Risk-off describes periods when investors become cautious. Capital moves away from growth and speculative assets toward stability and capital preservation.
This usually happens when uncertainty rises. Fear replaces optimism, and protecting downside becomes more important than chasing returns.
Risk-off phases change what performs well. Assets that thrive during growth often struggle, while defensive positions gain relative strength.
Understanding risk-off helps investors interpret price moves correctly. Declines during these phases are often driven by market sentiment, not company-specific problems, which affects risk management decisions.
Risk-off environments often show these signals:
- Broad selling in equities and high-beta assets
- Rising volatility across markets
- Capital flowing into safe havens
- Reduced appetite for leverage and speculation
Direction matters more than isolated data points.
A common mistake is assuming risk-off means markets are broken. These phases are part of normal market cycles.
Another error is reacting too aggressively. Selling everything during risk-off periods can lock in losses and undermine long-term strategies.
