Sunday, February 16, 2025
HomeMarketWhat Is a Defensive Investment Strategy?

What Is a Defensive Investment Strategy?

-

[ad_1]

An investor researching defensive investment strategies.
An investor researching defensive investment strategies.

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.

A defensive investment strategy is designed to protect a portfolio from losing money during market downturns. This approach prioritizes stability over high returns and as a result earnings can be expected to lag behind during rising markets. A defensive strategy could help you preserve capital while still providing modest growth. A defensive portfolio is likely to be tilted toward lower-risk assets, such as investment grade bonds or dividend-paying stocks. Over the long run, a defensive strategy will generally produce lower returns than a more aggressive approach. However, investors who are conservative, approaching retirement or accumulating funds for short- and intermediate-term goals may elect to go with a defensive investment strategy.

If you want to develop a defensive investment strategy for your portfolio, a financial advisor can work with you in selecting investments and managing risk. 

Defensive investing describes an investment strategy designed to minimize risk and protect capital during periods of market volatility or economic downturns. Unlike aggressive investment approaches, which aim for high returns through riskier assets, defensive investing focuses on stability and preservation of wealth. This approach is often preferred by individuals who are nearing retirement, have lower risk tolerance or may need liquidity in the near intermediate term.

Defensive investments typically include assets that are less affected by market swings. These often involve sectors like utilities, healthcare and consumer staples, which provide essential goods and services people continue to need regardless of the economic climate. Stocks of companies within these sectors are known for steady earnings and consistent dividends, making them a cornerstone for defensive investors. Additionally, defensive strategies frequently incorporate bonds, which offer a predictable stream of income and are generally considered safer than stocks.

Having a defensive strategy doesn’t guarantee that an investor won’t ever lose money. However, it can be particularly beneficial during bear markets and periods of economic uncertainty. Defensive investing may also be useful when an investor is looking to protect gains they’ve already made.

In addition, defensive investing can be a sound strategy for those with short- to mid-term financial goals, as it reduces the risk of having to sell volatile assets during a market downturn in order fund planned expenditures. That said, even aggressive investors may incorporate defensive elements during times of heightened market instability to hedge against potential losses.

[ad_2]

Source link

LATEST POSTS

Kotak Bank shares in focus as RBI lifts restrictions on opening new bank accounts, credit card issuance

The shares of private lender Kotak Mahindra Bank will remain in focus on Thursday, February 13, after the Reserve Bank of India (RBI) lifted...

Stocks to buy: Top recommendations for February 13, 2025

Jefferies has initiated its coverage of recently listed ITC Hotels with a ‘buy’ recommendation with a target price of Rs 240 (+37%)....

New income tax bill to be introduced in Lok Sabha today; primary objectives include ease of paying taxes, more direct rules

The Income Tax Bill will drop several obsolete provisions, decriminalise many offences, introduce the concept of ‘tax year’ and provide a ‘Taxpayer’s Charter’, marking...

Too many models, too much confusion: OpenAI pledges to simplify its product line

Join our daily and weekly newsletters for the latest updates and exclusive content on industry-leading AI coverage. Learn More OpenAI plans to “simplify” its model...

Most Popular

spot_img