.

With a savings product, your capital is secure, even if there is a risk that your account provider may go bankrupt. However, as explained below, the UK government provides a backstop in such cases worth £85,000.

High Interest Current Accounts

High Interest Current Accounts (HICA) are checking accounts offered by providers such as high street banks, often offering higher interest rates than savings accounts. To incentivize customers, some HICAs also offer cash signing rewards.

HICAs tend to impose requirements on customers, such as imposing a minimum monthly funding amount, as well as an upper limit on balances that earn interest. There might also be a time limit on the interest rate deals that are offered.

Some accounts charge a monthly fee. Before signing up, it’s worth checking how the fees, including monthly fees as well as overdraft penalties, compare to the premium interest rate.

Current accounts are regulated by the Financial Conduct Authority. Licensed banks in the UK fall under the Financial Services Compensation Scheme, protecting customers against business failure up to £85,000 per person per institution.

Gold

Investing in gold can bring stability and diversification to an investment portfolio, especially during turbulent economic times.

Gold is perceived as a “safe haven”, offering investors the possibility of preserving their wealth. It provided a good hedge against inflation headwinds.

Indeed, in theory, increased demand during periods of inflation – such as we are currently experiencing, with UK prices rising by around 9% year-on-year – can lead to higher gold price.

Along with cash, stocks, bonds, and real estate, gold is an asset that can provide investors with the essential element of diversification. Diversification is useful because it provides a form of financial protection when an asset class – stocks for example – underperforms.

It is often said to have an inverse correlation with other asset classes. In other words, if stock markets fall due to economic uncertainty and rising inflation, gold may perform better.

You can buy gold directly, in the form of bars, coins or jewelry. Alternatively, it is possible to gain exposure through pooled investments which combine the contributions of many different people into a single managed fund.

A third option is to invest indirectly by buying shares in companies that mine, refine and trade gold. Note that while mining company stock prices tend to be correlated to the price of gold, individual stock prices are also affected by fundamentals such as profitability, environmental issues, and geopolitical and regulatory risks.

Exposure to gold is not without risk. As with any asset class, the price of gold fluctuates and is subject to the usual laws of supply and demand, so you could lose your initial investment.

Obligations

Bonds are a type of investment that tend to be safer and less volatile than stocks and stocks.

In terms of risk, think of them as a halfway house between having your money on deposit and a full-fledged stock investment.

Bonds are issued by governments, corporations and financial institutions (read more about fixed rate bonds issued by these here).

In the UK, government bonds are called ‘gilts’, while in the US they are called ‘treasuries’. Bonds are essentially “IOUs” and work the same regardless of the issuer.

When you buy a bond, you are lending money to the issuer in exchange for interest payments over the life of the bond (known as the “coupon”), plus repayment of your original loan when the bond matures.

Bonds are also called “fixed income securities” because, as an investor, you know in advance the return you will receive on your investment.

The interest rate, or coupon, you receive varies from bond to bond. The riskier the bond, the higher the interest rate you can expect to receive, associated with an increased likelihood of not recouping your initial investment.

High-quality government debt from countries like the UK and the US (which have never defaulted) sits lower on the risk scale than corporate-issued debt.

Rating agencies, such as S&P, Moody’s and Fitch, analyze countries and companies and rank their benchmarks according to the quality of the debt issued.

You can buy UK gilts from the Debt Management Office. Gilts can also be purchased through a stockbroker or bank using the retail buy and sell service. This would incur fees, thereby reducing profits.

It is also possible to invest in fixed income securities through a range of investment funds and exchange-traded funds – usually through investment platforms and trading apps – specializing in bonds.

Holding bond funds in an Individual Stock and Equity Savings Account (ISA) provides a tax-free packaging for your investments.

Property

Investing in real estate is not without risk. But bricks-and-mortar exposure can be placed in the “relatively safe” investment bin. Real estate also has the potential to generate a stream of income, alongside the prospect of capital growth.

It is possible to invest in real estate in different ways, directly or indirectly. The most obvious way is to buy a building and rent it out. Bear in mind that in addition to the purchase price and any associated mortgage, there will be additional costs (estate agents, notaries, surveys, stamp duty, insurance, rental agents) to be found.

An alternative is to buy into a specialist real estate investment fund that focuses on commercial, industrial and office buildings.

The performance of real estate funds generally depends on the performance of the economy. In times of prosperity, the demand for real estate increases. This drives up both rents and property prices and incentivizes additional construction. During downturns or recessions, the opposite tends to apply.

As with any investment, the value of real estate investments and the income they provide can go down as well as up.

Real estate also has the disadvantage of being a relatively “illiquid” asset, ie difficult to sell. In extreme cases, investors can be locked into real estate portfolios waiting for managers to sell properties.

No warranty

It bears repeating. There is no completely risk-free investment. Even so-called safe havens carry risks, for example, the loss of purchasing power over time as inflation rises – a feature of even the strongest savings account.