Capital Preservation

Preservation of Capital

A conservative investment strategy that attempts merely to avoid the loss of value. Retirees often prefer this strategy for their savings because the rate of return is designed only to keep up with inflation, ensuring that the value of their savings does not decrease over time. This often works in the short-term for pensioners, but using capital preservation as a long-term strategy often adds exposure to inflation risk rather than reduces it. Capital preservation strategists usually invest in fixed-income securities and other low-risk investments.

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Capital preservation. Capital preservation is a strategy for protecting the money you have available to invest by choosing insured accounts or fixed-income investments that promise return of principal.

The downside of capital preservation over the long term is that by avoiding the potential risks of equity investing, you exposure yourself to inflation risk.

That's the case because your investments are unlikely to increase enough in value to offset the gradual loss of purchasing power that's a result of even moderate inflation.