As a reminder, there are no completely safe places to invest, as nearly all investments have the potential to lose value at times, but there are almost always some investments that are relatively safer than others. The first step in the process is to identify those places that are most expensive and therefore present the most risk of loss over longer holding periods. Currently those are the world’s stock markets, particularly the US stock market.
The next step is to identify those places that offer more value from a risk/reward standpoint and that have a better chance of holding their value or appreciating over time. When stocks and other risky assets decline in value, especially over a short period of time, we expect the traditional safe havens like US Treasuries to hold up relatively well. Although US Treasuries also dipped initially in February, the worst stock market day saw Treasuries increase in value, which showed us that when real stock market fear hits, investors seem likely to still seek out those traditional safe havens. This next time around we believe it could be similar.
We also believe precious metals may have a chance to attract dollars that would be leaving the stock market looking for a better home, and we have recently added to those positions. In addition to being a traditional safe-haven asset that tends to attract capital in uncertain times, precious metals (along with other commodities) offer much better relative value than most other asset classes at the moment. As a result, shares in companies that mine for gold and silver also appear attractive. As we mentioned however, regardless of how attractive an investment looks over longer periods, the short term is anybody’s guess. Investors have to expect volatility along the way. Unfortunately, it’s just the reality of today’s investment environment.
