Topic: How To Invest

Hi Pat: I have heard the term defensive stocks and am not really sure what they are or where they fit in my portfolio.

Article Excerpt

Most defensive stocks are in the Consumer sector. They benefit from continuous, habitual use and have a steady core of sales, regardless of the economy and business cycles. These companies typically make products like soap, soup and newspapers. Defensive stocks in the Consumer sector can provide the most effective protection against recessions. That’s a key difference between Consumer stocks and companies in the Manufacturing & Industry or Resource sectors, which are far more sensitive to the ups and downs of the economic cycle. As a general rule, Resource stocks provide the most effective hedge against inflation because they directly gain from rising prices of the commodities they produce. Utility stocks used to provide a hedge of sorts against recessions, due to their steady earnings and dividends. However, that is less true today because of changing technology and deregulation in the utility sector. However, although it pays to be aware of these general tendencies, you should resist the temptation to fine-tune…