What is a safe haven investment?
In the wake of the recent economic downturn and market volatility, you may be searching for investments that limit your risk or traditionally perform well despite a fluctuating market. If that sounds like you, safe haven investments may be just what you’re looking for.
Safe haven investments are types of investments that are expected to retain or increase in value when the market experiences turbulence. This is why safe haven investing for financial storms is a commonly deployed investment strategy. During market turbulence or “financial storms,” investors seek out safe havens to limit their risk of losses.
Some common characteristics of safe haven investments include:
- High liquidity.
- Limited supply.
- Continuous demand.
- Consistent performance.
It’s important to note that not every safe haven investment will have all of the above characteristics. So, it’s up to each investor to decide what they consider the most suitable safe haven investments for the current economic climate and their investment goals.
The U.S. dollar is one type of safe haven investment with a number of the above-mentioned characteristics, which is why it has been one of the most popular safe haven investments for the past 50 years.
Other examples of safe haven investments include:
- Gold and other precious metals.
- Treasury bonds.
- Treasury ETFs.
- Defensive stocks, such as utility, healthcare, biotech and consumer goods companies, which make goods people will continue to use despite market conditions.
- Foreign currency, notably the Japanese yen and Swiss franc.
Another popular example of safe haven investments is real estate. No matter what the market is doing, people still need somewhere to live. So, even when the economy takes a significant slide, real estate prices generally hold steady or only experience mild dips. People can invest in real estate through the purchase of their own homes or through real estate investment trusts (REITs) that purchase and manage all kinds of properties.
Safe haven case study
During the economic volatility in the aftermath of the COVID-19 pandemic, Remy invested in a Series I bond through the federal government. Remy purchased the bond shares in 2021 when the interest rate was 7%. Despite his crypto and stock market portfolios experiencing significant losses in 2021 and early 2022, Remy wasn’t too worried because he knew he had the cushion of the 7% interest on his bond investments to soften the blow.
The bottom line
Safe haven investments are an excellent choice to diversify an investment portfolio and limit some of the risks associated with traditional investing. It’s a good idea to split your portfolio between some of the riskier assets and some safe haven investments. How much you’ll put into each type of investment will depend on your income and risk tolerance.