Defensive and aggressive investors have their own way of investment considering the risk tolerance, investment objective and plans. Let’s discuss the differentiating characteristics of defensive and aggressive investor:
Ability to take Risk
Defensive investors avoid taking risk and focus on preserving capital invested instead of lucrative returns. The select investment option with lower volatility and potentially safe to deal with They typically prefer investments with lower volatility and a higher degree of safety. They prioritize to invest in bonds, blue chip stocks and cash equivalents
Aggressive investors are open to take higher of risk in anticipation of probably higher returns. They are in line with the probability of significant variation in the value of their investments and are often tempted to invest in growth stocks, speculative projects, and alternative investment options
Reason to Invest
Defensive investors usually follow the conservative investment approach and focus on securing wealth, creating income stream to gage against inflation. They are happy with consistent and projectable returns rather to run for maximum capital enhancement
Aggressive investors often have more enthusiastic investment plans, such as maximizing capital value over the long term, going beyond market standards, or cultivating wealth quickly
Strategy to Invest
Defensive investors follow the conventional strategy of buy and hold the asset for reaping capital gains. They are primarily focused on diversifying and asset allocation to mitigate risk. They use strategies like averaging the asset cost and buying stock with dividend paying tendency
Aggressive investors practice strategies that are flexible and adjusted as per market conditions like alignment with market timing, rotating the investment in different sectors, capitalizing on short term price movements etc. They may also engage in leverage or options trading to amplify potential returns
Portfolio
Defensive portfolios are often composed of a higher allocation to securities with fixed-income stream such as bonds and cash equivalents, which provide stability and income. Exposure to equity stocks is low and strict towards well-established business entities with consistent return
Aggressive portfolios are characterized by higher share of equities with growth-oriented stocks, small cap stocks and cross border investments. These portfolios also diversified with alternative investment option like commodities, real estate, or venture capital
Time Span
Defensive investors normally focus shorter time horizon and can closer to retirement or another financial milestone. They are tempted towards capital preservation and raising income, making them less vulnerable to short-term market fluctuations
Aggressive investors have their focus on longer time horizon and are ready to capitalize on short-term fluctuations in sake of higher returns. They may have decades until retirement or other financial goals and are willing to take higher risk in their investment strategies
Overall, the key difference between defensive and aggressive investors rests in their behavior toward risk, their investment goals, and their strategies for achieving those goals
Examples of Aggressive Investments
Stock with Growth Potential
These are stocks of corporate entities that have a high probability to grow as compare to other companies i.e. technology companies like Tesla, eBay, amazon
Stocks with Small-Cap
companies with lower market capitalization are usually considered risky but have a potential to offer high returns i.e. biotech organizations and emergent technology startups
Cryptocurrencies
Cryptocurrencies like Bitcoin and Ethereum are highly volatile digital platforms that offers lucrative returns
Examples of Defensive Investments
Bonds by Government
Bonds such as U.S. Treasury bonds, are assumed to be safest one as they are supported by high faith and government’s credit. They provide fixed interest payments and return of principal at maturity
Stocks of Blue-Chip
These stocks are shares of well-developed companies with a stable earnings stream like Coca-Cola, Procter & Gamble etc.
Stocks with attractive Dividend Payout
Stocks paying regular dividends can offer a steady income stream to investors i.e. companies like AT&T, ExxonMobil, and Pfizer