Are my investments insured?

By Investopedia Staff AAA
A:

No. Whenever you invest in a stock, bond or mutual fund, there is no insurance against the possible loss of your initial investment. Even if you are investing in collectibles, the insurance that you can purchase protects only against unexpected occurrences such as fire or theft, not depreciations in value.

The element of risk is inherent to investing, which is why investments are not (and cannot be) insured. For all types of investments, the return - whether in the form of interest, dividends or capital gains - is a reflection of the type of risk you are taking on. The higher the risk, the higher the potential return. Conversely, a reduction in risk means a reduction in potential return. Take for example the investment products that guarantee your principal. Your money is guaranteed because you'll receive a relatively low rate of return. Remember, there is no such thing as a free lunch!

There is deposit insurance, but it is not protection against investment loss. In the United States, certain types of bank deposits and certificates of deposit are insured under the Federal Deposit Insurance Corporation. In Canada, they're insured under the Canadian Deposit Insurance Corporation. Deposit insurance will protect certain types of deposits - up to a maximum amount - in the case of your bank or investment firm defaults. But this type of insurance is meant to promote confidence in the banking system, not to ensure your investment has a positive return. That depends more on your investment knowledge, research and strategy.

To read how to create a balanced portfolio, see A Guide To Portfolio Construction, How Risky Is Your Portfolio? and Broadening The Borders Of Your Portfolio.

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