Minimizing the risk of losing principal is addressed by which of the following investment strategies?attempts to protect principle
defensive
The investment strategy that attempts to protect principal by minimizing the risk of losing principal is known as the conservative or low-risk strategy. This strategy is designed primarily for investors who are risk-averse and prioritize capital preservation over capital appreciation.
The following are some of the investment strategies that can help to minimize the risk of losing principal:
1. Diversification: This strategy involves spreading investments across different asset classes, sectors, and geographies. Diversification reduces the overall risk of the portfolio by limiting exposure to any single investment or asset class.
2. Fixed income investments: These investments provide a steady stream of income in the form of interest payments and principal repayment at maturity. Fixed income investments are generally considered less risky than equity investments.
3. Money market funds: These funds invest in short-term, low-risk debt securities such as government bonds, certificates of deposit, and commercial paper. Money market funds are considered to be one of the safest investment options available.
4. Guaranteed investment certificates (GICs): GICs guarantee the principal investment and provide a fixed rate of return over a specified period. GICs are low-risk investments that are often used to protect principal.
5. Capital preservation funds: These funds seek to preserve the initial investment while generating a modest return. Capital preservation funds typically invest in low-risk fixed-income securities and money market instruments.
In summary, investors can minimize the risk of losing principal by adopting a conservative investment strategy that focuses on capital preservation and includes diversification, fixed income investments, money market funds, GICs, and capital preservation funds.
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