Investor Trainning

What Are Defensive Stocks?


defensive-stocksStocks are categorized as defensives based on parameters which are the measure of the stock-price change compared to the overall stock market change, the return on equity (ROE) . Defensive stocks naturally have a beta of less than 1. A beta of 1 means the stock price moves at the same rate as the overall market, whereas a beta of less than 1 would mean that the stock would move up and down.

[sws_blockquote_endquote align=”says Parikh” cite=”” quotestyle=”style02″] The stock’s average ROE of the last five years should be higher than 25% [/sws_blockquote_endquote]

The stock should have an eye-catching dividend yield and the company should have a history of firm dividend payments. A dividend yield of greater than 3-4% on a consistent basis would be a good measure.

There are many people who try to go for government treasury bonds because they think that these are the best plan for future. They always get reward from these plans. But here too, there is some amount of risk that is associated with the stock market. Therefore defensive stock investing means taking affordable risks in the market. In defensive stock investing you need to check how much you would be able to spend on your investment in the stock market without cutting any costs of your daily costs. It would be best for you if you can ask a good stock broker. He would be able to guide you the little bit information about stock market. Being in the professional field of stock market for several years, he would have much knowledge of the market. Even if you wish to go for day trading, then you can ask him as there are many investors who fear of financing in such type of exchange as they study it very risky.

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