Preservation of Capital
What it is:
How it works (Example):
A preservation of capital is a conservative investment philosophy that invests in very safe securities, such as Treasuries (T-Bills), which will not lose any value and only gain enough to counter the effects of inflation.
Preservation of capital is usually used by investors on fixed incomes, retirees who are not adding to their investment principal and cannot risk any losses, or institutions or organizations with limited endowments.
Why it Matters:
Preservation of capital is an important investment philosophy at the right time and for the right type of investor. It recognizes the needs of the investor to maintain his or her capital, protecting against any volatility in the markets, and ensuring that capital is available when it is needed, usually in the short term.