Aggressive vs Defensive Stock Investing

Aggressive investing in stocks means taking on greater risks. Risks can take many forms. Invest in a highly volatile market when price fluctuations defy all analytical and fundamental research techniques. There are ups and downs in stock prices that occur against investors’ expectations. There are daring and imaginative investors who manage to make money even in these uncertain circumstances.

Another form of aggressive marketing is that you invest in stocks that appear to be ‘past cases’ by popular reckoning. But quite contrary to all the wise advice, they show high growth and pay big dividends. Of course, they can also drop lower since the cases are already gone.

On the other hand, you invest in some stocks like Wal-Mart, fully aware that they are expensive and may not rise in price anytime soon. Few people know that the buyers of such high-value shares do not invest in them to make money through the increase in their prices, but that these companies pay large dividends to their investors year after year so that they become a source of income and regular livelihoods. . The dividends paid by such blue-chip companies nearly cancel out the high share prices that people pay to buy them.

There is no doubt that those who dive deeper into the ocean get priceless gems or simply lose their lives.

But aggressive investing is not to everyone’s liking.

defensive approach

As part of the defensive approach, some people recommend that government treasuries are the best investment option. They argue that since you are buying a US debt obligation, you can be sure that you will be paid. All the government needs to do is raise taxes or sell assets to pay off its debts.

This, however, is not the approach of an entrepreneur who believes that money cannot be made without incurring a certain amount of risk. Therefore, a defensive approach does not mean taking no risk at all, but simply taking affordable risks and achieving optimal returns at the same time. It should be understood that the risks in stock trading are neither higher nor lower than in any other business.

An ordinary stock trader, especially one who is a beginner, should take a defensive approach and be careful when trading stocks.

A slow, cautious and conservative approach may not pay off very well at first. In fact, the gains may seem insignificant, almost daunting in the initial stages, but they can become phenomenal over time. You will appreciate its value when you retire. This approach exemplifies the truth that slow and steady wins the race.

So, as a defensive stock investor, you need to figure out how much money you can easily save each month without cutting back on your essential expenses. Consult your stockbroker and also do your own research to find out which stocks you should invest in. It is always advisable to invest in stocks that yield high dividends. If you can easily tap into your existing income resources, opting for dividend reinvestment plans is the best option.

Over time, dividend stocks generate higher returns than long-term treasury returns. Not only are dividends higher on stock investment, but they also get favorable tax treatment. Dividends from stock investments attract a top federal tax rate of 15%, while treasury bond income, while exempt from state and local taxes, can go up to 35% of the tax bracket. In addition, you get the capital gains generated from an increase in the price of the shares. [It is like having a cake and eating it too.] I don’t know if this analogy is necessary.

High dividend yield stocks protect you when the market goes down. As stock prices fall, the dividend yield increases because the cash dividend can exceed the purchase price of a stock by a large percentage. It can be illustrated with an example: you buy a $100 share of a company with a dividend of $2 which is 2%. Suppose the stock price falls by 50%, the dividend yield would rise to 4% (this is obtained by dividing $2 by $50 and multiplying by 100). What often happens is that the dividend paid by certain companies is so high and attracts buyers in such large numbers that their share price rises even during a market downturn.