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It is important to know your goals and risk tolerance, as well as a basic knowledge of the companies in which you plan to invest. If you don't do your research, investing can be risky. Stocks should be chosen based on financial goals. There are two types of stocks, cyclical or defensive. One must choose the stocks that best suit their needs. While cyclical stocks offer high returns, but carry high risks, defensive stocks provide stable returns regardless of market conditions. When the market is down, Cyclical stocks aren't performing well. Defensive stocks are best if safety is your top priority. Cyclical stocks are best if you want high returns and can take some risk. You should have both defensive and cyclical stocks in your portfolio to offset the risk. This will make it a win-win situation. When the economy is performing well, you can earn high returns with cyclical stocks. However, defensive stocks can provide stable returns when the economy has been in decline. This article will discuss defensive stocks.
Before buying stocks, one should be able to invest properly. The investment motives of different people vary, so the investment avenues also differ. You must have a clear investment strategy in place, regardless of whether you are looking to invest in bonds, shares, or mutual funds. You should be able to identify the benefits of investing in equity and what defensive stocks are. Also known as "defensive stocks",Also known as "defensive stocks", non-cyclical stocks can also be called these stocks.. When the economy is healthy, cyclical stocks will outperform the market and fall when it's downturning. Defensive stocks, on the other hand, offer stable returns all year. It is important to choose quality stocks that meet your investment objectives. To know which stocks perform well and which ones are not, you must keep an eye on your portfolio. To get better returns, you can add or subtract stocks based on this information.
Let's take a closer look at the characteristics of defensive stock. These stocks/companies are able to keep a good show, even in times of recession. This will be explained using a simple example. Soap is a basic commodity that we all use every day. No matter how the economy performs, soap demand will remain constant. Companies that make soap, paste, and other products will continue to be successful. They provide stable returns because they aren't greatly affected by economic performance. These products are stable regardless of economic conditions and business cycles. People are used to them and have a need for them every day. These goods are inelastic, meaning that any price change will not impact the demand. If the price of a car goes up, then the demand will drop. Cars and automobiles are cyclical stocks, whose performance is solely dependent on the economy's performance or the spending power of people.
Beta is a measure of a stock's vulnerability. Beta less than 1 indicates that defensive stocks are more volatile. If you are a conservative investor and don't want to take on risk, there are defensive stocks that can provide stable returns. Gas, electricity, FMCG and other defensive stocks are some examples.