Wealth preservation is an investing strategy for investors who care more about keeping their money than growing it.
Maybe they've already built their wealth and don't want to lose it in a downturn. Maybe they just don't want to take on much risk.
That means holding assets that tend to stay steady when the market falls - like gold, Treasury bonds, and certain kinds of stocks.
Wealth preservation investors also give up a little growth and income from their assets in order to get steadier returns over time.
Every month our analysts put together three portfolios: A Wealth Preservation portfolio, a growth portfolio, and an income portfolio.
These help investors identify opportunities within each investing strategy based on what our team is actually buying.
Today, we'll focus on what wealth preservation means, give you some examples of the different types, and who wealth preservation is for.
What Wealth Preservation Means
Wealth preservation means keeping the wealth you have already built.
It protects your money from two things:
- Inflation, which slowly shrinks what your money can buy.
- And market crashes, which can take a big bite out of it all at once.
To do that, wealth preservation investors own a mix of certain stocks, bonds, and commodities like gold. These don't usually grow fast, but they hold up when the market drops.
The Three Ways To Invest Your Money
Our analysts have identified three major types of investors based on what their investing goal is.
The three types of investors are:
- Growth investors wait for their stock to grow over time, then sell for a profit.
- Income investors get paid cash or dividends just for owning assets, without selling anything.
- Wealth preservation investors hold assets that continue to pay them consistently through crashes or other macroeconomic events.
Next, we'll break down each one and who each one is for.
Wealth Preservation Investing
Wealth preservation opportunities include things like gold, big established companies and their stocks, and bonds.
But across those assets, they all have one thing in common: They keep making money no matter what's going on in the world.
What does that actually mean? Investors see their investments continue to rise through anything like wars, pandemics, or even market crashes.
Here's an example - six months into the U.S.-Iran war, oil went from $79 a barrel to $118, down to $72, then back over $100.
And each time it did, the market went up and down with it.
No one knew how long the conflict would last for, so instead of guessing, our analysts added two companies to the Wealth Preservation portfolio whose profits don't depend on the answer.
One is an insurer that collects bigger payments the longer the danger lasts. The other sells medicine and medical devices, which people buy in war and in peace.
So no matter what happens, those companies will still continue earning, which helps to protect shareholders and preserve their wealth.
Growth Investing
Growth investing means buying stocks in companies that are growing faster than the market. An example of a growth stock would be Nvidia.
You're paying today for profits that show up later. So growth stocks cost more per dollar of profit than older, slower companies, and they can fall hard if those profits don't show up.
Income Investing
Income investors get paid cash for owning assets, without having to sell them.
Income investors still want their assets to grow, but their main goal is regular cash payments from the assets they own.
An example would be a dividend, which pays a portion of its profits to investors usually every quarter.
Not every stock has a dividend, but the ones that do help investors earn more without selling their investment.
Who Wealth Preservation Is For
If you won't need your money for many years, you have time to recover from a big drop. If you'll need it soon, you don't.
So this style fits investors who have already built their wealth and are closer to spending it than earning it. It also fits investors who simply don't want much risk, no matter how much they have.
How Wealth Preservation Investments Make Money
Preservation investments make money in two ways: by not losing much when the market falls, and by paying steady cash along the way.
Here's where that comes from:
- Gold and other commodities. These are raw materials, and they don't earn anything. Their job is to hold value when stocks fall.
- Treasury bonds. You lend money to the U.S. government, and it pays you a set rate of interest.
- Steady businesses. Companies that sell things people buy no matter what. Medicine and medical devices are a good example - people keep buying them in booms, busts, wars, and peace.
- Long dividend streaks. Companies that have raised their dividend every year for decades. One company in our Wealth Preservation portfolio has raised its dividend for 64 straight years, through two Gulf wars, Vietnam, 9/11, the 2008 crash, and a global pandemic.
What To Look For in a Wealth Preservation Investment
A growth investor asks, "Can this company beat the market?" An income investor asks, "Is the cash flow safe and growing?"
A preservation investor asks, "Will this hold up when everything else falls?"
Here's exactly what to look for when trying to find a wealth preservation opportunity:
Maximum drawdown. This is the biggest drop an investment has had from its high point to its low point. If a stock's worst drop over five years was 18%, then a $10,000 investment would have shrunk to about $8,200 at the bottom.
Remember - wealth preservation is all about keeping what you have. So knowing the maximum drawdown helps you understand how much you could lose in a downturn.
Correlation to the market. This shows how closely a stock moves with the market. A score of 1.0 means it moves right along with the S&P 500, and a score near 0 means it barely moves with the market at all.
One stock in our Wealth Preservation portfolio scores 0.04. In the market's worst weeks of the last five years, it fell only about a quarter as far as the market did.
What Wealth Preservation Doesn't Protect Against
Preserving your wealth means keeping more than you lose - but it does not mean your stock will never move.
The two stocks in our Wealth Preservation portfolio have both dropped 17% to 18% from their highs in the last five years, and either one could do it again.
Preservation also isn't one-size-fits-all. A stock that holds up during a war might not hold up during a deep recession or a sharp jump in interest rates, because those are different problems.
And there's a cost if nothing bad happens. If the market keeps climbing, you gave up growth for protection you didn't end up needing.
You Don't Have To Pick Just One
The news: You can invest for growth, income, and wealth preservation at the same time.
That's also why there's no such thing as a good stock. There's only a good stock for your goal.
So ask yourself: "What is my investing goal?"
Growth investors usually have time to deal with the highs and lows of the market, and value high reward with the added higher risk.
Income investors don't care as much about growth - they want their investment to pay them over time.
Wealth preservation assets can act as that safety net - a strong base that keeps your portfolio steady.
Depending on your goals, you may lean towards one more than the others.
But at the end of the day, you don't need to choose one investing strategy - in fact, a diversified approach can help your portfolio to grow, get paid in dividends, and stay steady at the same time.
Wealth Preservation: The Bottom Line For Investors
Wealth preservation is for investors who want to keep the wealth they've built.
That means owning things that hold up when the market falls or our economy is in trouble.
Some of those assets include:
- Gold
- Treasury bonds
- Companies that keep making money no matter what's happening in the world.
You give up some growth, and in exchange, a bad year doesn't wipe out what you've built.
Now that you know what wealth preservation investing is, the next question is: How do you find these opportunities?
Answer: Research. You need to understand a stock's drawdown, correlation to the market, business model, and more.
Or, you can check out Briefs Pro, where we do all the research for you.
What does that mean? Every month we send you a growth, income, and wealth preservation report, detailing different investment opportunities.
Every report comes with real research on the market shifts our analysts are watching now and the warning signs they're keeping an eye on.
We also have our Briefs Score, which gives every stock a letter grade from A-F on how well they will perform as a growth, income, or wealth preservation opportunity.
In the end, wealth preservation is not the flashiest type of investing, but it can create a steady base any investor can use to build wealth over time.
