What are safe-haven assets and should you invest in them?

The market response to the conflict in the Middle East has been relatively muted so far, with investors taking a “wait-and-see” approach. Despite this, there is a sense that geopolitical risks could be building again, which could prompt renewed interest in safe-haven assets.

The scale of the conflict between Israel and Iran has broadened in recent days, with the US becoming directly involved after ordering a missile attack on Iranian nuclear facilities over the weekend. A ceasefire has since been negotiated but looks precarious.

Donald Trump’s tariffs could also create volatility in markets over the coming weeks, with the 90-day pause on his “Liberation Day” tariffs due to come to an end on 8 July.

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Most of Trump’s country-specific tariffs were reduced to 10% during the pause, but higher trade barriers could be imposed once the deadline passes, unless countries can come to an agreement with the US president.

Although any measures would be less of a surprise this time around compared to April, markets would almost certainly need to adjust to price in higher business costs and slower economic growth. April’s initial sell-off has been almost entirely reversed during the pause – perhaps an overly-optimistic stance unless investors genuinely believe Trump is all bark and no bite.

Geopolitical turmoil and tariffs could add pressure at a time when global economies are already battling high interest rates and slowing growth. The OECD think tank recently downgraded its global growth outlook to 2.9% for 2025 and 2026 – the lowest level since the pandemic.

Does this mean it is time to reassess the level of risk in your portfolio – both when looking at what you already hold, and when weighing up the top stocks and funds to add to your investments going forward? A lot will depend on your objectives, time horizon and willingness and ability to take on risk.

“Volatility is part and parcel of investing, but not everyone enjoys a wild ride. While the stock market is the powerful engine behind superior long-term returns, adding balancing assets to a portfolio can help smooth out the edges,” said Rob Morgan, chief investment analyst at Charles Stanley.

“This will vary according to an investors’ needs and objectives, but a ‘classic’ portfolio for an investor seeking a balanced level of risk would be 60% invested in share investments combined with 40% in various types of bonds and other balancing assets.”

Morgan added that those who are more adventurous or have a longer time frame, measured in decades rather than years, may want to target an 80-20 split between equities and other balancing assets.

What are safe-haven assets?

All asset classes perform in different ways at different stages of the market cycle. The most common example cited is that bonds are meant to rise when equities fall, and vice versa. This is the theory behind the traditional 60/40 portfolio, where 60% of assets are invested in equities and 40% in bonds.

This uncorrelated performance is just a general rule. It doesn’t always work out like that in reality. Investors learned this lesson the hard way in 2022 when bonds and equities both fell dramatically and in tandem as central banks hiked interest rates.

“Safe haven is something of a misnomer for most asset classes and almost all investing involves taking some level of risk. Even holding cash exposes you to inflation risk as well as some interest rate risk (in terms of growing that cash pile),” said Ben Seager-Scott, chief investment officer at Forvis Mazars.

That said, bringing a range of asset classes and sectors together in one portfolio can help achieve diversification, allowing you to better weather a range of market conditions.

Bonds

Developed market government bonds are often considered one of the safest investments, as the chance of a government like the UK or US defaulting on its debt is minimal.

However, it is worth pointing out that bond prices can still fluctuate widely on the secondary market based on factors like interest rates and inflation, meaning you can still face losses if you sell the asset before the end of its term.

Government bonds also tend to pay lower levels of interest than higher-risk alternatives, meaning you might be able to earn better income elsewhere. For this reason, other parts of the bond universe could also be worth a look, including corporate bonds.

While corporate bonds are generally riskier than government bonds, investment-grade ones are still high quality and can offer higher returns than gilts.

Morgan describes short-dated investment-grade corporate bonds as a “sweet spot”. They have “enough risk and yield to provide an attractive income-based return, but with limited sensitivity to the shifting sands of inflation and interest rate expectations”.

For those looking for exposure to this part of the asset class, the iShares £ Corp Bond 0-5yr UCITS ETF could be worth a look. The fund tracks the performance of corporate bonds with less than five years to redemption and an investment‐grade rating.

Gold

Gold is generally thought of as an asset that holds its value well. Many flocked to it during the market turmoil caused by Trump’s “Liberation Day” tariffs. The yellow metal is also seen as a hedge against inflation.

That said, investing in gold is far from a fail-safe approach. “History reminds us that these assets can suffer shocks not too dissimilar to equities. Gold lost -30% in 2013 after a rally and fell -50% in the 1980s,” said Seager-Scott.

Despite this volatility, gold’s diversification benefits are probably enough to justify a small allocation. Some experts recommend around 5%.

For those who like gold, a physical-gold ETC is usually a cheap and simple option. It means you don’t have to buy and store the yellow metal directly. Instead, you can gain exposure to the gold price through a physically-backed fund, usually with relatively low investment fees.

The Invesco Physical Gold ETC and the iShares Physical Gold ETC are two examples.

Balanced and absolute return funds

Those who want to take a balanced approach to risk could opt for a ready-made 60/40 portfolio. The Vanguard LifeStrategy 60% Equity Fund is a popular option if you would prefer someone else to manage things on your behalf.

Vanguard’s LifeStrategy range also offers other asset allocation splits for those who want to take on more risk, such as 80/20.

Alternatively, absolute return funds could be worth a look. This type of portfolio doesn’t follow a benchmark, and aims to generate a positive return in all market environments while keeping volatility to a minimum. Just make sure you vet the fund’s track record before investing.

“With absolute return funds, you are generally banking on the skill or ‘alpha’ a fund manager can add, as there isn’t really a broad asset class they are investing in. You are just hoping their strategies work to make you a return, and their fees tend to be pretty high,” said Seager-Scott.

Cash

Cash deposits are liquid, protected up to the value of £85,000, and unaffected by stock market volatility, making them the ultimate safe-haven asset in nominal terms – but they are certainly not risk-free.

Inflation is a silent thief, but it can dramatically reduce the purchasing power of your savings over time.

Even if inflation were to sit at around 2% (the Bank of England’s target), it would only take 36 years for the value of your nest egg to halve – not great news if you’re planning to stash it away for use in retirement.

Over the past few years, the rate of inflation has been far higher than this. UK inflation peaked at 11.1% in October 2022. At this elevated level, it would only take around six and a half years for the value of your money to halve.

It is important to keep some of your wealth in cash for short-term savings goals and emergencies, but be careful about overdoing it. When selecting a savings account, make sure you shop around to secure an inflation-busting rate.

See our round-up of the best easy-access rates, one-year savings accounts, regular saver accounts and cash ISAs for the latest deals on cash savings.

Global equities beat safe havens over the past decade

Trying to eliminate risk entirely is impossible, and being too risk-averse can be a risk in its own right. All investors should ensure their portfolios are diversified, but having too little exposure to equities or panic-selling when markets are falling can result in inferior returns.

While equities are more volatile than safe-haven assets, analysis from investment platform AJ Bell suggests they have outperformed them over the past decade. This is because short-term volatility often pales into insignificance over a time horizon of several years.

A minimum horizon of five years is generally recommended for those looking to invest, but the longer the better.

^{Source: AJ Bell, 10 years to 31 December 2024.}

Those who don’t have the privilege of a five or ten-year time horizon could be more focused on capital protection than long-term capital growth. Investors like this should consider a larger allocation to safe havens.

“This is most likely to be relevant for anyone who is expecting to have to draw on their investments in the near term. This could be people approaching or in retirement, people investing for a house deposit, people investing for their child to go to university or even for a special holiday,” said Hal Cook, senior investment analyst at Hargreaves Lansdown.

“The last thing anyone wants is to have to take money out of the stock market at the point of a wobble or crash. Hence the use of safe havens, which come in many potential forms, with differing amounts of safe-haven qualities.”

Helping to illustrate this point, the below figures from AJ Bell highlight the maximum peak-to-trough loss of different asset classes at any point over the past 10 years. It is worth pointing out that some of the asset classes highlighted are represented by a sector index, which can mask some variation in individual funds.

^{Source: AJ Bell, 10 years to 31 December 2024.}