Aggressive 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 suits you. In this blog, we explore the difference between aggressive and defensive investing, so you can make an informed choice that best strengthens your financial future.

What is aggressive investing?

Aggressive investing is a strategy where you aim for higher returns by investing in assets with a higher risk. Your portfolio then mainly consists of more volatile investments, such as shares. The potential for growth is great, 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, for example, €15,000. But if the market turns against you, the value could also fall to €7,000 or less.

Who is aggressive investing suitable for?

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

What is defensive investing?

Defensive investing is a more conservative strategy that focuses on minimizing risks and protecting your invested capital. The portfolio is mainly filled with stable, less volatile investments, such as bonds, savings deposits or other fixed-income securities. The goal is a stable but modest return, with as few fluctuations as possible.

• Example: Suppose you invest €10,000 in a defensive portfolio consisting largely of bonds. The value will likely grow slowly – perhaps to €11,000 over a few years – and the risk of large losses is much smaller. In the worst case, the value remains about the same, without major declines.

Who is defensive investing suitable for?

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

Aggressive versus defensive: the main differences

1. Risk vs. return:
   • Aggressive investing: Higher risk, with the potential for higher returns in the long term. Ideal for investors who are willing to accept market fluctuations.
   • Defensive investing: Lower risk, with stable but modest returns. Suitable for investors who value capital preservation more than high profits.
2. Investment horizon:
   • Aggressive investing: Suitable for a long-term horizon, such as pension accrual over 15-20 years.
   • Defensive investing: Suitable for a shorter horizon; for example, when the capital is needed within a few years.
3. Volatility:
   • Aggressive investing: More exposure to market fluctuations. You can achieve substantial profits, but also see large temporary losses.
   • Defensive investing: Less sensitive to market fluctuations; results in a more stable portfolio with fewer extreme fluctuations.

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 are comfortable with the idea that your portfolio may decrease in value before it rises again in the long term, then an offensive strategy may suit you. If you get nervous quickly when you lose money, a defensive approach feels safer.
• How long do I want to invest my money?
  If you have a long-term goal in mind (for example >10 years, such as for retirement), you can maximize the benefits of compounded growth over the years with offensive investing. If you need the money within a few years, a defensive strategy will help protect your capital against short-term fluctuations.
• How do I react to market fluctuations?
  Imagine the stock market drops 10% in a quarter. Do you panic then? Anyone who tends to sell out of fear when prices fall is better off with a defensive portfolio. If you can sit out such declines calmly, an offensive portfolio is an option.

A balanced approach: combining offensive AND defensive strategies

At Vive, we know that many investors don't fit neatly into just one category. That's why we offer the option to create a balanced portfolio, in which you combine offensive and defensive elements. You then benefit from the growth potential of shares, while at the same time building in stability with bonds.

• Example: You opt for 60% of your investments in shares (offensive) and 40% in bonds (defensive). This mix can work well: the shares allow your assets to grow when the market rises, while the bonds provide a buffer in the event of declines. This way you spread the risk and look for 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 aggressive or defensive investing depends on your personal situation and preferences. Aggressive investing can yield higher returns in the long term but carries more risk. Defensive investing offers more stability and protection of your capital, but usually with lower potential returns. By clearly mapping out 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 are ready to help you with this. In our app, you can easily create an investment strategy that suits you.