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Principal protected nodes allow investors to benefit from gains in a selected portfolio's value without the risk of losing their initial investment. In a practical example, a financial organization structures a principal protected note worth $20,000, maturing in four years. The investor's principal is guaranteed, ensuring they receive their initial $20,000 regardless of market performance at the end of the term. Additionally, the structure allows for potential gains based on market performance, providing financial security alongside opportunities for profit.