Most investors invest in assets that fall under traditional asset classes, including bonds, stocks, and cash. However, experienced investors turn to less liquid, alternative assets to diversify their investment portfolios. Alternative asset classes need a longer investment period before you can start realizing returns on them. Some examples of alternative asset classes include hedge funds, private equity, real estate, and natural resources, such as gold, silver, and agriculture.
What Is a Safe Haven?
If you are looking for the safest and most reliable alternative assets, they have to be gold and silver. These are also often referred to as the “haven” of asset classes. In the world of investment, a haven refers to a type of investment that increases in value or at least retains its value during tough economic times. Investors usually turn to safe havens to limit their risk of losses in times of economic downturns.
The best alternative assets that are also considered safe havens are gold and silver. These two metals have long remained valuable, especially during periods of economic turmoil. Let’s find out why gold and silver are considered safe havens of alternative assets.
Gold As a Safe Haven of Alternative Assets
Throughout history, gold has remained a store of value. Since it is a physical commodity, it cannot be produced like paper money, and its value is not affected by the interest rate fluctuations as a result of government decisions. Since gold has always maintained its value, in the long run, it serves as a type of insurance against poor economic conditions.
Investors invest their money in gold when an economic downturn occurs. The rise in demand increases its price. Moreover, as it is tied to the U.S. dollar, the value of gold also shoots up when there are chances of inflation shortly. It moves in the opposite direction as the green paper. Therefore, it is touted as a safe investment for those who are looking for a non-volatile investment.
As compared to investing in stocks where even the biggest investors and companies can and have failed, investing in gold is less risky. Although it is available in ample quantities to trade, its supply is still limited. Its rarity and non-reactive nature make it immune to corrosion and add to its value.
The value of gold has increased dramatically over the last 20 years. From $487 per ounce in 2000, its price has gone up to $1,856 per ounce in 2022. There was a significant hike in 2020 when the markets experienced economic turbulence due to the pandemic. The prices of gold increased by 28% during this period.
This showcases how gold is a reliable alternative asset during times of uncertainty. So if you are looking for a way to diversify your portfolio and minimize your risk of losses, invest in gold.
Silver As a Safe Haven of Alternative Assets
In addition to gold, silver is also considered a haven of alternative assets, especially since the growth of gold’s price after the economic turbulence of 2020. Due to gold’s price driving up, silver has been becoming increasingly noticeable to investors due to its split role. Its shift from industrial metal to a previous monetary material has contributed to the increase in its price in recent years.
Silver was priced at $9 per ounce during the 2000s. Fast forward to today, its price has increased by 244% per ounce to $22. And the reason for that is its industrial fabrication which is at an all-time high.
As a result, its demand has increased as investors are looking for an affordable alternative asset in contrast to gold. Although there is a correlation between the value of gold and silver, investments in silver are considered very different from gold. The silver market is about 60 times smaller than the gold market. This makes silver market investments more prone to market fluctuations.
That said, investors usually turn to silver in contrast to gold due to its affordability and smaller market size. It is the best haven of alternative assets after gold. Therefore, invest in silver to protect yourself in times of uncertainty.
Why Invest in Safe Havens?
Investing in safe havens allows investors to diversify their portfolios and benefit in case there is a downturn in the market. Usually, such fluctuations exist in the short term. However, in case of long-term market downturns, when the economy is in a recession, the market value of your investments takes a serious toll.
Although you cannot avoid these long-term market downturns, you can invest in the best alternative assets, such as gold and silver to secure your portfolio. These safe havens will increase in value or at least retain their value when the chips are down. They are negatively correlated or uncorrelated to the general economy during such times. That’s the reason why most investors turn to these alternative assets during times of economic turmoil.
You can even open up a precious metals retirement account such as a gold IRA or silver IRA. A Crypto IRA can also act as a hedge against inflation and is a great way to diversify your portfolio. However, for this, you need a professional and reliable service provider.