2. Defensive
A defensive policy is one of six categories, what are the risks, benefits and consequences of this form of investment?
Defensive investing: safety first
Investing is a way to grow your wealth, but it also comes with risks. With a defensive investment policy, you try to mitigate those risks. In this article, we discuss the benefits, risks and consequences of defensive investing.
What is defensive investing?
In defensive investing, the focus is on preserving your assets. You invest in products that fluctuate less than stocks, such as bonds and savings. This reduces the risk of loss as well as the potential return.
The benefits of defensive investing
- Less risk: Defensive investing is less risky than investing in stocks. There is less chance of large losses.
- Stable returns: Defensive investing produces more stable returns than stock investing. You know better what to expect.
- Suitable for beginners: Defensive investing is a simple form of investment. You do not need to have extensive knowledge of the stock market.
- Suitable for people with a short investment term: Defensive investing is suitable for people who need their money within a few years.
The risks of defensive investing
- Lower return: Defensive investing yields lower returns than investing in stocks.
- Inflation: Defensive investing can underperform inflation. Your purchasing power may then decline.
- Interest rate changes: Defensive investing can be sensitive to interest rate changes.
The consequences of defensive investing
- Less chance of big profits: With defensive investing, the likelihood of large profits is less than with stock investing.
- Less chance of large losses: With defensive investing, there is less chance of large losses than with stock investing.
- Stable wealth growth: Your wealth grows gradually but stably.
Is defensive investing for you?
Whether defensive investing is for you depends on your investment profile. Are you risk-averse and looking for stable returns? Then defensive investing may be a good choice for you. Are you looking for higher returns and willing to take more risk? Then you're better off choosing a more offensive investment strategy.
Tips for defensive investing
- Spread your investments: Invest in different investment products to spread your risk.
- Choose quality investments: Invest in investment products with high credit ratings.
- Do your research: Read up on the investment products you want to invest in.
- Determine your investment term: How long do you want to invest your money? This determines the risks you can take.
- Keep an eye on your investments: Follow the prices of your investments and adjust your strategy if necessary.