Capital Preservation

Capital preservation refers to an investment strategy focused on protecting the original amount of money (the principal) invested. The primary goal is to avoid loss rather than seek high returns, making it ideal for conservative investors, retirees, or anyone with a short investment horizon.

Why it matters:

Capital preservation is critical for investors nearing retirement, saving for a short-term goal (like buying a house), or managing funds they cannot afford to lose. It’s also commonly used in bear markets or periods of uncertainty to avoid significant drawdowns.

Examples of Capital Reservation Investments

• U.S. Treasury securities (e.g. T-bills)

• High-grade municipal bonds

• FDIC-insured certificates of deposit (CDs)

• Short-term government bond funds

• Stable value funds in retirement accounts

Top 10 FAQs

What’s the difference between capital preservation and capital appreciation?

Capital preservation focuses on protecting your principal; appreciation focuses on growing it.

Is capital preservation a good strategy during recessions?

Yes, it helps limit downside during economic uncertainty.

Are capital preservation strategies inflation-proof?

Not entirely; inflation can erode purchasing power even if your nominal principal is protected.

Who should consider a capital preservation strategy?

Retirees, short-term investors, or those with low risk tolerance.

Can I still earn returns with capital preservation?

Yes, but they’re generally modest and often lower than inflation.

What are the risks of capital preservation?

Mainly inflation risk and opportunity cost of not investing in higher-return assets.

Is capital preservation the same as saving money in a bank?

Not quite. It’s broader and includes low-risk investments that may yield more than savings accounts.

Do fixed income ETFs help with capital preservation?

Some short-term, government-backed bond ETFs are designed for this purpose.

Can capital preservation be part of a larger portfolio?

Yes, many diversified portfolios include a portion allocated to preservation.

Is there a capital preservation fund?

Yes, many mutual funds and ETFs focus specifically on preserving capital.