If you invest wisely, you can protect your assets from stock market crashes, inflation, economic crises, and so on. Theoretically, you can find an investment object whose price will remain stable (or even grow) when the prices for other assets fall.
Today, asset protection has become a pressing issue indeed due to the high level of inflation in Europe and America. The inflation rates have never been so high over the last 40 years. Even the best-developed European countries face a 7% to 10% inflation to say nothing about the United States.
What can save your assets from devaluation? What sort of investments are not going to be too risky? There can be no universal answers to these questions. Some people will think of investing in gold while others will think of a diversified portfolio. However, certain reservations have to be made in any case: if some asset protection mechanism has been efficient over the last 30 years, there is no guarantee that the instrument will remain as efficient in the future. Another crisis may come and dispel the illusions.
There is no universal or ideal asset protection mechanism. Wherever you invest, there is always a chance that the value of the investment object will go down instead of up. What you have to do is look for combinations of assets and for a good balance between profitability and risk. You have to assess each potential investment object carefully and analyze its price dynamics over the last few decades. Then you will be able to develop an investment strategy and will help you protect your assets from economic turmoil of various kinds.
Invest in gold
Gold is often referred to as the main asset protection instrument. There is some truth about such statements: gold is a rare metal, it does not corrode, and it has practical applications in jewelry and microelectronics. There is also a physiological factor: in the times of economic crises, thousands of investors rush to buy gold and its price consequently grows. Thus, if you have some gold to sell while others are eager to buy it, you can not only save your money but maybe even make a profit.
At the same time, gold is a commodity that sells at a certain price at a certain time. Demand and supply are the factors that determine the price of gold, but there are multiple different factors that can determine the demand and supply. No market analyst is able to accurately predict how the price of gold is going to change in the long-term perspective. This is especially difficult to do in a situation as unstable as the current one. The price dynamics often depends on large hedge funds: today they buy gold and thus the price is growing. Later, they can start selling gold and the price is going to drop then. For example, the price of gold fell to US$ 300 per ounce in the 1980s while today it costs around US$ 2,000 per ounce. This means that one cannot claim that the price of gold is stable.
It is true that its price grew due to the pandemic and those who had invested in gold made hefty profits. That is to say, they were able to protect their wealth by investing in gold. But this happened not because gold was a magical metal. The security prices also grew due to the large amount of cheap money in the market. The financial regulators (in the USA in particular) are starting to reduce excessive liquidity and for this reason, it is hard to say where the price of gold is going to go in the near future.
You should also remember about the risks and costs associated with investing in gold. You have to keep the bullions somewhere, which means that you have to buy a safe or rent a safety deposit box. Besides, these instruments do not guarantee the security of your gold: burglars are still at work and the contents of safety deposit boxes are not insured. In addition, a scratch on the gold bullion will lower its price.
Instead of investing in metal gold, you can invest in ‘paper’ gold via a mutual fund or a precious metals account in a bank. This option also has some nuances, however. The spread (the difference between selling and the buying price) is high and the bank’s commissions will lower the value of your investment. Besides, the bank may go bust and mutual fund assets may become unavailable to you due to a political crisis, for example.
Bank deposit as an asset protection instrument
If you are wondering how to protect your assets, you may consider making a fixed-term deposit on which the bank will pay you an interest. However, the interest rates are usually not high enough to compensate for the inflation.
If you would like to escape inflation, you can open a Swiss franc account because this national currency does not seem to be susceptible to inflation. However, the interest on your franc account is going to be negative, which means that you will have to pay the bank for keeping your money.
You can find high interest rates in some countries such as Georgia, for example, or some other former Soviet republic. However, the Georgian lari fluctuates greatly and the political situation has been rather unstable in Georgia ever since the country gained independence.
Investment in government bonds as an asset protection mechanism
If you trust your government and your ministry of finance, you can buy government bonds. This is an efficient asset protection mechanism on the condition that your national economy keeps growing. However, the interest paid on government bonds is even smaller than the interest paid by banks and it won’t be able to compensate for inflation again.
Investment in securities as an asset protection mechanism
Securities are a high-risk investment object but if your portfolio is diversified, this asset protection instrument may well prove the most efficient one. Trading shares of private companies may bring you a good profit but you have to be extremely smart and extremely lucky to be a successful stock trader. You have certainly heard a number of stories about people losing all their money after investing in securities.
Investing in hard currencies
It is always a good idea to keep your money in several national currencies. All currencies fluctuate and when the real value of your dollar account, for example, falls, the real value of your euro or pound account is likely to rise.
Investments in real property
According to global statistics, the price of real property grows in the long-term perspective and the growth rate is often a bit higher than the inflation rate. So you can buy a house or an apartment if you have some spare money thus protecting your capital. You have to realize, however, that the issue of liquidity may arise when you want to sell your property. Buying a house is simpler than selling it at the asking price.
To conclude, there is no universal asset protection mechanism and you have to inspect every option carefully. Some professional assistance in the matter would come in handy.