Defensive Investment Strategy

DEFINITION of 'Defensive Investment Strategy'

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.

BREAKING DOWN 'Defensive Investment Strategy'

With an offensive or aggressive investment strategy, in contrast, an investor tries to take advantage of a rising market by purchasing securities that are outperforming the market for a given level of risk and volatility. An offensive strategy may also entail options trading and margin trading. Both offensive and defensive investment strategies require active management, so they may have higher investment fees and tax liabilities than a passively managed portfolio. A balanced investment strategy combines elements of both the defensive and offensive strategies.

RELATED TERMS
  1. Aggressive Investment Strategy

    A portfolio management strategy that attempts to maximize returns ...
  2. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing ...
  3. Strategic Asset Allocation

    A portfolio strategy that involves setting target allocations ...
  4. Dynamic Asset Allocation

    A portfolio management strategy that involves rebalancing a portfolio ...
  5. Asset Allocation

    An investment strategy that aims to balance risk and reward by ...
  6. Conservative Investing

    An investing strategy that seeks to preserve an investment portfolio's ...
Related Articles
  1. Fundamental Analysis

    Types Of Rebalancing Strategies

    Portfolio rebalancing provides protection and discipline for any investment management strategy.
  2. Options & Futures

    Investing 101: Portfolios And Diversification

    It's good to clarify how securities are different from each other, but it's even more important to understand how their different characteristics can work together to accomplish an objective. ...
  3. Options & Futures

    6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.
  4. Financial Advisors

    How To Explain Portfolio Rebalancing To Clients

    Letting an allocation to stocks get too large can expose you to more downside risk than you had bargained for. Here are tips on how to avoid that.
  5. Investing Basics

    Asset Allocation Models: Comparing 3 Traditional Strategies

    Learn about the three most common asset allocation models: conservative, moderate and aggressive.
  6. Investing Basics

    Choose Your Own Asset Allocation Adventure

    There are many strategies to help balance your portfolio. Here are a few to get you started.
  7. Fundamental Analysis

    The Key To High Returns Is A Disciplined Strategy

    Learn about different investment strategies and how to pick the right one for you.
  8. Stock Analysis

    4 Defensive Stocks To Defend Against A Downturn

    Large, defensive stocks pose minimal risk for the upside potential.
  9. Active Trading

    Guard Your Portfolio With Defensive Stocks

    Find out how these securities can protect you from a market bust.
  10. Fundamental Analysis

    The Role Of Rebalancing

    A disciplined rebalancing practice can add a lot of value to a long-term strategic asset allocation program.
RELATED FAQS
  1. What other sectors besides utilities are known as defensive?

    See why certain sectors, other than utilities, are considered defensive and therefore more resistant to the downturns of ... Read Answer >>
  2. What are the safest investments during a bear market?

    Learn what investments carry the least amount of risk during a bear market and how they can be used to hedge against falling ... Read Answer >>
  3. Why is buying a utility stock known as defensive move?

    Utility stocks are known as defensive stocks for investors due to the fact that consumer demand will remain high even when ... Read Answer >>
  4. How does being overweight in a particular sector increase risk to a portfolio?

    Learn about the risks of having a portfolio that is overweight in a particular sector and how investors should regularly ... Read Answer >>
  5. Why should an investor include an allocation to the drugs sector in their portfolio?

    Learn why investors should consider allocating assets to the drug sector as part of a diversified investment portfolio and ... Read Answer >>
  6. What proportion of my overall investments should be in securities?

    Understand the various factors that should be considered by individuals in regard to investment portfolio management and ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center