Market Volatility: Defensive Investment Strategies
March 20, 2026
Periods of turbulence in global stock markets remind us that prices do not move in only one direction. While investors know markets can rise and fall, that knowledge doesn’t necessarily make downturns easier to endure. When savings lose value, it can cause stress and lead to emotional choices, like selling investments during a market drop.
The good news is that investors can take steps to help lessen the effects of market volatility while still participating in the long-term growth potential of investing. However, investing always involves trade-offs. Reducing volatility typically means giving up some degree of potential return.
What Is Defensive Investing?
One way to manage volatility is through a defensive investment strategy. A professional portfolio manager or financial advisor may build a defensive portfolio. It is designed to limit losses during market downturns.
According to investment professionals who manage defensive strategies, this approach focuses on reducing the impact of falling markets on investors. Defensive portfolios are generally structured to limit losses when markets decline. The trade-off is that they may lag during strong bull markets. Over longer periods, the goal is often to capture much of the market’s growth while providing a smoother investment experience.
Defensive Investing vs. Total Return Investing
A common method of managing volatility is through asset allocation—the mix of stocks, bonds, and cash in a portfolio. Investors typically choose an allocation based on their financial goals, investment timeline, and tolerance for risk.
Many portfolios are built using a total return approach, meaning the asset mix is designed to pursue the highest possible return for a given level of risk. These portfolios usually have significant exposure to stocks. While equities have historically delivered higher long-term returns, they can also experience larger swings during market downturns.
Investors who want to reduce the impact of volatility may consider increasing the portion of their portfolio allocated to bonds. Historically, bond-heavy portfolios have tended to experience smaller declines during market downturns, though they also typically produce more modest long-term gains.
Another strategy involves adjusting the pattern of returns rather than simply reducing risk. In other words, the objective is to pursue similar—or slightly lower—long-term returns but with less dramatic ups and downs. Professionally managed defensive portfolios often aim to achieve this by selecting investments that may help moderate overall portfolio volatility.
Building a More Defensive Portfolio
Portfolio managers use several strategies to make a portfolio more resilient during market downturns.
One method is focusing on stocks that historically demonstrate lower volatility. Companies with strong balance sheets, stable earnings, or industry leadership often see smaller price swings in tough markets. Incorporating these types of stocks may help reduce downside risk during market selloffs.
Bond selection can also play an important role. A bond manager might choose securities that help address specific economic risks. For example, if inflation is elevated, Treasury Inflation-Protected Securities (TIPS) may be added to help preserve purchasing power. During periods of slow economic growth or recession, investment-grade bonds may be favored because their issuers are generally viewed as more financially stable and better positioned to meet interest payments.
Using Defensive Funds and ETFs
Investors who manage their own portfolios may also consider mutual funds or exchange-traded funds (ETFs). These funds can help reduce volatility. Some funds focus on lower-volatility stocks, while others use hedging strategies or structured approaches that attempt to cushion market declines.
These types of funds can help investors build a more defensive portfolio without selecting individual securities. However, it’s important to remember that defensive strategies cannot eliminate market fluctuations altogether.
Staying Invested Through Volatility
Even the most defensive portfolio will still experience short-term ups and downs. The goal is not to avoid volatility. It is to reduce the size of losses during major market declines. It also aims to maintain long-term growth potential.
Ultimately, the most effective investment strategy is one an investor can stick with. When market swings make investors uneasy, adopting a more defensive portfolio structure may help provide the confidence needed to remain invested and stay focused on long-term financial goals.
Sources:
https://www.fidelity.com/viewpoints/investing-ideas/defensive-portfolio-investing
Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.