|By STEVE ROTHWELL, AP Markets Writer|
That's because some financial assets that are considered safe and steady lost money.
After three decades of steady gains, bonds had a bad year. Prices for Treasurys and other kinds of bonds slumped as the U.S. economy improved, investors' nerves steadied and the Federal Reserve prepared to pull back on its huge bond-buying program.
Gold was another investment that went from haven to headache. The price of gold gained steadily for more than a decade, driven by concerns about the health of the U.S. economy and rising inflation. The metal plunged in 2013 as the U.S. maintained its recovery and inflation was nowhere in sight.
Keeping money in a bank account was another safety-first strategy that worked when the stock market was plunging in 2008, but not since then. With the Standard and Poor's 500 index soaring 30 percent in 2013 — or 32 percent including dividends — returns from a savings account looked meager.
Here's a look at how some of the supposedly safe assets have performed.
TREASURYS AND OTHER KINDS OF BONDS
From 1981 through 2012, demand for Treasurys rose and their yields, which move in the opposite direction, fell. The yield on the 10-year Treasury note bottomed at a record low of 1.39 percent in July of 2012, when the European debt crisis intensified and people rushed to buy U.S. government debt securities.
In the 1980s, investors bought Treasurys as inflation eased and interest rates fell. That made higher-yielding Treasurys already in the market more attractive. Investors also bought Treasurys during the financial crisis in 2007. Treasurys are considered among the safest financial assets because they are backed by the U.S. government, which, at least in theory, should always be able to repay its debts.
Bonds also rose as the Fed began purchasing Treasurys in response to the financial crisis and the recession to keep interest rates low to boost the economy. The central bank has been purchasing
The U.S. economy now appears to be gaining steam and the Fed, the biggest buyer of Treasurys, plans to start reducing its purchases in January. The yield on the 10-year Treasury note climbed from 1.76 percent to as high as 3 percent in 2013 as investors sold bonds in anticipation of the Fed's pullback.
The rise in yields and the corresponding decline in bond prices has meant losses for bond investors, prompting them to cut their holdings.
Investors pulled an estimated
Other bonds, which are priced in relation to Treasury debt, also had a bad year. Municipal bonds, issued by states and cities, fell 2.6 percent, according to
"At some point, interest rates are going to have to go up," says
Gold had its worst slump in more than 30 years.
The price of gold rose every year from 2001 to 2012 as investors looked for an alternative to the U.S. dollar and protection against inflation. Gold went as high as
In 2013, gold started to slump as inflation didn't materialize, investors shrugged off the gridlock in
At its current price of
Gold may still come back into favor with investors, says
Gold "will retain its haven status next year," says Gero. After all, "you do hold insurance on your car, hoping you'll never have to use it."
Investors moved into cash as the stock market collapsed in 2008. Unfortunately, many have stayed there, even as savings rates stagnate while the Fed keeps its benchmark short-term borrowing rate close to zero.
That means that inflation is eroding the value of the money.
"That's obviously a big problem," says
In the 12 months through November, consumer prices have risen 1.2 percent, more than the best rates currently offered on savings and money market accounts or CDs.
Even if long-term bond rates rise when the Fed starts easing back on its stimulus, the short-term rates off which most saving accounts are based are going to stay close to zero for at least another year, says Haverland.
Cash may still be the safest option for investors, but investors may also be missing out on better opportunities elsewhere.
Investors who stayed with stocks from
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