Guard Your Portfolio with Defensive Stocks 5.00 / 5 (100.00%) 1 vote

Investing in the stock market is not just about buying stocks and hoping to make profit. It is also about making sure that you are covered even when there is a recession. Any smart investor who has followed the stock market closely will tell that the market moves in cycles. A recession is always followed by a boom and a boom is followed by a recession. If you know this, you can put your knowledge to good use. There are stocks you ought to buy during a recession and there are stocks you should buy when the economy is booming. There are also stocks that are never affected by the prevailing market situation. These are called defensive stocks and these stocks must form part of your portfolio. In fact, one of the best things you can do is to guard your portfolio with defensive stocks. If you do this, you are covered no matter what happens in the stock market.

Defensive stocks are called non-cyclical stocks because the prices of these stocks do not usually undergo the cyclical movement that other stocks outside this category do. In case this is not clear enough, defensive stocks are used to describe stocks that are not usually affected by the performance of the market. People who invest in these stocks have a huge advantage because these stocks will remain valuable even when the prices of other stocks are crashing.

Stock Market

One way to recognize defensive stocks is to look at the company behind the stock. Some companies provide luxury goods while others provide essential goods and services. During a period of economic adversity, most people will cut down on luxury goods and purchase only the basic necessities. This means that automobile companies, for instance, will suffer during a recession. On the other hand, food processing companies will prosper during a recession because people have to eat. Companies that provide electricity and heating service will also thrive during a recession because these things are needed irrespective of the economic situation.

Now, this does not mean you should buy only defensive stocks. Diversification is one of the features of a good portfolio so you should have stocks from different industries. Your portfolio should be a healthy mix of penny stocks, blue chip stocks and defensive stocks. Even if you are a conservative investor, there are times you can do a little speculation because the opportunity is too good to miss. The point here is that you can invest in a few high risk stocks sometimes. If things go well, you will make a lot of money. In case things did not work out as you expected, defend yourself by investing in defensive stocks. This is what a balanced portfolio is all about and this is what experts recommend to their clients.

Finally, put your money to good use and buy stocks in accordance with the market trend. Invest in penny stocks that have great prospects but guard your portfolio with defensive stocks. If you do this, you will continue to prosper.