Aggressive vs Defensive Investing in Stocks

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Aggressive stock investing means taking greater risks. Risks can take many forms. You are investing in a highly volatile market when price fluctuations defy all analytical and fundamental research techniques. There are rises and falls in stock prices that occur contrary to investors’ expectations. There are bold 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 “missing cases” by popular calculation. But contrary to all sage advice, they show high growth and pay rich dividends. Of course, they can also fall lower since these are already missing cases.

On the other hand, you invest in certain stocks like Wal-Mart, fully aware that they are expensive and their price may not increase in the near future. Few people know that the buyers of stocks of such value do not invest in them to make money from their rising prices, but rather these companies pay out rich dividends to their investors year after year so that ‘they become a regular source of income and livelihood. . The dividends paid by these blue chip companies nearly offset the high prices of their shares that people are paying to buy them.

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

But aggressive investing isn’t everyone’s cup of tea.

Defensive approach

Under the defensive approach, some people recommend that the best investment option is government treasury bills. They argue that since you are buying a US debt obligation, you can be sure that you are going to get paid. All the government has to do is raise taxes or sell assets to pay off debt.

This, however, is not an approach from an entrepreneur who believes you cannot make money without incurring some risk. A defensive approach therefore does not mean taking no risk, but simply taking affordable risks and extracting optimal returns from them at the same time. It should be understood that the risks in stock trading are neither higher nor lower than in any other business.

A common stock investor, especially one who is a beginner, should have a defensive approach and be cautious when trading stocks.

A slow, careful and conservative approach may not yield high profits at first. In fact, the benefits may seem negligible, almost daunting at first, but they can turn out to be phenomenal over time. You will appreciate their value when you retire. This approach illustrates the truth that slowly and steadily wins the race.

So, as a defensive stock investor, you need to calculate how much money you can easily save each month without reducing 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 pay high dividends. If you can easily tap into your existing income resources, the best option is to opt for dividend reinvestment plans.

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

High dividend 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. This can be illustrated with an example: you buy a $100 share of a company with a dividend of $2, or 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 some companies is so high and attracts buyers in such large numbers that its stock price goes up even when the market goes down.



Source by Amit Malhotra

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