How to Make a Defensive Investment Portfolio

Author: George Davis

If you want to survive economic crises and battle inflation, you need to build a strong defense portfolio. Read this article to learn how to make a defense portfolio.

The stock exchange is risky, and it’s riddled with complications at every corner. Sometimes, a stock price might increase and entice you to sell your holdings, but the stock price falls below your purchase value as you begin liquidating. Such situations make investing a complicated and risky matter. However, you can secure your finances by creating a defense investment portfolio. If you don’t know how to make a defense portfolio, don’t worry. Below we have shared a guide on how to create a defense portfolio that will help you through your investment journey.

How to Make a Defense Investment Portfolio

Defense portfolios, often known as a defensive investment strategy, involve a regular balancing of your investment, making stop loss and holding cash equivalents in down markets. The idea of a defense portfolio is to focus on companies with high cash flows and reasonable reserves. You are ideally looking to invest in blue-chip stocks. However, other businesses don’t face losses when the stock market falls.

1. All Cash Portfolio

The safest defense portfolio consists of 100% cash. However, liquid cash decreases its value over time in response to inflation. In the long-term, cash devalues by 0.5% to 2%. This might not have much impact on small cash holdings. However, if you have a million dollars in your account, you can expect devaluation by $20,000 every year. In contrast, dividends are a better option because their holders are eligible to receive regular payments.

2. Health Stock Portfolio

The health industry is a robust defense against economic downfall. If you are looking to safeguard your money from the highs and lows of the economy, you should have substantial shares of pharmaceutical companies. This is because no matter the circumstances, people will always purchase medicines. Moreover, pharmaceutical companies were the only businesses generating profits during COVID19.

3. Certificate of Deposit

Securing your finances against economic downfalls is the correct way of investment. Moreover, it’s also a crucial part of building a defense portfolio. Certificates of Deposits are an excellent choice to battle economic downfall and come out victorious. These are special certificates issued by banks and credit unions that offer interest-based premiums for leaving a lump-sum amount dormant for a pre-determined period. CDs are non-volatile securities that guarantee a fixed rate of return for a particular period.

Therefore, it’s considered one of the best defense investments.

Ending Note

Building a defense portfolio is not only important for investors but also for a layman. If you have a substantial amount of money, don’t keep it in cash form because it will devalue in response to inflation. Moreover, Blue chip stocks are also considered secure investments. So you can even invest in companies like Coca-Cola. P&G and other top-notch brands that are immune to economic fluctuation.

Stock Picks

1. Fedex Corporation (FDX)

2. Canon, Inc (CAJ)

3. Smart Global Holdings, Inc (SGH)

Find the top stock picks with guidance on when to sell, buy and further information by subscribing to the PT Premium Service in the Proficient Trader App