Today was a short term victory for the bulls a midst a micro-rally in the markets that was fueled by energy and tech. “Enjoy it while it lasts,” some bears say, because they anticipate the market downturn continuing. So far this year the S&P is down almost 9 percent year to date so it’s really hard to hid the hard numbers. Based on the S&Ps Capital IQ, nearly every segment of the market is down for the year.
But the good news for investors is that there are asset classes out there that can hold steady in a downturn or even rise as the markets plummet. There’s no Almanac for what’s to come but history can serve as a guide during times of crisis in the markets. Top on the list includes Gold.
Typically gold is seen the same way as bonds in general are- a safe place to protect your money. This is based on the fact that gold is a physical asset and can actually be bought and sold around the world. Think back to 2008 when the market bottomed out and the S&P dropped almost 30 percent. Gold was actually up the same amount and so far this year, gold has climbed by more than 4.3 percent. Often times the price of gold is dictated by the overall sentiment in the market than it is to the actual fundamentals but during times of fear- when there’s blood on the streets – gold has acted as a strong hedge against losses.
Besides gold, other classes include Government bonds, which also have shown to do well during times of market turn-down. In fact, this year Barclays Long Term U.S. Treasuring Total Return Index is around 4.5 percent YTD. But not all bonds are created equal as high yield, fixed-income bonds tend to be much more related to equities and thus could most likely reflect the same directional movement in some cases.
Managed futures also make the list. However during times of higher volatility, some analysts say that these typically do not do well. When there is a longer-term pullback in the market, however, it’s often a strong performing asset class by itself. But all things considered, one of the most stagnant and relatively unchanged classes during times of crisis would be cold hard cash. Generally if stocks fall 10 percent, cash is barely scathed. But then again, if you’re in mostly cash and the market decides to pull up from the bottom, you can quickly be kicking yourself for playing it too safe. The most important part is to stay diversified for any climate and know your investment profile based on where you’re at in life.