Preferred stocks, consumer staples, and utilities are the best safe investments when the market is looking rocky.
Whenever the market is uncertain, I hear from a lot of investors who want to know how to dampen the big swings’ impact on their portfolios, or who want to move some of their money toward the best safe investments.
Luckily, plenty of stocks and other investments resist or even move counter to the markets’ swings, and adding some of these to your portfolio can make checking your performance feel less like being on a rollercoaster and more like driving across Kansas.
Here are my three best safe investments for these uncertain times.
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Best Safe Investment #1: Preferred Stocks
Preferred stocks are one of the best safe investments. They are a great way to add regular income and counter-cyclicality to your portfolio. For example, let’s talk about PGX, the PowerShares Preferred ETF. It’s an exchange-traded fund that holds preferred shares. That means it buys and holds preferred stock issued by all sorts of companies, although the most common issuers are financial companies.
Preferred stock is similar to a bond but it’s neither a bond nor common stock. It’s a different kind of debt that some companies choose to issue.
Preferred shares represent debt, like a bond or loan. They do not represent or confer ownership, and so the shares won’t appreciate in value like equity.
Also, the distributions are fixed, like interest on a bond. So you’d only buy a preferred or a preferred ETF like PGX for steady income, not dividend growth.
So owning PGX is more like owning a bond fund than a financial sector ETF. However, PGX is less sensitive to interest rate changes than a bond fund, which is why I like it.
Best Safe Investment #2: Consumer Staples
Based on several measures of volatility, financial stocks and energy stocks have been by far the most volatile sectors over the past couple years, despite a strong rally for both in recent months. The least volatile sectors? Consumer staples and consumer discretionary stocks are some of the best safe investments.
Although volatility in consumer discretionary names has picked up recently, the consumer staples sector is still a great place to find stocks that don’t jump around too much.
Consumer staples are things like groceries, personal care products and household items that people tend to buy regardless of economic conditions. The sector includes many high quality blue chip stocks, like Procter & Gamble (PG) and Colgate Palmolive (CL).
A more traditional play on the consumer staples sector would be a food company like Calavo Growers (CVGW). The company packages and distributes avocados and other fruits. Or look at Flowers Foods (FLO), maker of Wonder Bread and other packaged bakery goods.
Best Safe Investment #3: Utilities
Finally, utilities have a reputation for reliability and are one of the best safe investments. Utility stocks are known for being low risk—they’re often called “widow and orphan stocks” because they’re appropriate for just about any investor. Utilities deliver slow but steady growth, and take advantage of that predictability to pass much of their cash through to investors as regular dividends. The average utility stock yields about 3%.
Like consumer staples companies, utilities have very reliable revenues because demand for water and power doesn’t change much even when the economy slows down or the stock market starts falling like it’s doing now.
Utilities typically have more defensive businesses that tend to hold up well in a bad economy. They are probably the best sectors to be in when the market turns south.
Even when investors get optimistic and greedy, they still have one foot on safety. And the reason they do that is for times like this, when many growth stocks have been knocked back 20% to 30% in the last three months.
What do you invest in when the market is down? What do you consider the best safe investments? Leave a comment with your experience.
Tom Hutchinson, Chief Analyst of Cabot Dividend Investor, is a Wall Street veteran with extensive experience in multiple areas within the financial world. His advisory is geared to providing you both high income and peace of mind. If you’re retired or thinking about retirement, this advisory is designed for you.Learn More
*This post has been updated from an original version, published in 2018.