Which statement correctly describes safety as an investment objective?

• A. It asks whether the principal is insured and considers risk factors.
• B. Liquidity is more important than safety.
• C. Yield is the only objective considered.
• D. Safety means ignoring insurer stability.

Answer: (A)

Safety as an investment objective centers on preserving capital. It emphasizes protecting the principal and assessing risk to avoid loss, rather than chasing higher returns. When evaluating safety, you ask whether the principal is insured or guaranteed and you review risk factors that could threaten that principal, such as credit risk, default risk, and liquidity risk. This approach directly addresses how to keep the initial investment secure, which is why describing safety as considering whether the principal is insured and taking risk factors into account is the best fit.

Other ideas pull attention away from protecting principal. Prioritizing liquidity over safety suggests liquidity should trump protection, which isn’t the focus of safety. Chasing yield as the only objective ignores risk and capital preservation. And treating safety as ignoring insurer stability contradicts the very idea of safety, since the reliability of the insurer is a key part of ensuring principal protection.