Investing is a personal journey, and at Vive, we understand that your goals are unique. That is why it is important to choose an investment strategy that suits you. In this blog, we explore the difference between offensive and defensive investing so that you can make an informed choice that best strengthens your financial future.
What is offensive investing?
Offensive investing is a strategy where you aim for higher returns by investing in assets with a higher risk. Your portfolio then mainly consists of more volatile investments, such as stocks. The potential for growth is significant, but fluctuations in value can also be substantial.
- Example: Imagine you invest €10,000 in an offensive portfolio full of technology stocks. If the sector performs well, your investment can grow to, for example, €15,000. But if the market is unfavourable, the value can also fall to €7,000 or less.
Who is offensive investing suitable for?
- Investors with a long-term investment horizon (e.g. 10 years or more).
- People who are prepared to take more risk in exchange for the chance of higher returns.
- Investors who are emotionally and financially capable of enduring market volatility and potential losses without selling in a panic.
What is defensive investing?
Defensive investing is a more conservative strategy aimed at minimising risks and protecting your invested capital. The portfolio is mainly filled with stable, less volatile investments, such as bonds, savings deposits, or other fixed-income securities. The goal is a stable but modest return, with minimal fluctuations.
- Example: Imagine you invest €10,000 in a defensive portfolio that largely consists of bonds. The value will likely grow slowly – perhaps up to €11,000 over a few years – and the risk of significant losses is much smaller. In the worst-case scenario, the value remains approximately the same, without large decreases.
Who is defensive investing suitable for?
- Investors with a shorter investment horizon (e.g. less than 5 years).
- People who are risk-averse and prefer stability and security over high returns.
- Investors who want to protect their capital, for example because they need the money within the foreseeable future for a specific purpose.
Offensive versus defensive: the main differences
- Risk vs. return:
- Offensive investing: Higher risk, with potential for higher returns in the long term. Ideal for investors who are prepared to accept market fluctuations.
- Defensive investing: Lower risk, with stable but modest returns. Suitable for investors who prioritise capital preservation over high profits.
- Investment horizon:
- Offensive investing: Suits a long-term horizon, for example, pension accumulation over 15-20 years.
- Defensive investing: Suits a shorter horizon; for example, when the capital is needed within a few years.
- Volatility:
- Offensive investing: More exposure to market fluctuations. You can achieve substantial profits but also temporarily see significant losses.
- Defensive investing: Less sensitive to market fluctuations; results in a more stable portfolio with less extreme outcomes.
Which strategy suits you?
The choice between offensive and defensive investing depends on your financial goals, risk appetite, and the time you have to invest. Ask yourself the following questions:
- How much risk am I prepared to take?If you are comfortable with the idea that your portfolio may decrease in value before rising again in the long term, then an offensive strategy might suit you. If you become nervous quickly upon loss, a defensive approach feels safer.
- How long do I want to invest my money?If you have the long term in mind (for example, >10 years, such as for a pension), then with offensive investing, you can maximally benefit from compound growth over the years. If you need the money within a few years, a defensive strategy helps protect your capital against short-term fluctuations.
- How do I react to market fluctuations?Imagine the stock market drops 10% in a quarter. Do you panic then? Those who are inclined to sell during decreases out of fear are better off with a defensive portfolio. If you can calmly ride out such decreases, then an offensive portfolio is an option.
A balanced approach: combining offensive and defensive
At Vive, we know that many investors don't purely fit into one box. That is why we offer the possibility to put together a balanced portfolio, in which you combine offensive and defensive elements. You then benefit from the growth potential of stocks, while simultaneously building in stability with bonds.
- Example: You opt for 60% of your investments in stocks (offensive) and 40% in bonds (defensive). This mix can work well: the stocks allow your capital to grow when the market rises, while the bonds provide a buffer against any decreases. This way, you spread the risk and look for the middle ground. (Want to know more? Read our blog about the benefits of a balanced investment portfolio – internal link.)
Conclusion
There is no one-size-fits-all solution when it comes to investing. Whether you choose offensive or defensive investing depends on your personal situation and preferences. Offensive investing can yield higher returns in the long term but entails more risk. Defensive investing offers more stability and protection of your capital, but usually with lower potential returns. By clearly mapping out your goals and risk appetite – potentially with the help of determining your risk profile (internal link) – you can choose the strategy that best suits you.
At Vive, we are ready to help you with this. In our app, you can easily create an investment strategy that suits you.
