We do not live in easy times, for many reasons. Everything that affects our lives (coronavirus, war in Ukraine, inflation, etc.) also makes financial markets very nervous. This results in higher volatility and increased risks for investors. This is why, nowadays, it is interesting to turn our gaze towards safe havens. But what are they?
What is a safe haven?
When the stock market tends to decline, due to economic uncertainties, investors then tend to buy safe havens in order to protect their capital. The reason is simple: they are recognized as being the most stable during these times. In a way, these values have this quality because everyone agrees to grant them. However, depending on the causes of the crisis, not all of these assets will be considered as such. But an investment in the following assets will certainly avoid the volatility of certain other values in the markets.
What are they ?
gold
At the very top of the safe haven podium is gold. Regardless of the crisis that shakes society, this metal knows how to retain its value. After all, he has passed through the vast majority of human civilizations without ever being left behind. Moreover, it is a physical asset that can be held at home, or in a bank, unlike many others that only have cash value. Moreover, even financial institutions keep part of their capital in gold bullion. Finally, since gold exists in limited quantities, when it is in demand, its price increases considerably. Since it remains popular in all weathers, it has earned the honor of being the safe haven par excellence. (Silver – metal – is also a good choice in times of crisis).
The US dollar
It is the other best-known safe haven of all. The main reason is that commodities are traded using this currency. Moreover, it is also the currency that has the most liquidity. It is therefore easy for an investor to convert his assets into it. That said, there are other currencies that are also used as a safe haven in times of crisis. Among them are the Swiss franc and the Japanese yen.
Government bonds
For those who do not know what a bond is, here is a brief definition: a debt acquired by a government or by a company and which pays interest to the person who agrees to lend his money for a predetermined period of time. The advantage of bonds is that you know as soon as you acquire the amount of the loan and the interest they will earn, as well as the maturity date. A large part of the obligations are quarterly or annual. If government bonds are safe havens, it is because it is rare for a government to go bankrupt or fail to repay its debts. In times of crisis, it is therefore one of the preferred investments of stock market traders.
Finally, in times of economic uncertainty, investors often turn to safe havens to protect their capital. These assets are known for their stability and ability to withstand market volatility. Among the most popular safe havens are gold, the US dollar and government bonds. Gold’s historical value and limited supply make it a popular choice for investors seeking security. The US dollar is the most widely used currency in the world and its liquidity is high, allowing investors to easily convert their assets. Government bonds are considered low-risk investments, as they are backed by the creditworthiness of the issuing government. Overall, investing in these safe havens can help investors minimize risk during turbulent times.
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