Preservation Of Capital


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.

BREAKING DOWN '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.

  1. Inflation

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

    The storage of assets or other items of value in a protected ...
  3. Conservative Investing

    An investing strategy that seeks to preserve an investment portfolio's ...
  4. Risk Averse

    A description of an investor who, when faced with two investments ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Risk Of Ruin

    The probability of an individual losing sufficient trading or ...
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. 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. Investing Basics

    Are ETFs the Best Way to Diversify with Bonds?

    Are bonds safe or risky right now? It depends on the type of bond and how you invest in them.
  8. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  9. Mutual Funds & ETFs

    Top 3 Muni California Mutual Funds

    Discover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
  10. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  1. How do I calculate a bond's modified duration using Excel?

    Investors with a focus on preservation of capital often seek out fixed income solutions, such as government or low-risk municipal ... Read Full Answer >>
  2. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
  3. Do mutual funds invest only in stocks?

    Mutual funds invest in stocks, but certain types also invest in government and corporate bonds. Stocks are subject to the ... Read Full Answer >>
  4. What are the maximum Social Security disability benefits?

    The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>
  5. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  6. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!