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Defensive Investment

Defensive Investment

Defensive investments are lower risk investments. They aim to provide income and protect the capital invested. Defensive investments include cash and fixed interest investments. Defensive investments are assets that tend to increase or maintain their value during financial threats such as high inflation, recessions, Black Swans, and bear markets. Defensive stocks, Treasury bonds, T bills, gold, money market funds, puts and inverse ETF's are examples of defensive investments. Proactive investors buy defensive investments to manage risk, particularly as financial markets become less stable or overvalued.

Defensive Investment Strategy

A defensive investment strategy is a conservative method of portfolio allocation and management aimed at minimizing the risk of losing principal. A defensive investment strategy entails regular portfolio rebalancing to maintain one's intended asset allocation; buying high-quality, short-maturity bonds and blue-chip stocks; diversifying across both sectors and countries; placing stop loss orders; and holding cash and cash equivalents in down markets. Such strategies are meant to protect investors against significant losses from major market downturns.

Offensive Investment

With an offensive or aggressive investment strategy, by contrast, an investor tries to take advantage of a rising market by purchasing securities that are outperforming for a given level of risk and volatility. An offensive strategy may also entail options trading and margin trading. An aggressive investment strategy typically refers to a style of portfolio management that attempts to maximize returns by taking a relatively higher degree of risk. Aggressive or offensive investing accepts more risk in pursuit of greater return.An aggressive strategy needs more active management than a conservative “buy-and-hold” strategy, since it is likely to be much more volatile and could require frequent adjustments, depending on market conditions.

Defensive Investment

The most obvious advantage of purchasing defensive stocks is that they have the potential to protect investors' capital during a downturn. Defensive stocks usually provide dividend income, which can offset declines in stock prices. Additionally, defensive stocks often have a beta of less than one, implying lower volatility than the benchmark S&P 500. In other words, if the stock market drops, a defensive investor can expect to see a smaller loss, in percentage terms, than the benchmark S&P 500. defensive investing also comes with one downside: Low-volatility stocks tend to underperform during a bull market. When the U.S. economy is rapidly expanding and stocks are moving precipitously higher, less volatile companies usually get left behind as investors' appetites for riskier investments rise.

Types of Defensive Investments

Here are some of the different types of defensive investments and when they help lower investment risk.

Defensive Stocks

Defensive Stocks that perform well no matter what the economy is doing tend to be more defensive than stocks that depend on a growing economy. Defensive stocks can help reduce risk within a stock portfolio itself.


Bonds are the most common defensive investment, not defensive for all kinds of risks, but they tend to work well during stock bear markets. Bonds have fixed interest rates. Inflation offsets the income from bonds.


Gold performance has a negative skew except during major financial meltdowns making it one of the more reliable defensive investments.

TIPS Bonds

Inflation is a risk every bit as real as recessions and bear markets. TIPS bonds are a way to protect investment portfolios from high inflation.


Higher levels of money market funds is one of the easiest defensive investments.

Short Term Notes

Higher levels of money market funds is one of the easiest defensive investments.

Dividend Investing

Stocks dividends are an easy way to get passive income, but it takes a lot of capital to make a significant amount since dividend rates are low for most stocks.

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