Defensive stocks

Defensive stocks are companies that don’t tend to depend heavily on what’s going on in the wider economy for their growth (cf cyclical stocks). They are usually found in industries whose products are needed, come rain or shine, such as food retailers or water companies. Products such as tobacco or alcohol that are based on habit (or addiction) also tend to see fairly stable demand, and the companies that make them are seen as defensive as well.

A balanced portfolio should contain a mixture of cyclical and defensive stocks which can be altered as the economic climate changes.

• See Tim Bennett’s video tutorial: What are defensive stocks?