Defensive Investment Strategy: A Winning Tactic in a Turbulent Market

Teacher presenting investment strategy and benefits to become a successful business investor
11 Jul 2019

In a volatile market, a defensive investment strategy is your best tactic. Stick to long term investment principals and mute out short term chatter.

In today’s ever-changing and often a volatile market, like a good athlete, it’s important that you stay defensive.

With a defensive investment strategy, that is. 

Keep reading to uncover how a defensive investment strategy can be your winning tactic is an often turbulent market. 

What is a Defensive Investment Strategy?

A defensive investment strategy is a method of portfolio allocation that is conservative about management and meant to minimize your risk of losing principal. This strategy also needs regular portfolio rebalancing so one’s intended asset allocation is maintained.

This also requires one to buy high quality and blue-chip stocks as well as short-maturity bonds.This strategy also has you place stop-loss orders, as well as hold cash and cash equivalents in down markets. These strategies are intended to protect investors from major market downfalls or a significant loss. 

Understanding a Defensive Investment Strategy

You should know that defensive investment strategies are meant to give protection first and then modest growth. Aggressive or offensive investment strategies, on the other hand, is when the investor attempts to take advantage of a market that is rising by buying securities that outperform for a level of volatility and risk. 

Offensive strategies could also have margin trading options, but both offensive and defensive investment strategies need active management. This way you have higher investment tax liabilities and fees than a portfolio that is passively managed. 

Having a balanced investment strategy means that you have elements of both offensive and defensive investment strategies. 

Defensive Investment Strategy and Portfolio Management

Defensive investment strategies are one of the many options in portfolio management practice. Portfolio management is both a science and an art, as portfolio managers need to make essential decisions for their clients.

These decisions should take into account specific investment objectives, as well as the proper asset allocation while balencing potential reward and the risks. 

A lot of portfolio managers will adopt a defensive investment strategy for clients that are risk-averse. This might be clients like retirees who don’t have steady salaries. 

A defensive investment strategy might also make sense if someone doesn’t have a lot of capital to lose. Either way, the point of this strategy is to protect any existing capital while keeping pace with inflation during modest growth. 

Investments for a Defensive Investment Strategy

When selecting investments in short-maturity high-quality bonds like a United States Treasury notes or T-notes, and blue-chip stocks are good tactics for defensive investment strategies. When picking stocks, a defensive portfolio manager will tend to stick to large established names who have good track records. 

Portfolio managers today will tend to lean towards exchange-traded funds that mimic market indices since these give exposure to all the established sticks in one investment that is diversified. 

Figure Out Your Defensive Investment Strategy

Now that you know how a defensive investment strategy works, isn’t it time you make some defensive investments? Consult with your portfolio manager today about these investments. For even more investing tips and tricks, check out our blog!

Share

Solera