“Of all the things that can have an effect on your future, I believe personal growth is the greatest. We can talk about sales growth, profit growth, asset growth, but all of this probably will not happen without personal growth.?-Jim Rohn
The recent decline in the stock market has made many investors seek out information about how to secure their principle in their investments. The financial market has created several ways in which investors can protect their principle investments with new types of funds which promise that the money that is invested, will be safe. Of course, this type of program is only for a set period of time and there are additional fees associated with it. If you are interested in secured principal investments, below are some common features of principle protected funds, how they work, and factors to consider.
Most secured principal investments offer a guarantee. This means that a fund protects your initial investment (subtracting fees and sale costs) as the market falls. The guarantee usually comes in the form of an insurance policy. Most of these secured investments require that you do not touch your fund for at least five years. If you do sell shares from that fund, your guarantee is null and void. If the stock market drops you will lose your money .
Most secured principle investments offer a great combination of stocks and bonds. Most of the bonds held by this type of fund are call zero coupon bonds. Zero coupon bonds are great if you want to keep your money safe however they do very little to increase your net worth. They have little risk associated with them and therefore little profit. On top of that they, are not protected from high interest rates. In addition, they will not gain if the stock market is up and you may miss out on a chance to turn a nice profit. Principal protected funds also cost more, sometimes over 2%.
How Secured Principle Investments Work ?There are basically three steps to a secured principle investment. The first step is an extended period of time when investors can buy stocks in the fund. Once you purchase your shares then there will be a five to ten year period of time that you money is guaranteed for. After this phase, you can either sell your fund for cash or keep it invested without the guarantee.
Issues to Consider ?If you are going to need your money in the next five years, secured principle investments are not a great idea. Secured principle investments will not allow you to draw a dividend or any income from this fund while in the guaranteed step. Remember, most funds are invested in zero bonds which means if the stock market surges you will not gain on your investment. If you are trying to protect a huge sum of money, secured principle investments should be consider. If you are trying to build wealth, a retirement fund, or you net income you may want to consider investing elsewhere
