Is There Such a Thing as a Safe Haven?
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to Merrin Talks Your Money, the personal finance edition of Merrin Talks Money. In these bonus podcasts, we talk about the best strategies for making the most of your money. I'm Merrin Zumsett-Webb, and with me, senior reporter and money distilled author, John Stapak. Hi, John. Hi, Merrin.

OK, John, there is a lot going on this week. We've got rising tensions in the Middle East. We're worried that conflict is going to engulf more of the region. So we really want to take a moment right now to talk about exactly how people should be looking at their portfolio in this kind of environment. And I kind of don't know why we're bothering because I already know what you're going to say. In exactly the same way as you look at your portfolio in any other environment. Am I right? Yeah, I'm afraid so. I'm afraid so.

One of the phrases that our wonderful producer, Summer, sent over for the topic of this podcast was the phrase safe haven.

There are phrases I hate more in finance, but it's very high on the list. Okay, Summer, I apologise for him. I apologise for him. Doesn't mean it. Not personal. She's just chucked an M&M at me. Viewers, help. HR. Peanut asmr is all over the place. Enough. Enough. Is what you're trying to say that there is no such thing as a safe haven in a risky world?

I think it's more, safe haven is very dependent on what you're trying to protect yourself with. But for a start, it implies that

When people write about, oh, what safe haven should you go for now that war has erupted? It kind of implies the kind of market timing that they always complain about otherwise. So there's this idea that you should suddenly move all your money to cash or something like that just because a kind of scary headline has come over. And there are always scary headlines coming over. I mean, I think...

Tensions in the Middle East is probably the one kind of constant of my entire lifetime. And there is always something going on. There is always something to be worried about. So there's that. But there is also the safe haven thing. Cash is a safe haven in as much as its value will not go below its nominal value. So if you put £10...

in the bank or you know under your mattress it will still be 10 pounds in 10 years time but will 10 pounds still buy you the same amount of stuff no it won't so it's lost value in real terms so it's actually not a safe haven you know if you're about to get inflation same goes for bonds which aren't as volatile they don't go up and down as much as equities but if inflation comes along they're going to be much worse for you than probably equities will be

Cash is a safe haven if you're getting an interest on it that is above the rate of inflation. If your main priority, and John, whether you like it or not, the main priority for lots of people is simply to maintain their purchasing power. So if they have cash and they have it in an account, the interest rate of which covers both the tax on the income and inflation, even if there are evens at the end, they're good.

That's the safe haven. That is true, as long as you've got enough money. If you've retired and say you're 75 and you now know you've got enough money to last you for the rest of your life and you can find an account that pays in real terms and you're going to keep up with it for, again, the rest of your life, then yeah, that's probably about as close to a safe haven as you could get.

If you're 25, you can't put your money all in cash because you're not going to have enough to retire on when you come to retire. So you're going to have to do something with it, whether you like it or not. And again, sort of history shows that over the very long term, equities deliver the best real returns, hopefully. I mean, yeah, you can always point to, oh yeah, but Japan might happen or, you know, it might turn out that, you know, you're in Germany or Russia right before the revolution or before the Second World War.

The only safe haven is to diversify, so you stick some money in gold because it kind of protects against kind of crazy events and also kind of fiscal uncertainty. Stick some money in cash because it gives you the optionality. It'll typically kind of keep up with inflation, but it won't grow you enough to retire on. You have some in bonds in case of deflation basically and you have the rest in equities for the kind of growth side.

And I mean obviously it's a bit more complicated than that depending on your own personal circumstances etc etc etc. But I think those are the four primary colours of asset allocation and really how you split between those blows down to what your goals are. And anything that makes you think I should be running for a safe haven, well you need to stop and think well wait a minute, why am I thinking this right now?

Because there hasn't been a point at which you should have all of your money only in one asset, unless you're confident you've got a crystal ball and you can work out exactly what's going to happen. I mean, even 2008, which was the worst financial crisis of our lifetimes, and quite possibly will be the worst financial crisis of our lifetimes.

There wasn't something you could describe as a safe haven, permanently safe haven there. I mean, probably if you put all your money into US dollars or something like that, that'd have been the best trade at the time. But again, it'd have been a one-off trade. You are making a lot of sense, but I suppose that the key point

point here is there will be a lot of investors who are still, despite listening to this podcast, very, very overexposed to the US, possibly underexposed to gold, possibly not with very much cash, and possibly out of

underexposed to non-US equity markets. So even though we've talked about this a lot over the last few years, the US market was still the best place to be until relatively recently, not anymore and not this year, but until relatively recently. So a lot of

listeners will still have that portfolio, that sort of one trade portfolio that is very overweight the US and doesn't have much. So really, I think what we're saying at the moment is that if that is you, now is the time, it's a bit late, but you know, it's all fine. Now is the time to look at it and say, do I really want that heavy exposure to one country with extremely expensive equities? Or might I be better to cut that down, go into countries with less expensive equities

equities and also into some of the things that are traditional hedges such as cash and gold and of course if you want to hedge we were talking about this earlier if you want to hedge against um

the trouble in the Middle East itself than possibly holding some energy and oil in particular is a good way to do that. Is that fair? I think that's basically what you're saying. I think that is fair. And I think, yeah, I mean, if you are overexposed in that way, there has been a certain failure of diversification and asset allocation on oil

you know, on your part or on the part of your financial advisor or whatever. And it would be a good idea to, you know, think about rectifying that. Yeah, and I suppose also another opportunity for us to remind people that if you hold a global ETF, you are not diversified.

Yeah, aye. I mean, still something like 60 odd percent is going to be in US equities. And that hasn't always been the case because I think that's the other thing people sometimes think, oh yeah, but hasn't that always been the case? And it's like, well, no, actually, it really hasn't.

That's a symptom of US oil valuation. Yeah, so you see that exemplified in the market. Okay, I'm not sure there's really much more that we can say about that. We talked in our Marcus Roundup earlier in the week about crypto and how it hasn't really been working as a hedge or a particularly good diversifier over the last short period. That remains the case, right? Yeah, I don't think that if you are...

a fairly hands-off investor, you really need to worry about having crypto exposure in your portfolio. Again, nothing against it. I don't think that it's all a scam. I don't think we're going to wake up one day and it's going to be vanished. He does really. I'm hedging here. I don't want all the tweets.

I don't want all the tweets. All right. I haven't got anything more to say on this. Have you, John? I don't think so. It's just the straightforward stuff. Diversification, asset allocation, that's your safe haven. It rhymes. Yes. And don't forget, this is the key point, we talked about this on a couple of podcasts with Gas recently, that if markets fall, let's say they fall, let's say global markets fall 25% or something like that, the ones that will recover that

are most likely to be the ones that were cheapest in the first place. So it's worth thinking about that. The UK, Latin America, where else is cheap? Honestly, just about most places are pretty cheap at the moment, aye. Emerging markets particularly probably could do with their day in the sun, but then you could have said that for a while. Yeah. Got a few good emerging markets podcasts coming up, by the way, everyone. Listen out for those. Excellent.

Thanks for listening to this week's Meron Talks Your Money. If you like our show, rate, review and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on X or Twitter at MeronSW and John underscore Steffek. This episode was produced by Sam Asadi, production support by Moses and questions and comments on this show and all our shows are always welcome. Our show email is meronmoney at Bloomberg.net.

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