Where is the safe haven?

Whenever the U.S. markets have a significant negative move like what we saw on Friday (DJIA -2.22%, S&P 500 -2.46%), we are used to hearing that money is being allocated to “safe havens”, most notably the United States Treasuries. But with ten year treasury rates hovering around a percent and a half, parking your money there will lose you purchasing power to inflation, which is undoubtedly likely to accelerate as the lagged effects of the QE 1&2 programs are kicking in and as a potential QE 3 is on the horizon.

I frequently hear that the precious metals markets, most notably gold, is a safe haven during inflationary times, but I personally have a hard time believing that a brick of yellow metal will do me any good in the event of an economic collapse. Now I did see a recent sixty minutes story about the value of gold in India and how society is completely infatuated with gold ownership (I highly recommend watching this if you haven’t yet), I just do not see that in the information age that gold bars will be an effective form of currency, especially when society is moving towards having payment options through smart phones rather than plastic credit cards or bills. I have a hard time imagining people carrying around a backpack full of gold bars around to pay for their daily expenses.

I am curious about where people are putting their money for capital preservation purposes. Every market I look at, there are caveats that make the risk reward profile shift in favor of the risk side, and it is hard to find any type of yield, especially for the long term horizon. Some of the ideas I had recently were baskets of Asian currencies, Energy Exploration and production ETFs, among a few others. Where do you guys see a relative ‘safe haven’ looking 1-2 years forward?

 

I have a handful of high dividend stocks and REITs (I'm out of everything else at the moment aside from some bond funds making up my fixed income portion). They have held up very well, with all of them gaining a little over the last few months while the market has fallen.

Are they a safe haven like you are talking about? Absolutely not. But if you don't want to ditch all equity, I believe that the dividend space is a solid one to be at the moment.

 

For your time horizon, I would consider Mortgage Reits like NLY and AGNC. Check them out - they pay nice dividends (13.5% for NLY and 15.5% for AGNC) and do not follow the markets step for step in times of volatility. Of course there is some risk associated with them - however if Bernanke stay's true to his word and keeps rates low through 2014 (your 2 year time horizon) there shouldn't be a problem.

 

Why are you allocating based on a 1-2 year time horizon?

If it is to meet a critical payment then you should keep "most" of the money set aside for this in cash in the same currency as the expenditure.

Randomness and the volatility over a 1-2 year time horizon will matter more in whether or not you meet your payments than any inflation effects. Cash has near zero price volatility in this case (assuming USD denominated payments).

 

Selected South America government and corporate bonds, although yields are also down.

Valor is of no service, chance rules all, and the bravest often fall by the hands of cowards. - Tacitus Dr. Nick Riviera: Hey, don't worry. You don't have to make up stories here. Save that for court!
 

Zecco is nice, 10 free stock/ETF trades per month if you have a $2500+ balance. Options are $5ish. Pretty good MM sweep rates. (4%ish)

I would keep a Scottrade account open, since Zecco doesn't offer free streaming quotes. Also, their account balance and trade confirmation systems are a bit crappy, but other than that, well worth it to change to Zecco. Just make sure your bank doesn't have selected brokers that you have to use.

 

CDs are guaranteed up to $250,000. They are safe and if the government for some reason said they wouldn't honor the guarantee it wouldn't matter where you had your money because we would be done

 
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