What Are Safe Haven Assets?

Inflation, interest rate hikes and war in Europe. These are just some of the things currently contributing to uncertainty in the world and, in turn, this uncertainty has had a noticeable impact in the financial markets. 

In such times, investors tend to flock to so-called “safe haven assets”. But what are safe haven assets? How can you invest in them? And why would you want to in the first place? In this article, we will explain the meaning of safe haven assets, provide examples of what are considered some of the best safe haven investments and demonstrate how to start safe haven investing with Admirals. 

Safe Haven Assets Meaning 

A safe haven asset is one which is expected to maintain or increase in value during periods of economic uncertainty and market turbulence. Investors seek safe haven assets in such times in order to limit their exposure to possible market downturns.

In any discussion of safe haven assets, many of the same names crop up regularly. However, it is important to note that not every safe haven investment is suitable for every market downturn and, consequently, what is classed as a safe haven asset can vary depending on the wider economic circumstances. 

Therefore, in order to find the best safe haven investments, investors must do their own research and ensure that the investment in question is appropriate for what they are looking to achieve. 

Safe Haven Investments 

The financial markets do not always go up; downturns and periods of turbulence are a normal and, unfortunately, unavoidable part of investing.

Therefore, it is best for investors to be prepared for such periods and to understand the effect a market downturn can have on different asset classes. 

In the following sections we will take a look at some of the most popular safe haven investments for weathering market turbulence. But remember, this is not an exact science, the price of any asset is determined by levels of supply and demand in the market and will not always react how you expect them to.

Furthermore, popular safe haven assets do change over time, so you should ensure that, before considering a safe haven investment, you are up to date with current market trends. 

Gold 

When most people think of a safe haven asset, the first thing that is likely to spring to their mind is gold.

Whilst gold does not technically have any intrinsic value, mankind has placed value in the shiny precious metal for centuries. So much so, that many of the world’s largest central banks hold large gold reserves themselves in order to mitigate risk and hedge against inflation. 

Historically, time and time again, gold has been shown to hold, or even increase, its value during times of uncertainty and market downturns, although a large part of this is down to psychology. 

As we mentioned before, prices are driven by supply and demand in the market. When there is an increase in uncertainty or the global markets are falling, many investors’ first instinct is to flock to gold as, for many, this is the first safe haven investment they think of. This causes a rise in demand for gold and consequently, as there is only a finite supply of gold in the world, its price increases.

In the chart above from 2020, we can see that at the outset of the Covid-19 pandemic, despite initially falling in price, the price of gold soared in the months that followed. Between March and August of that year, gold prices increased more than 40%, reaching an all-time high in the process. 

Government Bonds 

For those unfamiliar with bonds, they are like an ‘IOU’ which pay interest. The investor buying a bond is essentially lending money to the bond issuer, who undertakes to repay the original loan amount, or principle, in full on a specified future date together with any applicable interest, known as coupon payments, in the interim. 

Both businesses and governments issue bonds. However, bonds issued by the governments of major developed economies are considered to be almost risk-free, as it is incredibly unlikely that such a government would default on its debt. 

Therefore, government bonds issued by countries such as the US and the UK are widely considered safe haven investments and tend to attract more interest during times of economic uncertainty. 

What Are the Safe Haven Currencies?

The US dollar, Swiss franc and Japanese yen are all considered, to some extent, to be safe haven assets. Often, in volatile circumstances, investors may convert their cash and/or investments into one of these three safe haven currencies. 

US Dollar 

The US dollar, like gold, usually appears in any conversation about the most popular safe haven investments.

Indeed, its status as the world’s reserve currency and the fact that most commodities are priced in US dollars contribute to its popularity as a safe haven asset in times of market turbulence. Furthermore, it is the most liquid currency in the foreign exchange market, meaning that investors can easily convert their assets to and from dollars. 

Below is a chart of the US dollar index, which tracks the performance of the USD against a basket of its rival foreign currencies. 

Swiss Franc 

Thanks to Switzerland’s robust economy, political neutrality, historically low inflation and banking industry, the Swiss franc is also considered by many to be a safe haven currency and, in times of stock market turbulence, demand for the franc often increases. 

Japanese Yen 

Completing our trio of safe haven currencies is the Japanese yen. The case for the yen as a safe haven currency is an interesting one.

The Japanese government, its businesses and individual investors tend to hold a large amount of money in overseas assets, regularly earning the nation the title of being the “world’s biggest creditor”. Of particular interest are foreign government bonds, which tend to offer higher returns to the typically low-yielding bonds issued by the Japanese government. 

However, in times of turmoil or market panic, Japanese investors have a habit of unwinding overseas positions and converting them back into their domestic currency. This drives up demand for the yen and, consequently, drives up its price. 

Safe Haven Stocks 

Whilst some may think that the stock markets should be avoided altogether during times of uncertainty, there are defensive industries which tend to perform well regardless of what is happening in the wider market. The shares of such companies are seen by some as safe haven stocks. 

So, what are safe haven stocks? 

What you need to look for primarily are shares in companies which produce goods with inelastic demand, that is, goods which people will continue to purchase no matter what. 

For example, companies which produce consumer staples such as Proctor & Gamble, utility companies such as NextEra Energy, supermarkets such as Tesco and certain so-called “sin stocks” such as British American Tobacco or Diageo. 

Demand for goods which these companies sell will typically not be greatly affected by economic downturns and, therefore, perform reliably in challenging economic conditions. And if these stocks pay their investors a cash dividend, which many defensive stocks do, then so much the better!

Safe Haven Investing and Trading with Admirals

At Admirals, our clients can gain exposure to many different safe haven assets in a variety of different ways! 

Safe Haven Trading

With a Trade.MT5 account from Admirals, you can trade Contracts for Difference (CFDs) on various safe haven assets, such as: 

• Gold
• Numerous Forex pairs which include safe haven currencies
• US dollar index futures 
• 10-Year Germany Bund Futures 
• 10-Year US Treasury Note Futures

CFDs allow traders to attempt to profit from both rising and falling prices, without ever taking ownership of the underlying asset. In order to register for a Trade.MT5 account from Admirals, click the banner below: 

Invest in Safe Haven Stocks 

Alternatively, with the separate Invest.MT5 account, investors can purchase shares in over 4,500 stocks, including a number of safe haven stocks such as all the examples provided above! 

Benefits of the Invest.MT5 account include: 

• Competitive transaction costs and no account maintenance fee
• Open an account with a minimum deposit of just €1
• The ability to purchase fractional shares in some of the most popular companies in the world!

Click the banner below in order to learn more, or to register for the Invest.MT5 account today: 

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