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CandleFocus Glossary Editor
Defensive stocks are a type of stock that is considered an investment with lower risk than other stocks, yet still provides owners with the potential for long-term gains. Investors often pick these stocks to protect their portfolios from market volatility. The main purpose of defensive stocks is to provide a steady return, regardless of the state of the overall stock market.
Typically, defensive stocks are found in sectors that are deemed ‘essential’, such as consumer staples and healthcare, which generally produces consistent revenue regardless of market conditions. Common examples of defensive stocks include blue-chips such as Johnson & Johnson, Procter & Gamble, Philip Morris International and Coca-Cola. These companies have proven to be reliable performers year after year, and thus are much less affected by stock market fluctuations.
An advantage of owning defensive stocks is that investors can usually expect to receive a steady return in the form of dividends, which they can reinvest or use to pay their bills. Defensive stocks also offer investors the benefit of low volatility, which means that the peaks and troughs experienced in other stock types can be avoided. These stocks may not perform as spectacularly in a bull market, but there’s no quick rush to sell off when markets fall as with other stocks.
On the downside, defensive stocks often lack the potential for rapid capital appreciation, and investors should note that the stock price is more likely to grow more slowly than other stocks during boom times. They also may lack the excitement of more speculative stocks, which tend to attract more day traders and momentum investors who play on the quick turnaround of stock prices.
Overall, defensive stocks can be a good choice to protect an investment portfolio from short-term market fluctuations and provide a steady return. It is important for investors to understand the market and conduct their own research to decide what’s best for them, as the balance of risk and reward should be considered for any type of stock.
Typically, defensive stocks are found in sectors that are deemed ‘essential’, such as consumer staples and healthcare, which generally produces consistent revenue regardless of market conditions. Common examples of defensive stocks include blue-chips such as Johnson & Johnson, Procter & Gamble, Philip Morris International and Coca-Cola. These companies have proven to be reliable performers year after year, and thus are much less affected by stock market fluctuations.
An advantage of owning defensive stocks is that investors can usually expect to receive a steady return in the form of dividends, which they can reinvest or use to pay their bills. Defensive stocks also offer investors the benefit of low volatility, which means that the peaks and troughs experienced in other stock types can be avoided. These stocks may not perform as spectacularly in a bull market, but there’s no quick rush to sell off when markets fall as with other stocks.
On the downside, defensive stocks often lack the potential for rapid capital appreciation, and investors should note that the stock price is more likely to grow more slowly than other stocks during boom times. They also may lack the excitement of more speculative stocks, which tend to attract more day traders and momentum investors who play on the quick turnaround of stock prices.
Overall, defensive stocks can be a good choice to protect an investment portfolio from short-term market fluctuations and provide a steady return. It is important for investors to understand the market and conduct their own research to decide what’s best for them, as the balance of risk and reward should be considered for any type of stock.