Risk Profile – Defensive Investor

Defensive Asset Allocation Portfolio: A Guide for the Defensive Investor

Q: What are the five types of risk profiles?

The five main types of risk profiles are Conservative (Defensive), Moderate, Balanced, Growth, and Aggressive. A defensive portfolio suits conservative investors who prefer defensive asset allocation with stable and low-risk returns. Each profile reflects an investor’s willingness and capacity to handle risk and influences how their asset allocation portfolio is structured.

Q: What are the 3 D's of investing?

The 3 D’s of investing are Discipline, Diversification, and Determination. These principles help both growth and defensive investors stay consistent with their strategy. For a defensive asset allocation portfolio, diversification across various defensive assets—such as bonds, cash, and stable equities—helps protect against market risks while maintaining steady returns.

The investment objective of a Defensive investor is to place an emphasis on relatively stable returns with the potential for modest long term growth.

A Defensive portfolio looks to invest around 30% in growth assets (eg equities and property) and the remainder in defensive assets (eg cash and fixed income). The figure of 30% is a general benchmark; actual allocations over time will vary around this as investment conditions change and investment managers take opportunities to improve returns.

This portfolio suits investors who primarily seek income with some potential for capital growth. This portfolio also suits investors seeking a low level of investment value volatility, and who are therefore willing to accept lower potential investment returns.

Such a portfolio is suitable for investors with a short to medium term investment time frame. It is important to note that the value of your capital can move up and down over time, particularly in shorter time spans. Hence these investments should be considered with a minimum time frame of 3 years.

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Investment objectives – Defensive
Minimum investment period	3 years
Returns
Forecast average annual return over 10 years	5.0%
Risk
Probability of a negative return over a single year	12.0%
Expected negative years out of 20	2.4
Forecast rate of returns
1 year	-3.5% to 10.9%
5 years (per annum)	1.6% to 7.0%
10 years (per annum)	3.0% to 7.0%
20 years (per annum)	4.4% to 7.4%

Asset allocation – Defensive	Target %	Minimum %	Maximum %
Defensive Fixed Income	35	0	60
Defensive Alternatives	20	0	50
Cash	15	0	45
Total defensive	70	60	80
Australian Equities	8	0	35
Global Equities	9	0	35
Property & Infrastructure	6	0	30
Growth Alternatives	7	0	20
Total growth	30	20	40

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FAQs Related to Defensive Investor

What is a defensive risk profile?

A defensive risk profile refers to an investor’s preference for safety and capital preservation over high returns. A defensive investor focuses on creating a defensive asset allocation portfolio that includes low-risk defensive assets such as bonds, fixed deposits, and cash equivalents. This type of defensive investment strategy aims to reduce volatility and provide steady, reliable returns even during market downturns.

What are the five types of risk profiles?

What is the 7-5-3-1 rule in SIP?

The 7-5-3-1 rule in SIP is a simple strategy guideline for mutual fund investors. It suggests aiming for 7% returns from debt funds (defensive investments), 5 years as a minimum investment horizon for equity funds, 3 years for hybrid or balanced funds, and reviewing your investments once every year. Defensive investors use this approach to balance their defensive asset allocation with long-term growth potential.

What is a defensive investor?

A defensive investor is someone who prioritises capital protection and consistent income over high-risk, high-reward opportunities. They build a defensive portfolio using defensive assets like government bonds, fixed income securities, and dividend-paying stocks. This defensive asset allocation strategy focuses on minimising losses during volatile markets while achieving stable growth over time. Leading Advice is the best advisor. Contact us today!

What are the 3 D's of investing?