Finding Shelter in Turbulent Markets: What Are Safe-Haven Assets?
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Investors Looking to Grow or Safeguard Their Wealth
Investors looking to grow or safeguard their wealth can turn to any number of assets. But each investment carries a certain level of risk. Cryptocurrencies and growth stocks, for example, are some of the riskiest assets. While they can generate substantial long-term returns, it is also possible for these same investments to generate dramatic losses in a short period of time.
Safe-Haven Assets Offer a Middle Ground
For instance, Bitcoin has more than doubled over the past year. However, it also lost more than 65% of its value in 2022. You won’t have to worry about those types of losses if you put your money into a high-yield savings account, but interest rates have fallen for most of these accounts over the past year. It’s even worse if you factor in the real return of a high-yield savings account since all of the interest you receive is treated as taxable income.
What Makes Safe-Haven Assets Special?
Safe-haven assets are investments that don’t get shaken up by economic downturns in the same way risk-on assets — such as cryptocurrencies and growth stocks — do. Rather, these types of assets retain their value because they have been essential resources for many years, and it’s almost impossible for societies to operate without them.
Examples of Safe-Haven Assets
Gold is one of those assets. It has served as a store of value for thousands of years and is a useful inflation hedge. Investors and central banks load up on gold to reduce the impact of economic and geopolitical uncertainties. However, gold also has many uses in industries and products like jewelry, automobiles, satellites, and semiconductors.
Is Gold the Best Safe-Haven Asset?
The “best” investment is in the eye of the beholder, but there are a few key distinctions that set gold apart from other safe-haven assets. The first advantage is how easy it is to store gold. You don’t have to worry about storing a live asset like crops or livestock.
