Safe Haven
Candlefocus EditorWhen the markets experience volatility, it can be a worrying time for investors. Uncertainty in the markets cause movements that can suddenly erode any existing gains. As a result, savvy investors are always looking for something called a ‘safe haven’ – a type of asset that can offer protection from market downswings.
What Does A Safe Haven Asset Look Like?
Theoretically, no asset is completely risk-free. However, some assets can historically tend to offer protection from volatile markets. Precious metals, such as gold and silver, are often cited as safe havens. Whilst the prices of certain commodities may decrease in volatile periods, the currency markets and certain stocks have been thought to benefit in times of market turbulence.
For example, the Japanese yen, Swiss franc and the U.S. dollar have been known to be positively affected during periods of market volatility. Similarly, stocks from sectors such as utilities, technology, or healthcare have also been associated with rising during market volatility. However, there is no consistent safe haven when it comes to investing.
The Right Balance
Investors should aim to create a balanced portfolio to ensure they enjoy the relevant benefits no matter the condition of the markets. Seeking diverse investments, if possible, is usually advisable. A blended portfolio of safe haven assets and higher-risk investments could be the ideal approach.
By diversifying and monitoring market movements, investors could ensure they don’t become overly exposed to uncertain conditions. That way, if costs begin to fall, then the risk of losing out can be mitigated.
It’s important to remember however that the investments that proved to be successful safe havens in one period might not experience the same success in a different market. Looking for constantly new opportunities is recommended, but remember, no investment is completely risk-free.