Stocks are stormy heading into September. Here is how to assess which safe haven might be right for you

Published Sun, Sep 4 20229:15 AM EDT

Heading into September, investors may be wondering where they can put money to keep it safe amid market volatility. The S & P 500 is still in a bear market, down more than 17% from its all-time high in January. Year to date, the index has lost more than 16%. "You've needed a lot of safe havens [this year] and the ones you'd traditionally go for haven't worked," said Mark Hackett, chief of investment research at Nationwide Financial, noting the performance of bonds and gold, often thought of as an inflation hedge, year to date. Still, many portfolio managers and strategists recommend bringing any cash on the sidelines into the market instead of letting it sit. While markets have been choppy this year, inflation is still near a 40-year high – the consumer price index measured 8.5% in the year through July – meaning cash on the sidelines is quickly losing purchasing power. "The benefit of a cash investment this year is that it's held its value better [than other investments,]" said Collin Martin, director and fixed income strategist at the Schwab Center for Financial Research. On the flip side, high inflation is swiftly eroding that value and un-invested cash has no potential for growth. Here's a breakdown of alternatives to store cash outside of your three-to-six-month emergency fund and what financial experts think about them. Money market funds Money market funds are generally thought of as safe investments because they have low volatility and offer more liquidity than CDs – you can take money out at any point without penalty. They are not quite as safe as cash, but much less risky than investing in stocks. A fund such as the Vanguard Federal Money Market fund yields 2.14% today and since its inception in 1981 has averaged 3.89% a year. Since 1926, Vanguard says stocks have returned 10.3% annually while bonds have offered a 5.3% average annual total return. Still, money market funds can be a good place to park money and bide your time while conditions settle and other allocations are weighed. "Very short instruments like CDs or money markets make sense particularly for investors who want to dollar cost average or use pull backs in the market opportunistically," said Anthony Saglimbene, chief market strategist at Ameriprise. CDs CDs are also conservative investments and insured by the Federal Deposit Insurance Corp. up to $250,000 per owner, making them a good fit for people looking to protect capital on money they don't need to immediately access. For a five-year CD, an investor could get an interest rate of 3.75%, according to Bankrate. For a one-year version, the interest rate is 2.7%. If you're considering a CD, it makes sense to go for a shorter duration, according to Daniel Milan, managing partner of Cornerstone Financial in Southfield, Michigan. "If you go out to five years, you're not putting enough of a premium on your investment," he said, adding that that's a bit like kicking the can down the road because you're locking up your money until the CD matures. "In today's environment short-term treasury's look more attractive and provide more liquidity," said Martin. Bonds Bonds, and specifically U.S. government bonds, are one of the best safe havens for investors. "We don't think the role of bonds in an investor's portfolio has necessarily changed," said Martin. "We still see a lot of value there." He added that this year, bonds have not been the place to hide that they generally are when stocks retreat — bonds have also slumped year to date. Globally, they're nearing a bear market, like stocks. Still, the worst is likely past, he said. "Our main guidance right now – and this can be a tough pill for a lot of investors to swallow – is for investors to consider moving out a little bit on the yield curve," he said. "If you go into a five- or 10-year treasury, you're accepting a lower yield than what a 2-year treasury offers," he explained. "And that's a tough pill to swallow, but we'd rather lock in that yield with certainty." If the economic outlook continues to deteriorate, the Fed may pivot and cut rates, sending bond prices up as yields fall (bond price and yield move inversely to each other.) "You get the best bang for your buck with long-term treasuries – if their yields start to fall, they will see the largest price appreciation," he said. There are also opportunities in other parts of the bond market, in assets such as Treasury Inflation Protected Securities, or TIPS, and I bonds, which are pegged to inflation. Series I Savings Bonds – which currently pay a 9.62% annual rate through October – can be a great addition to your portfolio if you plan to hold them to maturity, said Milan. Just note that annual contribution limit is capped at $10,000 per person. Gold Gold has traditionally been thought of as a safe-haven asset and was historically used to hedge against high inflation. That hasn't been the case this time around – year to date, it's shed more than 4%. "This is the exact time that gold should work, which is elevated inflation, worries about the global economy and [investors] needing a parking place," said Hackett. "But it hasn't worked this year either." In addition, there can be issues in terms of storage – if you buy the physical bullion – and liquidity. Annuities Annuities are another way that investors in or near retirement can gain income and protect their investments from market volatility. This year, sales of annuities hit a record in the second quarter. "The three-year is at 4.2%, so you get a premium," said Milan, referring to a fixed annuity. The interest rates on shorter-term annuities are generally more than those offered by money market accounts or CDs. "That's a pretty attractive option in this market," said Milan. Defensive equities Investors looking to truly hedge equity risk and offset portfolio losses may not want to stray far from stocks, according to Hackett. "Companies with multiple levers for growth and sustainable, competitive positions – that's going to protect you against both the global slowdown in demand" and margin pressures, said Hackett, adding that companies with dividends are a good place to start as they've generally proven to have solid cash flow. Still, he cautioned that investors need to understand that this year, even the most traditional havens just haven't worked very well and so some patience and a long-term view is necessary. "Unfortunately, there's no magic silver bullet here," Hackett said.