What Is the Safest Asset to Own in 2023?

Investments are usually divided into two types – profitable and protective. Investments of the first type involve receiving certain income, and the task of the second type is asset protection and preservation. Of course, it is good when protective investments combine two qualities at once – safety and profit. But this is not always the case. In times of global crises and upheavals, an investor’s main task is precisely the safety of assets and not earnings on them. What is the safest asset to own? Below, our experts will tell you the answer.

When you might need safe assets

A competent investor knows that it is not worth it to completely form an investment portfolio from protective assets, that is, those that do not bring profit at all or bring little profit. Theoretically, this is possible, but then you can forget about profit, and investments still imply not only asset protection but also receiving a certain income. Safe protective assets are depreciating slowly but are also growing in price just as slowly. An ideal investment portfolio is formed in a balanced way. In this case, safe protective assets act as a counterbalance to high-risk assets, which allows you to hedge risks during periods of high volatility.

In investment practice, there have been cases when ultra-conservative safe assets showed rapid growth. This happens when investors catch imminent negative events in society or the economy and try to acquire as many protective safe assets as possible.

There will always be a need for safe, conservative assets because, in any investment portfolio, there must be one or several tools that are not afraid of market volatility. Safe, reliable investments are often compared to a car airbag, which value can only be appreciated when a crisis occurs.

Situations in which there may be a need for safe assets:

• there is strong volatility in world markets
• a decrease in global economic growth is recorded
• the currencies of developing countries are rapidly losing value
• traditional market cycles stop working.

The general turbulence of the world market is also affected by sanctions, armed conflicts, the aggravation of the epidemiological situation, and other negative factors.

How is a safe asset determined?

Recessions and periods of turbulence in the financial markets are an integral and almost inevitable part of investing. Therefore, an investor needs to know what constitutes a safe asset. After all, economic turmoil and a downturn in financial markets can affect not only their own investments but also other asset classes.

You can recognize a safe protective asset by the following features:

• Offers on the market are quite limited. Demand for safe assets never exceeds supply.
• High liquidity. A safe asset can be quickly sold and converted into cash if necessary.
• Stability. Such assets will never go out of fashion. That is, the demand for them in the coming decades will not disappear.

Over time, an investor can exchange one safe asset for another. Before buying protective investments, it is recommended to monitor current trends in the financial market. But there is a list of protective assets that remain safe for many years and are very popular with investors.

US dollar

The US dollar is the main reserve currency in the world nowadays. Over half of the world’s gold and foreign exchange reserves total volume is stored in dollar assets. More than 65% of countries’ foreign currency debt obligations are also issued in this currency. The reasons for this situation, according to financial experts, are the United States’ economic dominance and its capacious variety of available instruments in the stock and financial markets.

The American national currency combines low and predictable inflation, high liquidity, and popularity with consumers and suppliers. However, if we are talking about safe assets, it is advisable to invest not only in the dollar but to form a portfolio, for example, from dollars, Japanese yens, and Swiss francs. All of these currencies today are considered relatively stable and reliable.

Gold

Nowadays, like several centuries ago, gold is considered the safest and most reliable asset. Even though this precious metal is highly volatile, as its price changes almost daily, investing in gold guarantees the safety of funds in the long run. At the same time, the cost of this precious metal tends to grow and changes upward along with rising inflation. Therefore, having invested money in gold, you can subsequently count not only on the funds’ safety and protection but also on receiving a certain income.

How you can invest in gold:

• Collectible coins. In addition to their value as a precious metal, such products also have a collection value.
• ETF (Exchange Traded Fund) – suitable for those investors who do not want to spend time working with physical gold, organizing its storage, security, etc. ETF is an investment fund whose shares are traded on the stock exchange.
• Gold bars. This method is considered the most reliable and safe (provided that proper storage is organized). But you can buy such an asset only in a bank and store it as carefully as possible since even a small scratch on the bar will be the reason for lowering its price.

Also, some investors open an impersonal metal account, invest in shares of gold mining companies, and buy gold stablecoins. However, it is impossible to call such assets as safe and reliable as possible.

Safe securities with a stable value

Safe protective stocks are securities with a stable value on which dividends are paid consistently and regularly. Such safe assets provide investors with a reliable income, regardless of the market situation. In the US, such securities are shares of corporate giants or the so-called dividend aristocrats represented by Philip Morris, Johnson & Johnson, Procter & Gamble, Coca-Cola, and so on.

It is worth remembering that there are no companies that are entirely independent of market fluctuations. But some issuers manage to minimize the impact of financial market turbulence on their share prices. In the event of a crisis, such assets react to negative trends with a delay or not as strongly as others.

Safe assets in the form of protective shares have the following distinctive characteristics:

• strategic importance of the issuer’s products
• state support and absence of ultra-high financial indicators (indicators are rather stably high, without spikes in one direction or another)
• stable demand for the issuer’s products, regardless of the world market conditions.

With the help of such safe and reliable assets, you can protect money from inflation and even earn a certain percentage income. The value of safe protective stocks is largely independent of market volatility and remains stable. Such securities are resistant to price fluctuations and have maximum liquidity.

Bonds issued by solvent states or major companies

It would be wrong to consider all bonds without exception as safe assets. Debt securities can play the role of safe, reliable investments only if they are issued by a stable and solvent state or a large successful company. The risk of problems with bonds from such issuers is practically zero.

The yield of bonds depends on the coupon’s size and the debt security market value. Such assets have a certain validity period, which is agreed in advance. The only risk when buying bonds is the default of the organization that issued them.

Bonds issued by the governments of large and prosperous countries are considered to be practically risk-free assets, that is, as reliable and safe as possible. Debt securities issued by, for example, the US or the UK are of great interest to investors in times of economic instability since the likelihood that these countries will default is minimal.

The disadvantage of such safe assets is the same as with all investments of a protective type – low profitability. In addition, the price of securities depends on changes in interest rates. And if, for example, the rates in the country’s economy grow, then the bonds issued earlier fall in price.

Principles of using safe assets

It is worth using risk-free, safe assets in an investment portfolio based on your initial goals. If the investor’s task is to preserve capital, their investment portfolio can consist of 60% -70% of safe assets. But if the portfolio is formed with an eye to decades ahead, then it will be enough to allocate only 25% to safe protective assets and direct the rest of the funds to more profitable investments.

It is recommended to select suitable options for safe assets based on the specifics of other investment tools. Experienced investors note that the less assets are interconnected, the safer the investment portfolio is considered. A sense of proportion and diversification are the main principles of competent investment.

If you have any questions regarding investing, opening accounts and companies abroad, and other business issues, please contact our experts at info@offshore-pro.info.