I enjoy reading spy novels, particularly those about the Cold War. Through my local library, which is a wonderful facility, I am reading “Safe Houses” by Dan Fesperman, one of a number of authors who practice in the spy novel genre. Though not great literature (most spy novels aren’t great literature), “Safe Houses” is a good read so far.
The title got me thinking, are there any “Safe Houses” in the investment world? A safe house in the spy world is usually a house controlled by a foreign country’s spy agency. The US CIA had (and probably still has) safe houses in Germany and in eastern Europe where its spies can hang out between assignments, and where other people can watch out for them and therefore be safe. If you watch “Homeland” on Showtime, you know what a Safe House is. Maybe also the Ryan Reynolds/Denzel Washington film of the same name.
Gold
Is gold a safe house for investors? Right now, no, it is not. Gold has historically been a hedge against inflation and geopolitical turmoil. What do we have now? Inflation that is slightly higher now than it has been for the last several years (albeit still pretty low) and geopolitical turmoil, at least if you watch the mainstream media. No major war, though. We also have incessant TV ad spots touting gold. Yet, gold is hitting new 52-week lows. Don’t believe William Devane and the TV ads. Gold isn’t dead as an asset class, but it is not a safe house right now. It may turn out to be a great investment if we do have
Real Estate
Residential real estate, in particular, is more of a safe house, especially in areas such as where I live in California where there are growth restrictions, both natural and unnatural. Housing demand remains high, particularly affordable housing, Affordability is key because so few households make enough money to qualify for the mortgage they need to buy the house they want. Yet, there remains the liquidity issue: It is more difficult to sell your property when you need to than it is to sell a stock or bond. And, there remains the issue of interest rates, which will also price more people out of buying a house as rates move up, even as slowly as they are. Yet, if you currently own or can purchase residential real estate at a relatively affordable price in a favorable location, chances are you will be safe in the long term.
US Treasuries
Unless you are a true believer in the impending apocalypse, US Treasuries are extremely safe, with a big If: If you hold your treasuries until maturity, you will get back 100% of your principal plus your coupon interest. If you sell your treasuries before they mature, you could lose some of your principal if interest rates have moved upward since you purchased the treasuries. This is called Duration Risk. If you like the almost-3% return on 10-Year US Treasuries and you absolutely need all of your money back, then you need to hold them all 10 years. Of course, there are shorter terms – with all of the US debt, there is any maturity available that you want. Now, with rates higher than they have been, US Treasuries are at least a somewhat appealing alternative that offers a safe return.
Cash
Cash is the safest of all, but it isn’t really an investment because you don’t get a return on cash. When you have a brokerage account (including a retirement account) and you don’t invest all of the money in your account, the uninvested portion is usually “swept” into a money market account, which pays some return, albeit smaller than US Treasuries. Most financial planners consider money market funds to be “cash”, and it is 100% safe if it is under $250,000 and therefore insured by SIPC. When I want to stay completely “safe”, which is typically when I am seeing that we are not in a strong period for the stock market, I will opt for “cash” that is swept into a money market account rather than to buy US Treasuries because I know I won’t lose money when the stock market rights itself and I venture back into the fray.
IMO
These are just a few of the “safe houses” out there for investors. Stocks by definition are not a safe house because their values are constantly changing in the stock market. Safe means you will get 100% of your money back. Don’t buy gold now if you want to stay safe, although you might want to if you want to speculate. Consider residential property if you don’t need the liquidity, and definitely go with US Treasuries if you hold to maturity and cash if you want short-term safety.