5 Safe Haven Assets to Explore During Market Downtrend
Investors have struggled in 2022 as the market trends toward correction territory. The S&P 500 is down 13% year to date, with more losses expected in the month ahead. In the midst of a stock market sell-off, investors are pivoting to position themselves for protracted strife. More and more people are looking to park their wealth in safe haven assets in a move designed to weather economic uncertainty and tough times ahead.
What is a Safe Haven Asset?
Safe haven assets are assets that typically retain or even increase in value during times of economic hardship. Investors park their wealth in safe haven assets as a way to limit exposure to volatility and uncertainty.
Typically, these assets are more tangible: property, precious metals, commodities, etc. However, safe haven assets truly depend on the nature of the market as it enters a bearish or uncertain period. For instance, property wasn’t a safe haven asset during the Great Recession, largely because the property bubble burst. Identifying and investing in safe haven assets means first understanding which investments are more likely to weather the current economic trials.
As the stock market begins to flash warning signs of an impending correction or a protracted bear market, here’s a look at five safe haven assets to explore in 2022.
No. 1 Gold and Other Precious Metals
Precious metals are an almost universally recognized safe haven assets when economic turbulence kicks up. True to form, investors have begun moving their wealth into gold as the S&P 500 and other major indices continue to trend downward. Gold spot prices spiked to over $2,000 on March 8, revisiting an all-time high set during the thick of the COVID-19 pandemic pullback in August 2020.
Gold isn’t the only precious metal on the rise. Platinum and silver are soaring, too. Silver is over $27 per ounce while platinum nears $1,200: behaviors that have begun to mimic spot prices in the thick of the 2008 recession. Safe to say that investors who’ve always found security in precious metals are once again looking to them as a safe haven.
No. 2 Energy Stocks and ETFs
Energy has outperformed in 2022 and energy stocks continue to climb as other sectors sink. The reason? Geopolitical tensions between Russia and Ukraine have put a squeeze on oil and natural gas. As prices for these commodities rise, domestic producers are seeing significant uptick in demand and prices.
Proof of energy stocks and ETFs as a safe haven are evident in year-to-date gains. Chevron Corporation (NYSE: CVX) is up more than 40%, lagged by Exxon Mobil Corp. (NYSE: XOM) which is up more than 36%. Natural gas companies are also up year to date: Chesapeake Energy (Nasdaq: CHK) and APA Corporation (Nasdaq: APA) are up 25% and 35% respectively. For investors seeking to diversify within the energy sector, energy ETFs are hitting all-time highs, solidifying themselves as safe haven assets.
No. 3 Stable Fiat Currencies
With the cryptocurrency bubble mid-burst, investors are once again remembering fiat currency for the safe haven that it can be. Bitcoin shed 25% of its value in the last year and currently trades sideways. As investors look for more stable currencies, they’re leaning into traditional safe havens like the United States Dollar (USD), Japanese Yuan (JPY), Swiss Franc (CHF) and the Euro (EUR).
Forex activity makes it the most liquid market in the world, which is ideal for investors who want to continue a hands-on approach to generating wealth, as opposed to a passive investment. Trading safe haven currencies offers opportunities to maintain leverage in volatile markets, and to capitalize on some of the global events currently driving uncertainty in traditional stock markets.
No. 4 Real Estate and REITs
In contrast to the 2008 Great Recession, which hinged on the collapse of the housing market, real property is a strong safe haven asset in the current economic climate. Housing values are booming thanks in part to problematic supply chains that’ve restricted the construction of new inventory. As a result, the supply and demand balance has tipped heavily in favor of demand. It’s a sellers’ market, and the price of housing is hitting an all-time high.
It’s not just the intrinsic value of property that’s going up. Landlords and property investors are also experiencing lucrative gains. Rents and leases are ballooning, putting property owners in an even greater position to profit as the stock market looks more and more unstable. Moreover, the protections put in place by Dodd-Frank in 2010 solidify the housing market as a stable one at a low risk of default.
No. 5 Blue-Chip Dividend Stocks
It’s not just energy stocks that are a worthwhile defensive play in the current economic climate. Blue-chip dividend stocks are also safe haven assets. Turbulent markets are where Dividend Aristocrats shine, and the current state of the stock market makes these investments even more appealing. Many key blue-chip companies hover just above 52-week lows, yet aren’t in any position to cut their dividend. Investors buying in now will capitalize not only on a safe dividend, but future appreciation from companies that typically remain stable.
Investors are wise to look at companies like 3M (NYSE: MMM), Pfizer Inc. (NYSE: PFE) and AbbVie Inc. (NYSE: ABBV): all Dividend Aristocrats that pay a healthy 3% dividend.
Identify Safe Haven Assets in 2022
As markets face continued turbulence and the sell-off continues, investors need to identify the safe haven assets that are most accessible to them, and the ones that fit with their investment thesis and time horizon. Consider any of the above five safe havens and take steps to safeguard yourself against looming market uncertainties.