Safe Haven Assets

Key Points

• Safe-haven assets refer to relatively stable assets that have the function of preserving value and whose prices will not fluctuate drastically when market risk assets undergo drastic adjustments.
• Gold and other precious metals, government bonds, defensive equities, and safe-haven currencies like the US dollar are examples of common safe-haven investments.
• In reality, investors may need to analyze the nature and causes of each economic crisis in detail to determine which assets have more safe-haven properties in the current market turmoil.

Assets

Generally stable assets with the purpose of preserving value are referred to as safe-haven assets. Whose prices will not fluctuate drastically when market-risk assets undergo drastic adjustments.

If the market is sluggish, investors will invest in safe-haven assets to reduce investment risks. This article will list the four most common safe-haven assets. Including gold and other precious metals. The US dollar, defensive equities, and government bonds are examples of safe-haven currencies.

• • Gold and other precious metals

The most popular safe-haven assets are precious metals, namely gold. Whose safe-haven qualities are primarily based on their admitted stability and limited supply in addition to the characteristics of money in circulation. Since they are tangible goods, they can’t be printed like money, and the state of the economy often has little effect on their value.

• • Safe-haven currencies represented by the US dollar

Safe-haven currencies are mainly backed by the comprehensive strength of the issuer. The U.S. dollar’s strong economic standing and broad influence make it a safe haven asset. Due to Switzerland’s independence, the Swiss franc has the status of a safe haven currency.

• • Defensive stocks

While the stock market is primarily at the center of the crisis during market downturns. Stocks of certain companies have performed well during turbulence and are known as “defensive stocks.” Companies in the utilities, healthcare, biotech, and consumer goods sectors make up the majority of defensive stocks. Consumers will still buy food, health products, and basic household items regardless of market conditions. Therefore, defensive stocks may experience relatively less volatility during periods of market shocks.

• • National Debt

The risk-averse nature of government bonds mainly depends on the credit endorsement of the issuer. The more stable the issuer of a government bond and the stronger its credit endorsement. Its safety to avoid risks is higher, and its default probability is lower. For example, U.S. government bonds are one of the government bonds with stronger risk-averse properties that are recognized by the global market.

Appropriate safe-haven asset allocation can effectively reduce risk in the asset portfolio. Improve the stability of the entire asset portfolio return and reduce volatility. However, it should be noted that the safe-haven assets mentioned above cannot guarantee that they will maintain a stable value in every economic crisis. In reality, investors may need to specifically analyze the nature and causes of each economic crisis to determine which assets have more safe-haven properties in the current market turmoil.