3 assets to protect your portfolio amid looming US default

After a disastrous 2022 highlighted by record-high inflation and rising interest rates, investors are now facing another challenge. 

The ongoing dispute between the Biden administration and House Republicans over the US debt ceiling is placing the world’s biggest economy at the highest-ever risk of debt default. Treasury Secretary Janet Yellen reiterated this risk on May 15.

“With additional information now available, I am writing to note that we still estimate that Treasury will likely no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1.”

– Yellen wrote to House Speaker Kevin McCarthy.

As expected, the looming threat of the US defaulting on debt has left leaving investors scrambling to protect their hard-earned capital. 

In turn, Finbold has pinpointed three robust assets below that have the potential to act as safe havens and protect your portfolio amid a looming US default. These include Bitcoin (BTC), gold, and dividend-paying defensive stocks.

Gold

Seeking protection in gold in times of turmoil is one of the oldest tricks in the book and for a good reason.

The precious yellow metal has been considered the number one safe-haven asset many times throughout history, and according to a Bloomberg survey, that’s still the case. More than 50% of surveyed finance experts said gold is what they would buy if the US government fails to honor its obligations.

One of the main reasons behind this is gold scarcity. The bullion is a rare and valuable resource that has been used as a currency and store of value for centuries. In addition, it is a tangible asset, meaning it can be held in one’s hand, unlike other assets like bonds or equities. This gives investors a sense of security and control over their investments.

Earlier this month, the precious metal soared to near its all-time high of $2,052 per ounce, driven by the Federal Reserve’s latest interest rate hike of 25 basis points (bps). 

But gold has lost part of those gains since then and was trading at $2,006.24 at press time, down 0.7% on the day. 

Gold 1-day price chart. Source: TradingView

Bitcoin (BTC)

Bitcoin (BTC) will also likely be a popular choice among investors seeking to protect their portfolios in the coming months. Often called “digital gold,” the world’s largest cryptocurrency is a decentralized asset, meaning that it is not controlled by any government or central authority.

Secondly, Bitcoin has a limited supply, just like gold. There will only ever be 21 million BTC in existence, meaning that it is also a scarce asset. 

BTC was changing hands at $27,013 at the time of writing, down 1.54% in the past 24 hours. Still, its year-to-date gains remain strong, up more than 62%. 

BTC YTD chart. Source: Finbold

Some market experts expect that trend to continue as the US central bank looks unlikely to keep raising interest rates, which could bode well for crypto assets.

Dividend-paying defensive stocks

History tells us that stocks from defensive sectors, such as utilities, have performed well during times of market commotion. During the 2011 debt standoff, utilities fell just 0.8% from April to October 2011, while the majority of other sectors saw substantial declines. 

Other defensive sectors that could protect investors’ capital include healthcare and consumer staples, as they tend to be less sensitive to economic cycles and recessions.

Ideally, investors are advised to look for dividend-paying stocks from these sectors. This is because dividend stocks provide a steady stream of income to investors, even during times of market volatility. 

Further, companies that pay dividends tend to be more established and financially sound than companies that do not. These companies are typically leaders in their industries and have a track record of weathering economic downturns significantly better than smaller firms. 

With these three assets, investors will likely stand a good chance of protecting their portfolios from the possible risks of the US defaulting on debt. Because of the aforementioned reasons, gold, Bitcoin, and defensive stocks could offer more stability and predictability compared to other assets and mitigate potential risks if the government doesn’t honor its debt obligations.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.