What are downside protection strategies designed to do?

Downside protection strategies are specifically designed to limit potential losses in investments. These strategies come into play during market downturns or when the value of an investment is at risk of declining significantly. The primary goal is to protect the portfolio's value from adverse movements, thereby ensuring that investors do not suffer severe financial setbacks.

Investors employ various techniques for downside protection, such as using options, implementing stop-loss orders, or diversifying their portfolios to include assets that behave differently under various market conditions. By focusing on mitigating losses rather than maximizing profits, these strategies help maintain the integrity of the investment portfolio and preserve capital over the long term.

The other options relate to different aspects of investment management. Maximizing profits reflects a more aggressive investment strategy rather than a protective one. Guaranteeing returns typically pertains to fixed-income investments or insurance products, which are not the focus of downside protection strategies. Ensuring liquidity, while important, does not directly relate to the concept of protecting against losses in value. Thus, the emphasis on limiting potential losses distinctly highlights the essence of downside protection strategies.