With increased market volatility, defensive investments have become increasingly popular for investors looking to protect their portfolios. Defensive investments refer to assets that provide stable returns and lower volatility during downturns. This article explores some of the best defensive investments across various asset classes to consider adding to your portfolio.
High-quality bonds provide stable income streams with lower volatility
As detailed in the provided context, high-quality bonds like US Treasury bonds can provide steady interest payments with relatively low risk. Their prices also tend to be more stable compared to stocks during market downturns. Adding some allocation to bonds can therefore help buffer portfolios when stocks decline sharply.
Dividend stocks offer lower volatility with consistent payouts
The context discusses dividend stocks as another way to help limit volatility while still being invested in equities. Companies with established track records of consistent dividend payments tend to experience less severe stock price declines during bear markets. Focusing on dividend payers across defensive sectors can produce portfolio ballast.
Gold provides an inflation hedge as a store of value
As highlighted in the materials, gold can be useful as a hedge against inflation given its historical store of value. During periods of heightened uncertainty, investors often flock to gold, driving up its price and providing portfolios with an asset that zigz when others zag. A small allocation to gold can hence diversify portfolios.
Real estate delivers stable cash flows with portfolio diversification
Real estate investment trusts (REITs) and other real estate assets can supply investors with steady rental income streams that may hold up better during recessions. As explained previously, real estate also has a low correlation to stocks and bonds, making it an effective diversifier for well-balanced portfolios.
In volatile times, defensive investments like high-quality bonds, dividend stocks, gold and real estate can limit volatility while still providing portfolio growth. Strategically adding some exposure can protect portfolios during sharp market declines.