Preservation Of Capital

AAA

DEFINITION of 'Preservation Of Capital'

An investment strategy where the primary goal is to preserve capital and prevent loss in a portfolio. Preservation of capital is a priority for retirees and those approaching retirement, since they may be relying on their investments to generate income to cover their living expenses, and have limited time to recoup losses if markets experience a downdraft. This strategy would necessitate investment in the safest short-term instruments, such as Treasury bills and certificates of deposit.


Also referred to as capital preservation.

INVESTOPEDIA EXPLAINS 'Preservation Of Capital'

A major drawback of the capital preservation strategy is the insidious effect of inflation on the rate of return from "safe" investments over prolonged periods of time. While inflation may not have a significant impact on returns in the short term, over time, it can substantially erode the real value of an investment. For example, a modest 3% annual inflation rate can slash the real or inflation-adjusted value of an investment by 50% in 24 years.

RELATED TERMS
  1. Risk Averse

    A description of an investor who, when faced with two investments ...
  2. Conservative Investing

    An investing strategy that seeks to preserve an investment portfolio's ...
  3. Risk Of Ruin

    The probability of an individual losing sufficient trading or ...
  4. Inflation

    The rate at which the general level of prices for goods and services ...
  5. Safekeeping

    The storage of assets or other items of value in a protected ...
  6. Risk

    The chance that an investment's actual return will be different ...
Related Articles
  1. Entrepreneurship

    7 Steps To A Successful Investment Journey

    Before you start investing, educate yourself on financial ideas and develop a strategy that agrees with your personality.
  2. Allocating your investments among different asset classes is a key strategy to help minimize risk and potentially increase gains.
    Investing Basics

    Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return is any investor's prime goal. The right mix of securities is the key to achieving your optimal asset allocation.
  3. Mutual Funds & ETFs

    4 Steps To Building A Profitable Portfolio

    This is a step-by-step approach to determining, achieving and maintaining optimal asset allocation.
  4. Bonds & Fixed Income

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  5. Options & Futures

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  6. Forex Education

    When Not To Trade

    When conditions arise where systems are likely to perform poorly, traders must exercise discipline and cease trading.
  7. Promising high yields that the Eurozone and U.S. can't match, West African sovereign debt has caught the attention of savvy investors.
    Bonds & Fixed Income

    Interested In West African Debt? Look Here First

    Promising high yields that the Eurozone and U.S. can't match, West African sovereign debt has caught the attention of savvy investors.
  8. Options & Futures

    Writing Covered Calls On ETFs

    The strategy of writing covered calls on ETFs can limit your losses and hedge risk, but they cap your upside potential.
  9. Bonds & Fixed Income

    What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields move in opposite directions.
  10. Taxes

    Why should I keep records on my tax-exempt bond transactions?

    Keep your purchase records on all investments, including tax-exempt bonds. Though the interest is tax-free, you may owe taxes if you sell your bond for a gain.

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center