Capital preservation is a key investment objective for many investors, especially those who are risk-averse or nearing retirement.
In the context of investments, capital preservation refers to strategies and financial products designed to maintain the original value of your investment capital, minimizing the risk of loss.
For Kenyan investors, capital preservation might involve putting money into financial instruments that offer lower risk.
One such option could be investing in Money Market Funds (MMF), which are known for their focus on maintaining capital while providing some level of return.
MMFs are popular for their liquidityLiquidity refers to the ease with which assets can be converted into cash without significantly affecting their market price. This concept is crucial ... ... and stability, offering a safe place to park funds that one may need access to in the short term.
Another avenue for capital preservation in Kenya is through government securities like Treasury bills and bonds.
These are essentially loans to the government that come with a promise of repayment at a fixed interest rate. They are considered low-risk investments because they are backed by the government.
Fixed deposits in banks can also be a tool for capital preservation. They offer a guaranteed return over a specified period, although this return may be lower compared to more aggressive investment strategies.
The guarantee of getting your principal back at the end of the term can be appealing for those prioritizing capital preservation.
It’s important for investors in Kenya to understand that while capital preservation strategies tend to minimize risk, they also often result in lower returns compared to more aggressive investment strategies such as investing in stocks.
Therefore, when choosing an investment, one should consider their risk tolerance, investment horizon, and financial goals.