Offensive or defensive investing: find the strategy that suits you

Investing is a personal journey, and at Vive we understand that your goals are unique. That's why it's important to choose an investment strategy that's right for you. In this blog, we explore the difference between offensive and defensive investing so 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 higher-risk assets. Your portfolio then consists mainly of more volatile investments, such as stocks. The potential for growth is high, but fluctuations in value can also be significant.

• Example: Suppose you invest €10,000 in an offensive portfolio full of technology stocks. If the sector performs well, your investment could grow to, say, €15,000. But if the market is disappointing, the value could also drop to €7,000 or less.

For whom is offensive investing suitable?

• Investors with a long-term investment horizon (e.g., 10 years or more).
• People willing to take more risk in exchange for the chance of higher returns.
• Investors who are emotionally as well as financially capable of enduring market volatility and potential losses without selling in panic.

What is defensive investing?

Defensive investing is a more conservative strategy aimed at minimizing risk and protecting your invested capital. The portfolio is filled primarily with stable, less volatile investments, such as bonds, savings deposits or other fixed-income securities. The goal is stable but modest returns, with as few fluctuations as possible.

• Example: Suppose you invest €10,000 in a defensive portfolio consisting mostly of bonds. The value is likely to grow slowly - perhaps to €11,000 in a few years - and the risk of large losses is much smaller. In a worst-case scenario, the value will stay about the same, with no major declines.

Who is defensive investing suitable for?

• Investors with shorter investment horizons (e.g., less than 5 years).
• People who are risk averse and prefer stability and security to high returns.
• Investors who want to protect their capital, for example, because they need the money for a specific purpose in the foreseeable future.

Offensive versus defensive: key differences

1. Risk vs. return:
   • Offensive investing: Higher risk, with potential for higher long-term returns. Ideal for investors willing to accept market fluctuations.
   • Defensive investing: Lower risk, with stable but modest returns. Suitable for investors who value capital preservation over high profits.
2. Investment horizon:
   • Offensive investing: Suits a long-term horizon, for example, retirement accumulation over 15-20 years.
   • Defensive investing: Suits a shorter horizon; for example, when capital is needed within a few years.
3. Volatility:
   • Offensive investing: More exposure to market fluctuations. You can make hefty gains, but also see temporary large losses.
   • Defensive investing: Less sensitive to market fluctuations; results in a more stable portfolio with fewer 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 willing to take?
  If you're comfortable with the idea that your portfolio may go down in value before rising again in the long run, then an offensive strategy may suit you. If you are easily nervous about losses, then a defensive approach feels safer.
• How long do I want to invest my money?
  If you have a long term in mind (e.g., >10 years, such as for retirement), then investing offensively will allow you to take maximum advantage of compound growth over the years. If you need the money within a few years, then a defensive strategy will help protect your capital from short-term fluctuations.
• How do I react to market fluctuations?
  Imagine the stock market drops 10% one quarter. Do you panic then? If you tend to sell out of fear when the market falls, you are better off with a defensive portfolio. If you can sit out such falls calmly, an offensive portfolio is an option.

A balanced approach: combining offensive and defensive

At Vive, we know that many investors don't fit purely into one box. That's why we offer the opportunity to put together a balanced portfolio in which you combine offensive and defensive elements. You then benefit from the growth potential of equities while building stability with bonds.

• Example: You choose to have 60% of your investments in stocks (offensive) and 40% in bonds (defensive). This mix can work well: the stocks allow your assets to grow if the market rises, while the bonds provide a buffer in the event of declines. This way you spread the risk and find 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 over the long term, but involves more risk. Defensive investing offers more stability and protection of your capital, but typically with lower potential returns. By clearly identifying your goals and risk appetite - possibly with the help of determining your risk profile (internal link) - you can choose the strategy that suits you best.

At Vive, we're ready to help you do just that. In our app, you can easily create an investment strategy that's right for you.