The term "safeguarded" is rooted in German civil law. Under § 1807 of the German Civil Code (BGB), a guardian or court-appointed representative may only invest a ward’s assets in instruments that meet strict requirements for capital preservation. The law specifies which types of investments fall into this category, such as covered bonds (Pfandbriefe) or certain bank deposits. Equities and traditional investment funds are not included in this statutory list.

By definition, safeguarded investments are instruments where the probability of capital loss is intended to be extremely low within the meaning of the legal framework. In practice, this refers to nominal capital preservation rather than protection against inflation. While the nominal value is expected to remain stable, the real purchasing power of the investment may still decline over time.

Historically, the term "Mündelgeld" described the assets that had to be managed according to these conservative rules. Even for safeguarded instruments, guardians generally require court approval before investing. The purpose of this regulation is to ensure that a ward’s assets are managed with a high degree of prudence and without exposure to speculative or inappropriate risks.

In summary, the legal concept of "safeguarded" refers to investment instruments with strict capital-preservation requirements under German law. It does not imply absolute security, nor does it guarantee protection against inflation or other forms of value erosion.

Safeguarded investment instruments are generally very conservative and designed to prioritise nominal capital preservation within the limits of the legal framework. They are typically associated with a low likelihood of issuer default and are often supported by statutory protection schemes or specific regulatory structures. The following categories are commonly referenced in this context:

• Bank deposits
  Traditional savings accounts, sight deposits and term deposits fall into this group. These instruments are covered by statutory deposit-protection schemes up to EUR 100,000 per depositor and institution. While they do not carry market-price risk, interest rates on such deposits are often low and may not compensate for inflation over time.
• Covered bonds (Pfandbriefe)
  Covered bonds are debt securities issued by banks and backed by a legally defined pool of assets, such as mortgage loans. Due to the regulatory framework and the quality of the cover pool, they are considered conservative fixed-income instruments. Although they can fluctuate in price during their term, the repayment of the nominal value at maturity is legally defined, provided the issuer remains solvent.
• Government bonds
  German federal and state government bonds are traditionally regarded as highly reliable with respect to scheduled interest and principal payments. While their market prices can move with interest-rate developments, investors who hold such securities until maturity receive the nominal amount defined in the bond’s terms. Historically issued instruments, such as Bundesschatzbriefe, also belonged to this group.
• Deposits at public-sector savings banks
  German law specifically mentions deposits at public-sector savings banks in the context of safeguarded investments. These institutions participate in dedicated protection schemes within the public banking sector. In practice, deposits at private banks covered by statutory or additional protection systems also follow similar principles, provided they meet the respective safeguards.

Across these categories, the common characteristic is a framework intended to minimise the probability of capital loss arising from issuer default. However, these instruments can still face other risks, such as inflation risk or, in the case of bonds, interim price fluctuations. Returns are typically modest, reflecting the conservative nature of these investments.

The question of whether investment funds can be considered safeguarded arises regularly. Under the statutory definition in § 1807 BGB, investment funds and equities are not included in the list of instruments that a guardian may select without additional approval. For this reason, investment funds are not regarded as safeguarded by default.

In practice, the situation is more nuanced. German guardianship law allows for exceptions:
Under § 1848 BGB, a guardianship court may authorise alternative investments if this is considered appropriate for the specific circumstances of the ward’s financial situation. In individual cases, courts have therefore approved the use of certain funds — usually those with a very conservative investment profile, such as high-quality bond funds or defensively managed multi asset funds.

Such a court decision applies only to the specific case. It does not result in a general classification of the fund as safeguarded, nor does it imply a guarantee of capital preservation. Providers may refer to the existence of a court approval, but this indicates only that the court deemed the fund suitable for that particular situation.

It is important to distinguish between legal approval and economic risk:
Investment funds are subject to market fluctuations and can experience value declines, even if they are managed conservatively. Historical examples show that funds considered highly stable at the time of approval have, in some periods, recorded measurable drawdowns. Market risks — such as interest-rate changes, credit spreads or equity volatility — cannot be fully eliminated in a fund structure.

For investors, the key takeaway is that the term “safeguarded” has a specific legal meaning. An individual court decision does not transform a fund into a risk-free investment, nor does it replace a thorough assessment of the fund’s investment strategy and risk profile.

Safeguarded investments are designed to offer a high degree of nominal capital stability within the legal framework. However, they are not free from all forms of risk. Understanding these limitations is essential for a realistic assessment of their role in a portfolio.

• Inflation risk
  While safeguarded instruments focus on preserving nominal capital, they generally offer limited return potential. If inflation exceeds the interest earned, the purchasing power of the invested capital can decline over time. This effect has been observable particularly in periods of low interest rates, when returns on traditional deposit products remained below inflation. The investment retains its nominal value, but its real value may fall.
• Interest-rate risk in fixed-income securities
  Long-duration government or covered bonds may experience temporary price declines when market interest rates rise. Investors who sell such securities before maturity may realise losses despite the conservative nature of the instrument. Holding the bond until maturity mitigates this effect, but ties up capital for the duration of the term.
• Limited return potential
  Safeguarded instruments prioritise stability over return. As a result, they may contribute less to long-term wealth accumulation than investments with higher expected return profiles. For investors with longer investment horizons, this can mean that nominal stability alone is not sufficient to preserve real purchasing power.
• Practical implications for portfolio construction
  Given these considerations, a safeguarded investment can serve as a stabilising component within a diversified portfolio. However, concentrating the entire portfolio in instruments with a primary focus on nominal capital preservation may lead to insufficient protection against inflation over longer periods. A combination of conservative holdings with complementary return-oriented assets can help balance stability and long-term purchasing-power objectives. Multi asset strategies typically follow this principle by allocating across different asset classes to manage risk and return in a balanced way.

Safeguarded investments offer a high level of nominal capital stability within the legal framework and have long been regarded as a conservative choice for managing assets with strict capital-preservation requirements. The probability of issuer default is generally low in the categories defined by law, and these instruments are designed to provide predictable repayment structures. However, safeguarded does not mean free from all risks.

Inflation can erode purchasing power when returns fall short of price increases. Fixed-income instruments can fluctuate in value during their term, particularly when interest rates rise. Safeguarded products also tend to offer limited return potential, which may not be sufficient for investors pursuing long-term real wealth preservation.

From a portfolio perspective, safeguarded instruments can serve as a foundation for short-term liquidity needs or as a stabilising component within a broader strategy. For investors with longer time horizons, however, maintaining purchasing power typically requires a more diversified investment approach. Combining conservative assets with complementary return-oriented components can help balance stability and growth objectives over time.

Ultimately, the suitability of safeguarded investments depends on an investor’s financial goals, risk tolerance and investment horizon. They can be an important building block for capital preservation, but long-term wealth management usually benefits from a diversified allocation across multiple asset classes.