Capital preservation

What is capital preservation?

At its core, a capital preservation investment strategy focuses on preserving capital and avoiding loss. This conservative approach to investment minimises risk, but also sees smaller returns. Instead, this money management philosophy conserves investment value, keeps pace with inflation and mitigates risk to maintain capital.

Investment objectives of capital preservation

For the right type of investor, at the right time, a capital preservation model can be extremely useful. It protects against market volatility and facilitates short-term access to funds.

This approach is often favoured by retirees, who may prefer the security of a low risk, low return strategy that is only designed to keep pace with inflation. Capital preservation can be a solution for short-term goals, such as ensuring the value of retirement savings can be retained. Sometimes, investors plan on using the money to help with day-to-day costs, such as paying bills, buying Christmas gifts for the grandchildren, enjoying leisure activities or helping their children to save for a deposit on a home.

Capital preservation does not, however, represent the best option for a longer term investment plan. In fact, over time, the exposure to risk can actually go up.

This can occur because the value made through capital preservation investments are unlikely to increase enough to offset the gradual diminution of purchasing power, resulting from even moderate rises in inflation. So while the capital remains, its value over a longer term can diminish.

This aside, a capital preservation based fund can, nevertheless, still be a valuable tool for investors pursuing longer-term growth by appropriately diversifying an investment portfolio.

Capital preservation examples

The best investments for capital preservation are usually fixed-income securities and other low-risk options, such as government and corporate bonds, as well as gold.

Stocks are inappropriate for investors with a capital preservation approach in mind, and likewise, long duration bonds are volatile and susceptible to swings in value, too.

Low exposure, modest gains and maintaining wealth are the guiding principles for capital preservation. While you are unlikely to see high paying returns, it is a price worth paying for those who do not want to suffer the potentially higher losses associated with more risky investments.

AXA-IM’s approach to capital preservation

At AXA, we assist use our expert knowledge and experience in intelligent risk mitigation to fulfil our clients capital preservation objectives. We work to achieve an effective level of investment performance, whilst preserving capital and mitigating possible losses.

This page is for advertising and informational purposes only and does not constitute an offer to buy or sell any investments or products on the part of AXA Investment Managers or its affiliated companies and should not be considered a solicitation or investment, legal or tax advice. The strategies and/or products discussed herein may not be available in all jurisdictions and/or to certain types of investors. Opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee that forecasts made will come to pass. No guarantee, warranty or representation is given as to the accuracy or completeness of this material. Reliance upon information in this material is at the sole discretion of the reader. This material does not contain sufficient information to support an investment decision. Further important information as well as information regarding the representative and the paying agent of the respective fund are available under important information.