With the recent US and UK stock market crash, investors are looking for the best place to stash their cash.
The Dow Jones Industrial Average has plummeted thousands of points in the past week. The FTSE 100 has dived under 7,000 for the first time since January 2019. Fears about the economic fallout from the spread of the coronavirus have infected investor confidence.
I’ve written about the FTSE 100 shares I think will hold more of their value as the market crashes.
But stocks are on course for their worst fall since the bleak times around 2011.
So should you be piling into safe-haven assets like gold and Bitcoin? I would argue not.
My safe place
There’s no harm in moving your capital away from riskier investments, but gold and Bitcoin may not be the best place for your money. I’ll tell you why.
At a spot price of $1,655 per ounce, gold is hovering around record highs. There seems to me little value now in diversifying your portfolio into the precious metal.
However, if you’re dead set on it then a low-cost easy access exchange-traded commodity like WisdomTree Physical Gold is probably your best option. It has high liquidity and is popular with retail investors like you and me.
As for Bitcoin, the world’s largest cryptocurrency, in the last seven days it has lost 12% of its value. After breaching the psychologically important level of $10,000 (£7,771) per coin on 19 February, it has since dipped under $9,000 (£6,994).
As such I would argue it has lost any credentials it aspired to as a flight-to-safety asset.
When analysts talk about investible assets like bonds, or commodities such as gold, silver, or oil being ‘low correlation’, it means they hold on to more of their value while prices are falling elsewhere. Assets with low correlation to the stock market tend not to see their value dragged down when markets fall.
Your best option
This might sound like strange advice for an investing website, but I’d say that doing nothing is your best option right now. Keep cash on hand for the opportunities that arise over the coming weeks, but resist the urge to buy the dip.
The longer you have been an investor, the more calamities and crises you have lived through. The stock market always bounces back, eventually. There are some stunning-looking bargains out there right now, but the prices may also fall much, much further. It depends on how long it takes for coronavirus fears to fade.
Problems with consumers having low demand for products can be solved to an extent by central banks lowering interest rates to stimulate the economy. More tricky to solve is a supply shock. China is the world’s factory floor and since the last major outbreak — SARS in 2002 — has increased its share of the world economy from 4% to 16%.
In the last 18 years its share of world manufacturing has increased from 10% to 39%. Anecdotally investors are telling me that companies that rely on Chinese manufacturing are preparing for several months of delays.
With Chinese supply chains across tech, chemicals, and metals falling as much as 90% below full capacity, it could be well into late 2020 before things return to normal.
Trust me. Hold on. Wait and see.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.