What are defensive stocks? Definition, advantages, drawbacks - Business Insider

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What are defensive stocks? Stocks that provide stability to your portfolio regardless of whether the economy is up or down

which measures a stock share's movements compared to the overall stock market's is low — ideally below one. This indicates that the stock isn't greatly affected by market swings. The beta coefficient is a complex economist's tool, but you can often find it in analyst's reports on a company, or it may be included in its online stock listing.

However, a mix of both is usually wise. By developing an investment strategy that includes a healthy balance of both defensive and cyclical stocks in your portfolio, you're able to shield against total loss during a downtown and make the most of periods of economic growth.

At the same time, just because a stock is in a defensive sector doesn't necessarily make it a defensive stock. It still has to meet some of the other guidelines mentioned above, such as consistently paying out dividends for a long period of time and having an established, sound financial track record. Defensive stocks are also sometimes referred to as non-cyclical stocks because they don't follow the cycles of the economy. In fact, they typically underperform when the market is up.

 

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