What it is
Defensive stocks are a type of company stocks that provide predictable dividends and stable profits even when the market isn’t doing well.
These are typically shares of companies that produce products which are constantly in demand and so will probably still be bought even when there’s an economic downturn. Such organizations usually have a history of good fundamentals.
Compared to the stocks of other companies, defensive stocks can be less volatile. While this is good when the situation is uncertain, this also means that they are relatively less likely to grow quickly in value when times are good.
What it means for you
Including defensive stocks in your portfolio can offer benefits, especially when the stock market or the economy aren’t doing so well. While their growth potential isn’t usually as high as shares of some other companies, you’ll get stability and predictability in exchange.
Finding out if a company’s stocks can be considered defensive can take some effort. You’ll have to look at the history over a period of time to see the price movement and past dividends, and pay extra attention to its performance in tough times.
Still, once you’ve found the right defensive stocks, adding them to your holdings can help improve your portfolio’s overall performance in a downturn.