Safe-Haven Asset

When investors become fearful, they often sell shares and other risky investments and move money into assets they consider safer. These are called safe havens.

Traditional safe-haven assets include government bonds from financially strong countries, such as US Treasuries and German government bonds, gold, and certain currencies, such as the US dollar, the Swiss franc and the Japanese yen.

For example, during a sudden stock market fall, prices of high-quality government bonds often rise as investors seek safety, partly offsetting losses in a portfolio that holds both.

Safe havens do not always behave as expected. Their performance can depend on the cause of the crisis. In 2022, for example, rising inflation and interest rates caused both shares and government bonds to fall together. Gold can be volatile, and currencies can be affected by policy decisions. Holding a mix of assets that respond differently to different conditions is more reliable than relying on one safe haven.