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Defensive Investing Strategies

As investors keep driving the S&P 500, NASDAQ, and DOW to new records, many are employing defensive investing strategies. Defensive investing strategies are not so much meant to grow your portfolio as to prevent losing what you have gained over the years. https://youtu.be/7nHWoFh8VZQ

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By: www.ProfitableInvestingTips.com
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
The stock market keeps going up despite the Delta
variant wave of Covid-19 and the bull market that has
been going on since the depths of the Financial Crisis
continues. But, as investors keep driving the S&P 500,
NASDAQ, and DOW to new records, many are
employing defensive investing strategies.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Defensive investing strategies are not so much meant to
grow your portfolio as to prevent losing what you have
gained over the years. Common defensive investing
strategies include blue chip dividend stocks, short
term US Treasuries, AAA Bonds, diversification across
countries and market sectors, and keeping a portion of
your assets as cash. Additional measures include
trading options to hedge investment risk.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Investing in Dividend Stocks
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Companies that have been paying dividends for decades
and even more than a century are typically secure
investments. When the economy sours, the stock
market falls, and investors look for safety they typically
buy companies that sell consumer staples, are in the
health sector, or have amazingly strong balance sheets.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
These companies commonly pay dividends as well. If you
have put part of your portfolio into a strong dividend
stock before a market correction or crash you will
typically see a bit of appreciation as other investors
pile in later.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Investing with Treasuries and Corporate Bonds
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
US Treasuries are generally considered to be the most
secure interest-bearing investment vehicles followed
by AAA corporate bonds. A problem with this
approach is that with increasing inflation and interest
rates as low as they are today, you are saving with
negative real interest rates.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Your choices are to use long term treasuries or bonds to
get higher interest rates or go very short term and
accept extremely low rates. With this approach you
will protect your dollars but not necessarily your
purchasing power over time. The good part is that if
the market does crash, you will have cash to pick up
bargains as the market bottoms out.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Portfolio Diversification as a Defensive Investing
Strategy
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Many investors put their money into several US market
sectors as well as abroad in order to benefit from where
the growth is. Many also diversify in this manner so
that investing mistakes in one sector are hopefully
offset by growth in another. The best way to do this for
most investors is to put your money into one or more
ETFs that track the S&P 500, one or more of its sectors,
and foreign markets.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
A problem for the average investor is that they have a
“day job” that takes up the majority of their work day.
This makes it difficult to adequately follow more than
five or so investments. The ETF approach makes this
less of a chore.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Defensive Options Trading Strategies
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
An approach used by professional investors, as well as
options traders, to protect stock positions is to buy
puts. A put is an option contract that gives the buyer
the right to sell a stock at its contract price (strike
price) at any time during the duration of the contract.
The buyer is essentially purchasing insurance against
the stock (or ETF) being taken down in a correction or
crash. If the bottom does fall out of the stock price, the
put buyer can execute the contract and sell the stock at
the strike price even though it may have fallen ten or
twenty percent. Alternatively, they can sell the contract
to exit and get cash.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Three Versions of Defensive Puts
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
The basic defensive put strategy is to buy one more put
contracts on the stock that you want to protect. Each
contract is for 100 shares. Depending on how much of
a loss you are willing to accept before having the put
kick in, you can pay quite a bit for the contract or not
very much. Assuming that you hold a lot of the stock
and that you set your strike price rather high, this can
get to be expensive if you continually roll over the
contracts to continue the protection. There are two
approaches that make this less expensive.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Synthetic Short Stock
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
If you are certain that your stock is going to fall in price,
you can use a synthetic short stock approach. In this
case, you buy a put but also sell a call. While the put
you sold gives you the right to purchase the stock, the
call contract gives the buyer the right to buy the stock
from you at the strike price of the contract. You set this
up with the same strike price for the puts and calls and
the same expiration date.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
The premium that you receive for selling the call
contract will reduce your cost for the trade and may
even leave you with a small credit. If the price goes
down you can treat this strategy like a protective put
and if it goes up the buyer will execute the contract
and you will sell the stock for the strike price.
Although this approach is cheaper than a simple put,
there are a couple of issues.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Protective Collar
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
This approach is the same as the synthetic short stock
route but it has two advantages. First, it is cheaper and
second, it protects you from selling your stock due to
normal market fluctuation. A protective collar sets the
put and call strike prices at different levels. The put is
much lower than the current stock price and the call is
much higher.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
Since the put and call are out-of-the-money, they are
cheap. Thus you can use this approach over the long
term if you choose to. And, because you set the strike
prices far enough apart, you will not end up selling the
stock just because the market fluctuates a little and
then see the market stabilize.
https://profitableinvestingtips.com/bond-
investing/defensive-investing-strategies
For more insights and useful information about
investments and investing, visit
www.ProfitableInvestingTips.com.

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Defensive Investing Strategies