What Is Flight to Quality?

Flight to quality occurs when investors in aggregate begin to shif๊t their asset allocation away from riskier investments and into safer ones, for instance out of stocks and into bonds. Uncertainty in the financial or international markets usually causes this herd-like behavior. However, at other times, the move ma🗹y be an instance of individual or smaller groups of investors cutting back on the more volatile investments for conservative ones.

Understanding Flight to Quality

For example, during a bear market, investors will often move their money out of equities and into government securities and 澳洲幸运5开奖号码历史查询:money market funds. Another example is in🧸vestors moving investments from high-risk countries with political unrest like Thailand or many thriving yet still not fully established markets like Uganda and Zambia to more stable markets of other countries, like ܫGermany, Australia, and the United States. One indication of a flight to quality is a dramatic fall of the yield on government securities, which is a result of the increased demand for them.

Many investors will monitor for a decrease bond yields as a metric for more challenging economic conditions, including increasing rates of unemployment, stagnating economic growth or even a 澳洲幸运5开奖号码历史查询:recession. As 澳洲幸运5开奖号码历史查询:interest rates increase, bond prices also tend to fall.

Flight to Quality and Conservative Investment Alternative♈s

In addition to moving funds from growth stocks, international markets, and other higher-risk-higher-reward equity investments to government securities, investors may choose to diversify their assets with cash holdings. Cash equivalents are investments that can readily be converted into cash and can include bank accounts, 澳洲幸运5开奖号码历史查询:marketable securities, commercial paper, 澳洲幸运5开奖号码历史查询:Treasury bills and short-term 澳洲幸运5开奖号码历史查询:government bonds with a maturity date of three months or less. These are liquid and not subject to material fluctua♕tions in value. (Investors should not expect the value of any cash equivalents to change significantly before rede🐲mption or maturity.)

In addition, when markets take a downturn or appear to be taking a downturn, some investors will move their assets into gold. Critics argue that this is a foolish change and that gold does not have the inherent value that it once did, due to decreased industrial demand. At the same time, proponents point out that gold may be helpful during periods of 澳洲幸运5开奖号码历史查询:hyperinflation, as it can hold its 澳洲幸运5开奖号码历史查询:purchasing power much better than paper money. While hyperinflation has never occurred in the U.S., some countries like Argentina are familiar with the pattern. From ♏1989-90, Argentina saw inflation hit a staggering 186% in one month alone. In these cases, gold could have the capacity to protect i𒊎nvestors.