The need to keep investments intact regardless of the fluctuating conditions of the market is every investor’s silent cry. There are various ways to have 100% principal protection over your investments. This guarantees you the complete retention of your funds in the event that the value of the investments drops at maturity. With the growth of the investment, you as the investor get the advantage increase plus the principal investment. Isn’t this your hope and wish as an investor?
Being able to achieve these results requires choosing the proper investment strategy. Of great importance here is the timing because you will need to protect the value of your investments before it is too late. At Ihgandhi Financial Solution, we help you customize the perfect financial landscape and plan ahead with confidence register. From experience, our financial advice and consultancy have helped a number of individuals and enterprises make informed decisions that have proven functional over time. The purpose of this article is to expand more on how you can guarantee the principle return of your investments.
What is principal protected investment?
This is a form of fixed income security that guarantees the investor the return of at least the full amount of the invested principle commonly known as equity-linked notes and market-linked GICs. With the right market conditions, an investor can obtain a favorable interest on top of the principal amount.
Before you invest in notes, you should be aware of its financial complexity in terms of risks and fees as they vary from stocks and bonds.
Costs – some of the incurred costs in the principal protected investment include the primary insurance premium, commissions, management fees, performance fees, structuring fees, operating fees, trailer fees, and early redemption fees.
Risks– The risks that accompany the investment can be summed up as fluctuating interest rates that may affect the value, the risk of zero return, the risk of higher or fluctuating fees, and suitability and liquidity risks.
Performance – besides being a complex investment, the performance of notes depends on the linked investment which makes determining the trend of performance difficult and thus complicating valuation.
If you are considering investing in notes, then it’s necessary for you to understand all these complexities. With the decrease in the cost of insurance, there is an increase in interest rates which results in the suffering of equity markets. On the other hand, the equity market will do better when the cost of insurance is higher which leads to lower interest rates.
Experience has shown that increasing the risk exposure of a portfolio by increasing the proportion of equities held at the expense of cash or fixed-income holdings leads to the acquisition of higher returns. Before purchasing a note, ensure that the guaranteed returns commensurate with the risks and the additional costs.
Strategies That will Protect Your Principal From Stock Market Crash
When you are on the verge of retirement, you need an investment that will protect your principal. Everyone that is nearing retirement wants to invest their money in a place where the capital is not at risk of market fluctuations.as much as it is the best approach to retirement investing, the exchange for the stated security will require you to dig a little deeper.
But, at the end of the day, the best option strategy that will work for you will depend on the time you have, the risks you are comfortable dealing with, and the overarching investment style. The advice below was collected from different sources and advisors across the industry.
- Online High-Yield Savings AccountsOpting to save your money in online high-yield saving accounts gives you the chance to get higher returns and zero risks while your money is being insured by the Federal Deposit Insurance Corporation up to $250,000. High-yield savings accounts opened online can be a smart option depending on your situation as it is not a smart move for those looking to grow wealth. The earned interests on your principle have the chances of decreasing which makes it the best option if you intent to use it for the short term goals like saving up for down payment for a first home before thinking about more long term investments.
- Money Market AccountsA Money Market Account is a saving account with the advantage of checking features. The accounts are characterized by checks or debit cards that limit monthly transactions and offer higher interest rates. They also have the least deposit or balance requirements and insurance by the Federal Deposit Insurance Corporation which guarantees the principle regardless of the market trends.
The advantages of money market accounts include receiving the best bank rates, easy access to funds as compared to other savings, and the presence of secured and insured money accounts. The disadvantages include funds being easy to spend, requisition of high minimum amount for some accounts as saving accounts paying as much as the interests. - Guaranteed Investment CertificateGICs are just like bonds, except that they are issued by banks and they have to stay invested for a specified period of time. It works by allowing the investors to deposit money into the bank and earning interest from it at maturity alongside the principal investment. If the funds are withdrawn early, the investor may be subjected to penalty as per the plan of choice. The longer the term, the larger the interest earned. Buying GIC translates to allowing the bank to use your money for a period of time in exchange for the interests accumulated.
GICs are protected by the Canada Deposit Insurance Corporation, so in the unlikely event that a financial institution defaults, you’ll get your money back up to $100,000. They are therefore perfect for saving for short term goals.
- Municipal BondsMunicipal bonds happen when investors give a loan to the government in exchange for interests and principal at maturity. They are issued by states or local governments that use the invested money to develop infrastructure, government programs and to generate other means of cash flow. When you purchase a municipal bond, you’re actually providing income to your state or local government
Bonds are known to be reliable when it comes to low risk considerations and therefore the best option for those who need a guaranteed capital with a steady flow of income. This is because cities don’t or rather rarely default from such arrangements and the interests are untaxed by the federal government. Interest rates for municipal bonds vary, but you can usually earn 3% or more on your money. All things considered, the benefits and reduced risk municipal bonds offer to make them a smart option for any investor who needs principal protection.
- Corporate bondsCorporate bonds can be characterized by a substantial risk, but the largest advantage is that they can give your portfolio a much-needed income infusion. With corporate bonds, you as the investor lends money to a business enterprise money and in return, they will pay you interest. You should note that the likelihood of a company going bankrupt is higher as compared to a state or country. But the upper side to this is that investors get a higher yield on corporate debt than on federal bonds which may amount at least two per cent higher, with some corporate bonds offering even more income.
Corporates are still considered safer than stocks but ensure you choose to invest with bonds that are rated highly as per the rating agencies such as Standard & Poors. Lower rated bonds have the highest chances of companies defaulting on their loans which may lead to loss of investments.
- The Real Return BondsThese are the types of bonds that offer protection against market inflation. Just like the conventional bonds, the real return bonds are characterized by a coupon with the advantage of bonuses as per the level of the inflation. There is a moderate correlation between other types of bonds and real return bonds because they do not operate like the rest of them. Besides that, the investments offer the option of cash which makes it the best investment of holding money market funds.
- Segregated Funds”Seg” funds operate more like mutual funds but they are issued by insurance companies. Yes, they put your funds out to gamble with the market but your principal is always guaranteed. That means the condition of the market doesn’t influence your principle in any way; if the market rises, you get your principal plus interest acquired and if it falls, you get your guaranteed principle.
The catch is however on the timing; your funds have to stay put for a period of between 10 and 15 years before getting that principal guarantee. Segregated funds are also characterized by higher fees which makes better if you invest and the fluctuations don’t occur as much in the years that follow.
Conclusion
Protecting your retirement savings from losses may not be a priority when you’re young. Young age comes with the luxury of time to deal with the fluctuating conditions of the market. But, as you get older, your options become limited, income becomes scarce and yet you still have financial needs to fulfil. This is where principal protection comes in, and why it’s so important, to begin with.
When looking for the best-guaranteed principal protection investments, determine the type of investments that can help you grow wealth while minimizing your risk. And if you need help, find a financial advisor that will give you much-needed information on the available options for principal protection investments. At Ihgandhi Financial Services, we walk with our clients through the available options while narrowing them down for them as per the needs and long term goals. Call us today, and find out how you too can safeguard your hard-earned money!