If you leave the money invested for the duration of the contract, you're usually guaranteed to get back 75 -- 100% (depending on your contract) of the amount you originally invested. Even if current market conditions have significantly reduced your actual value, when the contract matures you will receive either the investment�s current market value, or its guaranteed minimum, whichever is greater.

Segregated funds may also be suitable for some retirees. As the transition to retirement takes place, preserving a nest egg takes on a greater importance and you may no longer be willing to expose your savings to the uncertainties of investment markets.

In this sense, segregated funds offer the return potential of traditional mutual funds while effectively reducing most of the investment risk.

Segregated funds can allow cautious investors to participate in equity markets with less worry that volatility could affect their investments. It can also provide some comfort to know, in advance, the minimum amount of money you will have when the contract matures.

Now, over the long term equities generally have positive returns, so the cost of those guarantees may not seem worthwhile. If that guarantee provides you with some peace in mind, however, and helps you remain invested through turbulent markets, they may be worth it.

It is important to note that management fees of segregated funds are sometimes higher than their mutual fund counterpart. If the added protections are not important to you than mutual funds might be more suitable.

This page is part of the GayFinance series.