Safe Haven

A safe haven is an asset that holds its value, or gains, when markets are shaken. US Treasuries, gold, the dollar and the yen are the usual examples.

In a crisis people sell risky assets and crowd into these. That is why Treasury prices rise on days when equities collapse — a movement known as a flight to safety.

The requirements are liquidity and trust: you must be able to sell size at any time, and the issuer must be believed not to fail. That is why Treasuries hold the top position.

But safe does not mean loss-free. Treasury prices fall when rates rise, and gold can go nowhere for years. The purchasing power cash loses to inflation is a real loss too.

So a safe haven is not where returns come from; it is where volatility is reduced. Holding a steady allocation gives you the room to sit still rather than sell when markets fall.