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Defensive Investment Strategy

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Defensive investment strategy is an investment approach to allocating a portfolio as to reduce the risk. In other words, a defensive investment strategy outlines a way to preserve principal and minimize volatility associated with the ups and downs of the market. Employing a defensive investment strategy necessitates investing primarily in bonds and other highly liquid investments, such as Treasury Bills and money market funds. A defensive investment strategy, however, does not have to be limited to bonds and cash equivalents. Thus, a defensive investment strategy may include various conservative securities known as defensive stocks. In order to qualify for a defensive investment strategy these stocks must be established and remain stable over time. Committing to a defensive investment strategy also implies that a low risk, defensive portfolio will bear a marginal return.



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