InvestmentsOct 28 2013

Protecting your assets: Are there any safe havens left?

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      CPD
      Approx.30min
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      CPD
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      CPD
      Approx.30min

      Over the years, many savers have looked for the safest way to hold their money and make a profit. A so-called ‘safe haven’ is the investor’s holy grail, particularly in times of turbulent markets.

      As a nation, we have been bombarded with adverts for cash savings accounts for the past decade and been told that ‘cash is king’. But looking at a typical savings account, it may not have really been the best place to hold money after all.

      Chart 1 shows CPI inflation versus the return on a typical savings account, according to figures from Moneyfacts. Based on an initial £1,000 into a savings account over 10 years, it shows that from 2004 to 2010, inflation was slightly lower than the return on an average savings account – although over the past two years, money in a savings account would not have been as safe as previously believed. Investors generally see risk as loss of capital but fail to take account of the loss of value as inflation rises.

      Chart 2 shows the same data as Chart 1 from base zero in 2008. The impact is more severe as a typical savings account significantly underperformed CPI afterwards. A consequence of the global economic crisis has seen the Bank of England base rate stuck at an all-time low of 0.5 per cent.

      Having a savings account was previously seen as a safe approach to long term investing, as they were seen as one of the few safe havens. But as the Charts show, it was certainly not the safest place over the past five years. Cash is no longer king – in fact, it might not even be the prince. So is there anywhere money is truly safe?

      Oil spill

      There was a point when analysts and fund managers were pitching defensive stocks as the best place for investors’ cash. Oil and gas giant BP was one prime example, but even defensive stocks are not immune to problems at a company level. In April 2010, the Gulf of Mexico oil spill on BP’s Macondo Prospect saw the largest accidental spill in the history of the industry. Oil flowed out of the rig for 87 days until it was capped in July 2010.

      Chart 3 shows the BP share price over the past 10 years. The current share price stands around the 440p mark, but at the height of the financial crisis the stock dropped to 376p. In June 2010, the share price dipped to a low of 305p and it is still struggling to reach its pre-spill level of more than 650p.

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