What is Safe Haven Investment
Safe haven investment refers to the investment in some assets that hold their value, appreciate, or otherwise outperform when other assets are losing value during a financial markets crash. Investors seek out safe haven investments in order to protect their portfolios during an uncertain situation.
There are a number of potential safe haven investment options, the choice of investment depends on the nature of the downturn though. Normally, safe haven investments are uncorrelated to the economy as a whole, which means that they could retain their value during a market crash.
However, despite investing in safe haven assets that may retain or even gain value during a financial market crash, a downside of the safe haven investment is a lower return.
What is a Good Safe Haven Investment
There are many different kinds of safe haven investments that investors can acquire. These are some common safe haven investments that the investors use to protect their portfolios in the market downturn:
Gold – The most commonly safe haven investment that the investor used as a store value asset for years. This is because the price of gold is directly uncorrelation with the stock market which means when the stock market crash, the price of gold will tend to increase. Additionally, gold is a commodity which means it can’t be printed like fiat currency and doesn’t experience the same fluctuations in price as when governments change interest rates.
Currencies – The U.S. dollar, the Japanese yen, and the Swiss franc are the most common currencies that the investor uses as a safe haven investment in case they want to retain their purchasing power to purchase any assets during a market correction.
Government bonds – A government bond is a fixed-income financial instrument that is considered a risk-free investment because the government is considered to have high creditworthiness, which also provides higher security and trust from investors.
Defensive stocks – The companies that sell products that are necessary to the customer’s daily life such as healthcare, consumer goods, food, beverage, and utilities considered defensive stocks. People still need these goods even if the economy is in recession or depression.