Safe Haven

Safe haven is a term for financial assets that investors turn to in order to better protect themselves, or sometimes even profit from during market turmoil.

Safe haven assets most commonly are considered government securities in the United States, the US dollar, precious metals such as gold or silver, low-yielding stocks, or cash, among others.

These assets are the most likely destination in times of political or economic crises, or unstable market conditions.

Investors who prefer these types of assets are known as risk averse or risk-off, given their avoidance of less predictable options for investing.

In terms of forex, the most common safe haven currencies are considered the US dollar, the Japanese yen, and the Swiss franc.

In the result of any calamity or market stress, each of these currencies are likely rise due to a flight to safety by investors for more predictable and stable rates of return.

In particular, safe haven currencies are all considered less risky due to the size of their large capital markets and liquidity.

Why Are Safe Haven Assets Desirable?

Safe haven assets provide a convenient counterpoint to any risk-on assets, which during times of certainty see much higher rates of return.

There are always situations however when the market is more choppy or volatile, be it for a short period of time or longer interval.

As such, safe haven assets can be held continuously by risk-off investors either as a hedge against uncertainty or as a proactive strategy.

During an economic recession for example, the market reaches a prolonged state of uncertainty where there is little appetite or interest by investors in less liquid or stable assets.

In these instances, safe haven assets are preferred given they retain their value better than other assets and are safer to hold.

This can relate to its overall stability, but also liquidity, ensuring you are less likely to lose all or a large portion of your investment during times of turmoil.