Defensive Investing

Defensive investing is a lot like defensive driving. The main goal in defensive driving is safety—being alert, careful, and doing everything you can to avoid accidents. A defensive driver follows the rules, wears their seatbelt, stays focused, avoids risky behavior, and doesn’t take unnecessary chances.

In the same way, a defensive investor isn’t chasing the highest returns—they’re focused on protecting their money. Their main goal is to minimize risk rather than to maximize profit. This kind of investor, sometimes called a passive investor, prefers safer investment options like money market funds, unit trusts, index funds, and bonds. They’re more concerned about avoiding losses than making big gains.

On the other hand, you have the enterprising investor—someone who is more willing to take calculated risks in hopes of earning higher returns. This person might invest more in things like individual stocks or businesses. They’re usually more hands-on and comfortable with market swings and uncertainty.

This difference between defensive and enterprising investing was first explained by Ben Graham in his timeless book The Intelligent Investor. He emphasized that your style of investing should match your personality, experience, and lifestyle. If you’re someone with strong financial knowledge, time to analyze investments, and a good stomach for risk, the enterprising route might suit you. But if you’re more cautious, especially as you near retirement, it makes sense to stick with simpler, more stable investments like bonds or unit trusts.

Most people don’t fall neatly into one category—they mix both approaches. You might have some money in businesses or stocks (a bit more adventurous) and some in bonds or unit trusts (a bit more cautious). It’s like driving—slowing down around sharp bends and picking up speed on a smooth, open road.

Defensive investing isn’t about being timid—it’s about being thoughtful and careful with your money. Just like a defensive driver wants to arrive safely, a defensive investor wants to reach their financial goals without unnecessary risk. Whether you’re fully defensive, fully enterprising, or a bit of both, the most important thing is to know your risk tolerance and invest in a way that meets your financial objectives and lifestyle.