Let’s be perfectly clear. There are few guaranteed safe havens for your cash these days. In fact, the concept of a safe haven for any investment fund is a bit of an oxymoron.
With the onset of the Sovereign debt crisis that exploded in Greece and since spread to Ireland and Portugal and now looks like consuming Spain as well, the once unquestioned security of Government issued bonds has gone out the window.
Even the cash we carry in our pockets and hold in our bank accounts, while often cited as one of the safest havens of all is itself highly exposed to long term risks that severely undermine as a safe haven for future retirement needs. In the case of cash, inflation is the greatest risk, and in recent months, signs are emerging that various events in the US and EU could cause inflation to accelerate in the months and years ahead. Whether or not serious inflation materializes is purely speculative.
That said, risk is relative and you will still need to actually put your money somewhere. Here are some of the primary safe-haven options:
Under the Mattress – forget it. It will certainly make for a bad nights sleep. Plus, it does not pay interest and as listed above, the return of inflation could render that lumpy bundle as worthless bundle in 10 – 15 years time.
National Solidarity Bond – Probably one of the better options available in the market currently. Remember, you do have to lock your money away for a set period of time before you gain the full benefit…up to 50% return, but it is Government backed and we don’t expect them to renege on their promise to pay p when the time comes.
Fixed-term deposit accounts – some banks are still paying a hefty premium of 3 – 3.5% provided you lock your money away with them for a set period of time. KBC Bank, EBS and Permanent TSB, Rabo Bank (their interest rates are lower as they present a lower institutional risk), Investec and Nationwide UK are the primary competitors for your money, paying consistently in the region of 3.25% range for your hard earned money. On this point, it is worth noting that you will be liable for a hefty DIRT tax, which will reduce the return significantly. Remember, your whole reason for putting cash away is to earn a return to outperform the long-term level of inflation. Otherwise, you will find your money becoming less and less valuable as time passes.
Government bonds – Government bonds, while being savaged by the markets in recent years continue to offer a level of safe haven have returned positively for those funds that have invested in them. There are many funds that actively invest in various Government bonds as their investment strategy. In recent years, some top performing countries (Canada, Germany and the US) have generated low returns while higher risk countries (Italy, Spain) have returned relatively generously as a means of enticing investors to invest.
Gold – gold has continued to rise in value in recent years as a hedge against both uncertainty in the stock market and rising concern that Government issued bonds carry elevated levels of risk. Gold and other precious commodities carry a level of risk insulation that has been attractive to many international investors. However, like all cases in the past, gold also not carries an elevated level of risk that it could be abandons as quickly as it was purchased if general fear in the Sovereign debt issues in Europe begin to abate. One should invest in physical gold as opposed to through an EFT. Paying a small storage fee would be a wise investment.
Property prices in the US are beginning to show a strong recovery. Here in Ireland, property is also showing the early signs of stabilizing after a near 5-year fall. That said, property as an investment category will probably remain outside of the grasp of a majority of people as bank lending for this sector is near non-existent. In more recent days, there have been headline stories of quick returns being made on select property types in very select locations. But property is an asset class that can be difficult to sell, especially in difficult market conditions.
Pay for good advice: There is no substitute for proper independent advice and the public should not be afraid to pay someone to take care of their financial well being – it is important, however, not to trust someone just because they have a nice suit or drive a nice car. It is important to understand what you are buying and to review every aspect, fund choice, charges and performance annually.
Money is precious, it is scarce and it is increasingly difficult to hold onto. Protecting your money requires taking an active interest in where the greatest and the smallest risks lie. For many people, developing a strategy of where they should put their money is best done by spreading it around. In recent times, many arguments for keeping money in cash have been made. Perhaps this argument had value but today, the world is fast changing. Signs of inflation are creeping into the overall world economy. Protecting yourself against the risks posed by inflation is key if you are to ensure against the loss of value of YOUR cash.
It is also important that your cash is invested in a mix of investment classes. Some should be relatively ‘liquid’ which means that you have access to the cash if needed. Gold is a good example as it can be sold easily. But the best safe haven will come from getting good advice. In the long run, the cost of good advice will be miniscule compared to the long term value of your investment choices.