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.

RELATED FAQS
  1. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  2. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
Related Articles
  1. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  2. Insurance

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  3. Insurance

    How Much Life Insurance Should You Carry?

    Before purchasing life insurance it important to decide if you really need it, what type of policy is best, and how much coverage you should get.
  4. Insurance

    Why Insurance Is Not An Investment

    Insurance protects you financially from risk but should not be considered an investment.
  5. Insurance

    Bundle Your Insurance For Big Savings

    Bundling your insurance can save you money and time. Read on to see how get the most out of multiline insurance discounts.
  6. Insurance

    Explaining Insurance

    Insurance is a form of contract between an individual and an insurance company that spreads risk in exchange for premium payments.
  7. Personal Finance

    The History Of The FDIC

    Find out why this corporation was developed and how it protects depositors from bank failure.
  8. Insurance

    Homeowner's Insurance Guide: A Beginner's Overview

    Everything new homeowners need to know about homeowner's insurance to protect their residence.
  9. Insurance

    The History Of Insurance In America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
RELATED TERMS
  1. Insurance Industry ETF

    A sector-following fund that invests primarily in insurance companies, ...
  2. Risk-Based Deposit Insurance

    Deposit insurance with premiums that reflect how prudently banks ...
  3. Finite Risk Insurance

    An insurance contract in which the insured provides a pool of ...
  4. Bureau Rate

    A standard price per unit of insurance set by a state's insurance ...
  5. Cumis Counsel

    Legal counsel chosen by the insured when the insurer has a conflict ...
  6. Insurance Premium

    An insurance premium is the amount of money that an individual ...
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present values of cash inflows and outflows. Used in capital budgeting ...
  2. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability ...
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component ...
  5. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  6. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. ...
Trading Center