Is it safe to say that safe haven investments are good investments?

Dan McGaw
March 16, 2021
170 Views

What is a safe haven investment?

A safe haven investment worth remains or increases even when the economy is going downhill. Safe haven investment got its name since they are safer options for investors. They are not related to the economy’s status, so if the economy went down, their value would not go down as well. It is an advantage to investors in times of volatility since they come with protection and diversity.

Economic downturns such as the COVID-19 pandemic, calamities, trade wars, global financial crises trigger investors to turn into safe havens to avoid losses.

What characteristics does a safe haven investment possess?

Several qualities make safe-haven investments. They are liquid assets that are readily convertible to fiat money. They are limited, if not scarce, albeit the continuous high demands. Since the supply is lesser than the demand, it is valuable and irreplaceable. How does an asset keep the demands coming? People should be able to use them for the long-term. Finally, safe-haven purchases should be permanent. They don’t decay nor reduce in quality.

Safe haven investment examples

Let us run through several examples of safe-haven investments that possess the characteristics mentioned above.

Gold

Almost everybody can agree that gold is the first thing that comes to mind when we ask about something that increases value over time. This reason makes it a popular choice for investors in times of volatility. Gold is very liquid. An individual can always exchange it for fiat money. Also, since it’s a tangible asset, no economic factors can tarnish its value.

Government bonds

A government bond is a financial instrument issued by the government to raise more capital. Furthermore, it’s like a loan where an investor is a creditor. The investor lends the government money, and they will pay it back on the maturity date. This safe-haven investment is risk-free since there is a guaranteed payback, interest, and government creditworthiness.

Currencies

Investors consider the US dollar, Swiss franc, and the Japanese yen to be safe investments. They are liquid, not dependent on other countries, and the origin country’s government has a stable political system. Sometimes, some countries store foreign currencies in their reserve if the origin country is creditworthy.

Defensive Stocks

Defensive stocks are shares of companies that sell necessities such as utilities, healthcare, consumer goods, and the like. These are safe havens since people will always support these industries regardless of the state of the economy. There will always be a constant demand. For example, even if there’s an economic downturn, people will still need water, food, medicine, electricity, and gas.

Conclusion on safe haven investment examples

These given examples do not give a 100% guarantee that their values will remain constant. A safe haven’s attributes can change. An investor should be careful in decision making since economy will not always be down. When stock market is good, a safe haven investment may not be a good investment.

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