Preservation of Capital: The Name of the Game

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirments are speculative." Benjamin Graham, the Intelligent Investor

Although big market gains get the headlines, preserving your capital is the name of the game!

Protecting the Downside

If there's one common denominator of successful insiders, it's that they don't speculate with their hard-earned savings, they strategize. Remember Warren Buffett's top two rules for investing? Rule 1: don't lose money! Rule 2: see rule 1. 

Taking a swing for the fences with no downside protection is a recipe for disaster. But can it be possible for normal investors to have upside without downside - to have protection of principal with major upside potential?  Following the 2008 crash, when people didn't have much of an appetite for stocks, some very innovative minds at the world's largest banks figured out a way to do the seemingly impossible: allow you and me to participate in the gains of the stock market without risking any of our principal!

We have come to a point in the United States where most of us feel that the only option for us to grow our wealth involves taking huge risks. We somehow take solace in the fact that everyone is in the same boat. Well, guess what? It's not true! Not everyone is in the same boat!

There are much more comfortable boats out on the water that are anchored in the proverbial safe harbor, while others are getting pounded in the waves of volatility and taking on water quick.

So, who owns the boats in the harbor? The insiders. The wealthy. The 1%. Those not willing to speculate with their hard-earned money. But make no mistake: you don't have to be in the .001% to strategize like the .001%.

Who Doesn't Want to Eat The Cake Too?

In the investment world, having your cake and eating it too would be making money when the market goes up but not losing a dime if the market drops. Below are three proven strategies with a brief explanation for achieving strong returns while anchored firmly in calmer waters.

1. Structured Notes. These are probably one of the more exciting tools available today, but, unfortunately, they are rarely offered to the general public because the high-net-worth investors jump on them before anyone else has a chance. A structured note is simply a loan to a bank (and typically the largest banks in the world). the bank issues you a note in exchange for lending it your money. At the end of the term, the bank guarantees to pay you the greater of: 100% of your deposit back or a certain percentage of the upside of the market gains (minus the dividends). 
2. Market-Linked CDs. These aren't your grandparent's CDs. In today's day and age, with interest rates so low, traditional CDs can't keep pace with inflation. Traditional CDs are very profitable for the banks because they can turn around and lend your money at 10 to 20 times the interest rate they are paying you. Another version of the insider's game. Market-linked CDs are similar to structured notes, but they include insurance from the Federal Deposit Insurance Corporation (FDIC). Market-linked CDs give you some small guaranteed return (a coupon) if the market goes up, but you also get to participate in the upside. But if the market falls, you get back your investment (plus your small return), and you had FDIC insurance the entire time. 
3. Fixed Indexed Annuities. There are a lot of annuity products out there, and some should be avoided. But this particular type is used by insiders as yet another tool to create upside without the downside. A properly structured fixed indexed annuity offers the following characteristics:

• 100% principal protection, guaranteed by the insurance company. 
• Upside without downside - like structured notes and market-linked CDs, a fixed indexed annuity allows youth participate when the market goes up but not lose if the market goes down. All gains are tax deferred.
• Lastly, and probably most importantly, some fixed indexed annuities offer the ability to create an income stream that you can't outlive. A paycheck for life! Think of this investment as your own personal pension. 

As always, be careful when choosing these products. Some have high fees, high commissions, hidden charges, and on and on. $

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