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If you’re looking at total returns on an annual basis, the capital preservation funds below are some of the best that managed to deliver in every environment over the past decade. No matter what kind of market lies ahead, bull or bear, it might be prudent to stick to a few capital preservation funds that have the majority of their exposure to investment-grade bonds—just in case.
Key Takeaways
- Capital preservation funds aim to minimize risk while providing modest returns, making them ideal for conservative investors.
- The Great-West Short Duration Bond (MXSDX) invests in U.S. Treasuries and high-quality bonds, delivering stable but low returns, with a 10-year return of 2.1%.
- The Prudential Short-Term Corporate Bond (PBSMX) focuses on corporate bonds for high income and capital preservation, with a long-term return of 4.43% since its inception in 1989.
- The BlackRock Allocation Target Shares Series S Portfolio (BRASX) has an almost zero expense ratio, no minimum investment, and a strong 5-year average return of 10.62%.
1. The Great-West Short Duration Bond (MXSDX): High Quality, Low Return
If you’re looking for exposure to investment-grade bonds, then consider the Great-West Short Duration Bond (MXSDX), which invests at least 80% of its net assets in U.S. Treasuries, commercial and residential mortgage-backed securities, asset-backed securities and corporate bonds. The expense ratio of 0.60%, and there is no minimum contribution.
The objective of the fund can be seen in the fund’s historical returns. Between March 2024 and March 2025, the one-year return of the fund was 5.93%. As of March 2025, the fund’s 3-year return was 3.11%, 5-year return was 2.04%, and the 10-year return was 2.1%. Note that the S&P 500 returns over the same 3-year period and 5-year period were both negative.
In investing, risk and return are often positively correlated. If you want to minimize your risk and preserve capital, you can generally expect to have less opportunity for higher returns.
2. The Prudential Short-Term Corporate Bond (PBSMX): Bigger Investment, Not Better Results
The Prudential Short-Term Corporate Bond (PBSMX) focuses on high current income with capital preservation by investing in bonds of corporations with varying maturities. The effective duration of the fund is generally less than three years. Similar MXSDX, there’s a target amount of bonds to hold; the fund seeks high income and capital preservation by investing at least 80% of its assets in corporate bonds.
As of 1/31/2025, the fund’s total net assets were $8.231 billion. At the end of 2023, Barron’s ranked the fund as one of the best family funds. The dividends accrue daily and are paid monthly. Since the fund’s inception on September 1, 1989, the fund has returned 4.43%.
3. The BlackRock Allocation Target Shares Series S Portfolio (BRASX): No Expense Ratio
The BlackRock Allocation Target Shares Series S Portfolio (BRASX) does not come with an expense ratio (its adjusted expense ratio is 0.01%, effectively zero), which is impressive. However, the performance of the fund and its future potential are more important to note here.
There is no minimum investment, which makes this a low-risk starter capital preservation fund for wary investors. BRASX invests in commercial and residential mortgage-backed securities, obligations of non-U.S. governments and supra-national organizations, asset-backed securities, and U.S. Treasury and agency securities, among others. As of March 2025, the fund’s yield was 4.59%, and it’s 5-year average return was 10.62%.
What Is Capital Preservation in Investing?
Capital preservation is an investment strategy focused on protecting the principal amount of an investment while minimizing risk. It is commonly used by conservative investors who prioritize safety over high returns.
Why Is Capital Preservation Important for Investors?
Capital preservation is essential for risk-averse investors, retirees, and those with short-term financial goals. It ensures that funds remain secure, preventing significant losses and allowing for future liquidity.
How Do Capital Preservation Funds Minimize Risk?
These funds invest in low-volatility, high-quality securities such as government bonds, cash equivalents, and short-term debt instruments. They also avoid speculative assets to reduce market risk.
What Is the Difference Between Capital Preservation and Growth Investing?
Capital preservation focuses on maintaining the principal with minimal risk, while growth investing seeks to maximize returns through higher-risk assets like stocks and real estate. The difference between the two lies in their standard deviation around their expected average return; capital preservation funds aim to have a lower standard deviation.
The Bottom Line
If you’re looking for relative resiliency to challenging economic conditions while picking up a little yield, then you might want to consider further researching the funds above. You should not expect a big return. This is more about capital preservation, after all.
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