Safe Havens: 3 Fixed-Income Securities for a Balanced Portfolio in 2024

Stocks to buy

Although next year looks to be a good time to invest in risk assets like Bitcoin (BTC-USD), investors with a lower risk tolerance look toward safe havens to grow their income. Some of these haven assets provide diversification benefits for investors who engage in risky positions elsewhere. Bonds and other instruments are inversely correlated to broader indices like the S&P 500.

This article will explore three types of safe-haven assets that investors can tap into for reliable income. I’ve selected a diversified mix of assets. Some are riskier than others but are relatively safe investments compared to some of the speculative choices on the market.

Here are the best safe havens to consider as we close out 2023.

U.S. Treasury Bonds

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Despite the predicted fall in interest rates next year, U.S. Treasury Bonds represent some of the safest assets to invest in. The U.S. government’s full faith and credit back these instruments. They are also free from state and local taxes.

Treasury bonds are also vital to the global economic system. They determine the “risk-free rate,” which is, in turn, used in many financial modeling calculations of risk assets like tech stocks and other assets. Buying a treasury bond is akin to buying into the faith that the U.S. government will repay you in full and the coupon rate. If investors don’t believe the government can do that, we should instead buy underground bunkers and stores of canned food.

These instruments are purchased through brokerage accounts, banks or indirectly through an ETF like the iShares U.S. Treasury Bond ETF (NYSEARCA:GOVT).

Generally, bonds may perform better on a total return basis if investors buy them directly instead of tracking them with an ETF, such as GOVT. However, if convenience and liquidity are an investor’s prime considerations, those ETFs could work in a pinch.

Corporate Bonds

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Corporate bonds are another haven that income-focused investors should consider adding to their portfolios. The advantage that these bonds have over treasury bonds is that their yields are generally higher. This, in turn, comes with a higher risk of default. Therefore, to minimize an investor’s risk profile, one should buy bonds rated ‘AAA’ or ‘AA’ by major credit rating agencies.

Investors can buy highly-rated bonds from companies like Exxon (NYSE:MOB), Johnson & Johnson (NYSE:JNJ) and many other blue-chip companies listed on the S&P 500 and other major indices.

Alternatively, investors can invest in a basket of high-yield corporate bonds via an ETF like the Vanguard Intermediate-Term Corporate Bond ETF (NYSEARCA:VCIT).

Another honorable mention is ‘junk bonds,’ which can improve a portfolio’s overall yield. However, junk bonds are generally issued by speculative or distressed companies. So, although the yield may be higher, there is also a corresponding risk of the investor losing their entire investment. Still, having a small position could be beneficial.

Fixed annuities

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For the greatest risk-management benefits, it may also pay to have investments that aren’t correlated much with the broader indices. Gold, fine art and luxury goods may fit this description well, but so do fixed annuities. These instruments are contracts with an organization (usually an insurance company) that promises to pay a guaranteed interest rate on your investment.

Fixed annuity income is commonly deferred until retirement. These services often invest a portion of your capital for you as part of the contract, which can, in turn, lead to investment returns minus fees and taxes.

One of the biggest advantages of having an annuity is that it can reduce or eliminate longevity risk. This is the risk of outliving our savings, but it also works in the other direction. Single people or those who don’t intend to pay an inheritance may prefer a more comfortable retirement with access to all of their money instead of that money being left over.

Fixed annuities are, therefore, one of those classic safe-haven assets to consider as part of a diversified portfolio.

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the Publishing Guidelines.

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