What Are Defensive Stocks?

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A defensive stock is generally considered to be a stock from a company that is pretty steady and unaffected by the ups and downs of the economy. Find out how defensive stocks usually don't offer explosive returns with help from a licensed financial planner in this free video on the stock market and investing.

Part of the Video Series: Stock Market
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Video Transcript

My name is Bill Rae. I'm with Alumni Financial Services. I've been in the business and the finance world for well over 20 years, and your question is: What are defensive stocks? Well, first of all, let me tell you, we're not going to issue any stock advice here. You really need to speak with a licensed professional for that. The other thing you need to understand I think most folks the general acceptance of...definition of what a stock is is ownership in the company, meaning if I owned a company and I needed money, you would buy into my company, if you will, or loan me money so I can either grow or buy equipment. So what is a defensive stock? Defensive stock is generally considered a stock or a company that is pretty steady, if you will. It's not usually affect...affected by the cyclical ups and downs of the economy. Usually, it's also not too sexy, if you will. In other words, you're not going to see explosive returns on it. But on the other hand, you're not going to see too many drops, either -- kind of like steady, easy as you go. When you sit down to talk with a licensed professional and you understand what it is you're going and where you want to grow, then you can begin to plan out what kind of monies you want to put into defensive. Do you want to be a little bit more speculative? In other words, how much risk are you willing to take? Again, we urge you, make sure that you understand the language. Make sure you understand how these things operate. When you sign an agreement or a contract, know what is expected of you, know what the fees are -- in other words, the cost of doing business. Make sure you understand how and when you can get your money back and, to some degree, the potential returns you can see on your money. The one thing I can tell you about the stock market is wherever there is a degree of return, there's also a degree of risk of loss, and there are products out there that your principal cannot be lost. Again, speak to a licensed adviser. Seek outside counsel. My name is Bill Rae, I'm with Alumni Financial Services, and as always, we're here to help you build wealth.

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