Investment doesn’t come without any risks. But no matter how risky, some opportunities are worth pursuing because of potential gains. This will ultimately come down to how effective the investment and risk management strategies are. You’re aware of all these things if you’ve been doing business for a long time. Perhaps it’s now pretty normal to deal with the ups and downs of the market.
For some reason, even experienced investors are not always guarded. There are times when they have to admit lapses that result in substantial losses. This may sound surprising, but in volatile markets, nobody is an expert. Only those who are keen and prudent in analyzing trends and price movements always have a better chance of winning. The same holds true in the Bitcoin Prime site , where investors have to balance the positive and negative sides of the coin.
But as a beginner, you don’t have to get discouraged. A lot of strategies can be employed to reduce your investment risks and boost your possible gains. One of them is a defensive investment strategy that may have its own place in cryptocurrency. What is this all about, and how you can use it to your advantage is discussed in the following paragraphs?
How Does a Defensive Investment Strategy Work?
This strategy is a conservative method of portfolio allocation and management aimed at reducing the risks of losing the principal. It entails rebalancing the portfolio to maintain an intended asset allocation. Also, the defensive investor would normally buy high-quality and short-maturity assets, place stop-loss orders, diversify across various asset classes and hold cash and cash equivalents in down markets. A defensive strategy is always helpful in protecting investors against substantial losses during market downturns.
Additionally, defensive investment strategies are designed to ensure protection first and modest growth second. Investors are taking advantage of a rising market by buying assets that are outperforming for a given level of risk and volatility. So far, this is one of several options when managing an investment portfolio. Another alternative is an offensive strategy that entails option trading and margin trading.
Both defensive and offensive investment strategies would require active management; thus, higher investment fees and tax liabilities are generally involved. However, for risk-averse investors, adopting a defensive strategy is advised by many portfolio managers. This is particularly appropriate for people who have no higher capital to lose. The main objective is to protect the existing capital and keep pace with inflation through modest growth.
What are Defensive Strategy Investments?
A defensive investment strategy is often characterized by solid tactics like selecting investments in high-quality short-maturity assets. The investor would always choose largely established companies with good track records. This might entail learning towards exchange-traded funds that mimic market indices and provide exposure to all the established assets in one diversified investment.
Portfolio managers who are employing a defensive strategy may need to hold a moat of cash and cash equivalents that can help to keep pace with inflation and serve as a hedge against market downturns. However, having too much cash may provoke questions as to why the investors are paying for active management.
Bear in mind that defensive assets provide consistent dividends and stable earnings, regardless of the state of the overall market. There is a constant demand for products; hence defensive assets tend to be more stable during the various phases of the business cycle. Interestingly, the defensive assets are less likely to suffer bankruptcy because of their relative strength during downturns. Likewise, the low volatility of defensive assets often results in smaller gains during bull markets and may lead to a mistiming of the market.
Is Defensive Strategy Helpful for Crypto Investors?
Since the crypto market is highly volatile and unpredictable, there is a need for a defensive strategy to protect investors from substantial losses. Although it means modest gains, it might strike a balance between risks and profits. That’s why learning how it applies in the industry and how you can take advantage of that is a must to keep your investments running smoothly. After all, you are in control of many things concerning your assets, and part of that is choosing the best strategy that works well under challenging situations.