- October 19, 2019
- Posted by: Chowdhury Shahid Uz Zaman
- Categories: Gold Investment, Investment Strategies
The safe-haven assets, in these days of world indecision, seem to be the only safe assets on which it is really worth investing. In fact, even based on the latest published data, we can see that safe haven assets improve the portfolio’s return / risk ratio.
There is a negative correlation between the return on safe haven assets and that inherent to other financial assets, furthermore the low interest rates on bonds, combined with the economic and political uncertainties are exerting upward pressure on the prices of most safe haven assets, especially gold. At the moment we, on the basis of the current conditions, can define the safe-haven assets in the portfolio as indispensable assets to possess, which must not be lacking for any reason and which generate important benefits.
- 1 What are safe havens?
- 2 Invest today with the safe haven: What are they and what are they for?
- 3 How to invest in safe haven assets
- 4 Suppose we want to invest in gold
- 5 Why invest in gold (safe haven)?
- 6 Correlation between safe-haven assets
- 7 How much should I invest in safe haven assets?
- 8 Pros and Cons of safe haven assets
What are safe havens?
The safe haven is considered as an asset whose value retention capacity over time is not subject to devaluation. It is therefore defined as an excellent defensive investment in periods of uncertainty and high inflation. To give an example, we can consider as safe haven goods, in addition to gold, silver and precious stones, also foreign currencies that have limited margins of fluctuations, metals and works of art together with other objects of inestimable value.
Invest today with the safe haven: What are they and what are they for?
Investing in safe havens can be the right winning strategy in a time of financial crisis like this that we are experiencing, because they improve the performance of our portfolio. Obviously, the relationship is not based only on those who invested before the stock market crash due to Brexit, but also for those who bought them in the following days and those still to come, as they can be considered as assets that increase the return on the portfolio, reducing risks.
At the moment we can define safe-haven assets, as precious assets perceived as “safe” by investors and which are more appreciated during periods of economic and financial crisis, as we are currently experiencing.
How to invest in safe haven assets
Suppose you want to invest in online trading with precious metals, or better with safe haven assets. All we have to do is open an online trading account with one of the best online platforms (brokers) that offer the possibility to trade on these assets and enter the amount you want to trade.
Suppose we want to invest in gold
In this case, the trader chooses to include a portion of gold in his portfolio. The portfolio is diversified in that safe haven assets have the ability to have a staggered movement compared to other traditional investments such as stocks or even bonds, etc. Therefore, we recommend investing in gold as this increases the return on the portfolio at critical times, reducing the risk when everything around us is falling.
Why invest in gold (safe haven)?
At the moment we have decided to advise you to invest in gold, as this asset has set a number of positive sessions, far exceeding expectations starting in 2014 with a significant increase in its prices, up to even touching a 30 surplus % since the start of the year. A further acceleration derives from Brexit, although to tell the truth a positive registration has already taken place since 2014. Consequently, we consider it essential to invest in gold as a safe haven, for the following reasons …
- In the event of an improvement in the world economic situation, gold may increase due to the demand for luxury and for industrial purposes;
- The negative correlation of the metal with the other asset classes improves the portfolio’s risk-return profile.
Correlation between safe-haven assets
Finally, there is a very strong negative correlation between safe-haven assets, making it possible to mitigate market volatility. Being safe goods one of the best investments in the event of default by a state, an “important” issuer or financial crisis can protect capital by reducing the negative effects of the nefarious event.
As a result, all traders will be able to exploit the existing correlation between all the assets and then insert them into an investment plan in a wider view to take advantage of the main feature of being negatively correlated with other financial instruments and having consequently the possibility of giving greater stability to the portfolio in a wider perspective.
Finally, we can say that Brexit has played a major role, allowing us to improve the performance of portfolios due to the financial anomaly. Usually when gold grows, the dollar depreciates and vice versa. To date, however, we have witnessed the exception, namely the appreciation of the dollar and the precious metal with a bullish push on the investment.
How much should I invest in safe haven assets?
A question that many people ask themselves today is whether or not they really should invest in safe havens. Needless to say, apart from gold, at the moment there are no other better sheltered goods registered; if we consider for example that the brick is leaving room for works of art as they make more, or if we look at oil has given way to gold, since the collapse of the barrel has brought down the price of oil, then the question is more than legitimate.
Followed by the falling oil there is also the silver, which in the last twelve months has lost more than 20%, even if it seems at the moment in phase of recovery. Now, based on this data, if we really want to invest with these assets, we can only advise gold, which exploits the increase in demand from China and India and the recovery of the entire jewelry sector.
If instead we consider the housing market, we can see that this is firm, registering a 4.2% drop since the beginning of the year. Especially then if we talk about Italy! In this case, the haven for excellence, the home, is becoming an excellent investment. So based on the above, we advise better to divert investments to other financial sectors.
Pros and Cons of safe haven assets
Below we will indicate those that we believe can be considered as advantages and disadvantages of safe haven assets such as gold, houses, currencies, works of art etc. What to choose to defend our savings.
If you have come this far in reading, it is because you no longer trust the investments on government bonds, which constantly depend on the spread without also considering the fear that the bank may be insolvent towards us. For this reason, we wanted to list a series of advantages and disadvantages related to these assets.
- Safe haven assets include all those investments chosen at times of economic instability as they allow their value to be conserved over the long term and generally also allow a good long-term profit margin to be obtained.
- The investment in gold, as we have seen several times, seems to be the refuge asset par excellence, linking to itself the value of national currencies, without considering that it is quoted in dollars, one of the most traded currencies. Furthermore, if we consider a long-term investment, the prices are increasing and as there are no issuers it is not at risk of insolvency.
- We can still consider investing in other precious metals, like diamond, even better than gold, since it guarantees universality and durability, even if its prices remain volatile and less standard; this is why it is highly appreciated by traders and how gold is not at risk of insolvency.
- Forex currencies, on the other hand, seem to be the best at the moment because they are liquid and fickle. Being the largest market in the world, Forex is also the most liquid and the weakness of the euro pushes towards the strong currencies of emerging countries. If we consider this, we can see that the US dollar has appreciated by 15% in one year, or even for example, Asian currencies have grown like the Chinese renminbi which grew by 17% and the Hong Kong dollar by 16 % or even that of Singapore by 12%. But be careful because the Forex market is very risky!
- Safe haven assets are not recommended for traders who want to invest in the short term, due to their low liquidity.
- If we consider the investment in gold, at the moment its listing seems to have stopped even though in spite of everything the prices are quite high.
- If we consider the investment in diamonds, we can say with certainty that the investment with this precious one is not suitable for everyone, as the availability is scarce and it is necessary to know well the type of stone that is purchased. They also have greater volatility, which is good only for those who love trading online and not for all investors, who have a greater difficulty in determining the value.
- Buildings, on the other hand, can no longer be considered as a safe and lasting safe haven due to its non-stability linked on the one hand to mortgages, but also to an increase in the tax burden, without considering that the value is not universal but is related to to the territory.
- Investments in works of art cannot be considered as one of the best assets with a good return, as it is an investment with very low liquidity that becomes profitable only on long investment times that last between 15 and 20 years. Unfortunately, these assets are not accessible to everyone because the auction bases are very high and represent a market that must be known well so as not to run into cheats. Consequently, the small and medium saver can invest in certified works of art but they are not defined as of primary importance.