Capital protection is a valuable tool for minimising risk. There are two types of risk that we deal with when investing money; Market Risk and Systemic Risk. Market risk is the risk that lies in a single investment such as the shares in a particular listed company. We deal with this risk using diversification which simply means not having all of our eggs in one basket. Systemic Risk is the risk inherent in the global financial system. Because everything in the world is related to everything else, what happens in one place has a ripple effect across the globe and affects everything else. That’s why we are concerned with a tiny country like Greece or Portugal. A collapse of one of these countries can have a contagious effect on their near neighbours and then on right across the globe and all the way here to Australia.
Capital Protection Strategy Questions? Let us give you some obligation free advice.
We need to understand that Systemic Risk cannot be offset simply by diversifying our investments across different asset classes because System Risk can affect all assets. Given the extreme nature of Systemic Risk in the world today, all investors should be considering ways of protecting their investment savings and superannuation and this is where capital protected investments come into their own.
Ask us to explain how capital protection can apply in your case. Given the state of the world economy, it might be the wisest decision you ever make.