Defensive and Aggressive Securities

Defensive securities are kind of securities that exhibits less volatility than the market as a whole (i.e., its BETA is less than 1.0), providing lower, but more stable, returns. Investors often acquire defensive securities during periods of financial turmoil or uncertainty. Defensive securities tend to remain more stable in value than the overall market, especially when prices in general are falling. In times of market downturn, investors tend to seek defensive securities to provide a steady rate of return, or at least to lose less money than the market as a whole. Examples include stocks in utility companies and the health care industry. Defensive securities include stocks in companies whose products or services are always in demand and are not as price-sensitive to changes in the economy as other stocks.

Aggressive in finance means relating to an investment or approach to investing that seeks above-average returns by taking above-average risks. Aggressive Security is an investment strategy characterized by a willingness to accept above-average risk in pursuit of above-average returns. Usually favors stocks over bonds, especially stocks of rapidly growing companies, and sometimes employs buying on margin, options trading, and arbitrage. An aggressive security attempts to grow an investment at an above-average rate compared to its industry or the overall market, but usually take on additional risk. Because their aim is capital growth, aggressive investors place a higher percentage of their assets in equities rather than in safer debt securities. As such, aggressive investors build portfolios that bear a fairly high amount of risk.

The major difference between defensive and aggressive investors is the proportion split between these two types of securities and the time spent maintaining the respective portfolios. Defensive securities tend to remain more stable in value than the overall market, especially when prices in general are falling. As a part of the defensive approach, some people recommend that the best investment option is government treasury bonds. Aggressive stock investing means taking greater risk. The risks can take numerous forms. You invest in highly volatile market when the fluctuations in prices defy all the techniques of analytical and fundamental research. There are rises and falls in prices of stocks which occur contrary to the investors’ expectations.

In conclusion with the defensive security the risk is low and you may lose less money as compare to the aggressive security.

Credit: Investment Management-MGU

Bookmark the permalink.