Offense vs. Defense: The Right Balance for Today’s Portfolio


If you want to build and maintain a successful investment portfolio, ensuring your portfolio is balanced is of utmost importance. And while that idea sounds great in theory, many investors aren’t sure how to balance their portfolios.

You might already know that you can balance your portfolio by diversifying your investments. But if you want to create a winning investment strategy, the most important balance to strike is one between offense and defense.

The Offense vs. Defense Philosophy

There are two types of investment strategies: offensive and defensive. Offensive strategies are designed to grow your wealth and generate future income. But while offensive strategies have the potential to pay off handsomely, they also come with a good bit of risk.

Defensive strategies help to mitigate that risk. These strategies safeguard your portfolio against market losses. When you deploy a careful defensive strategy, you can see your money grow while also being protected against losses.

This philosophy might sound like a commonsense way to design your portfolio. However, a surprising number of investment portfolios from other firms use only the offensive strategy — there’s no consideration whatsoever for defense.

The offense-only strategy can deliver significant returns when the market is right. But in the event of a market downturn, you stand to lose a sizable portion of your funds. With a balance of offense and defense, you prime your portfolio for growth while maintaining a healthy dose of protection.

How Exactly Do You Implement a Defensive Strategy?

There’s a common misconception that “defense” means minimal returns on investments. But defense just means protection, and protected funds still have the ability to earn healthy returns. So how exactly do you apply a defensive strategy to your own investments?

The best way to insulate your portfolio from market downturns is by using something called a fixed index annuity. This annuity allows you to accumulate interest without the risk of loss due to downturns in the stock market.

It might sound too good to be true, but the way it works is fairly simple:

● Your funds rise with the stock market
● Each year, your gains lock in
● When the market dips, you don’t lose anything

As a bonus, a fixed index annuity does not come with annual fees. The steady growth you’ll see may not be as exciting as a risky investment that pays off, but it’s a solid, risk-free way to slowly grow your wealth.

How Do You Know if Your Portfolio Has Achieved the Right Balance?

“Balance” is somewhat subjective. However, there’s an easy rule of thumb to use to see if your portfolio has the ideal offense vs. defense balance. Whatever your current age, you should have that percentage of your liquid net worth fully protected from losses.

For example, if you’re 55, you should have 55% of your funds protected from losses. Remember that this portion of your money still has a positive rate of return.

The other 45% of your investments will be subject to risk, but they also have the potential to earn a higher rate of return. With the right balance, you’ll get returns while shielding part of your money from market losses.
Set a Winning Investment Strategy

When it comes to making your money work for you, a diverse, stable portfolio is incredibly important. But if you aren’t a financial professional, it can be hard to know exactly how to optimize your investments for both safety and returns.

Consider working with a qualified financial advisor when choosing your strategy. Once you’ve created the perfect offense vs. defense balance, you can watch your money grow while enjoying peace of mind.

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