10 Ways to Build a More Defensive Portfolio

In light of current economic conditions, we at FaithBasedInvestor.com are starting to go into “defensive” mode. During upward bull markets, a little offense goes a long way. However during times of high volatility and downward momentum, it is often best to be safe rather than sorry.That is where a good “defense” comes in handy.In team sports, especially football, defense often wins championships. That is why we wanted to show you ten ways you can add a little “defense” to your portfolioIn team sports, especially football, defense often wins championships. That is why we wanted to show you ten ways you can add a little images-2 “defense” to your portfolio strategies.

1. Load up on cash & money market accounts. Any defensive strategy should have loads of cash to take advantage of any future prime opportunities as well as to protect against the downside. These accounts may earn relatively small returns but are considered a safe haven. Most people wished they had a whole lot more cash in their portfolios during the 2000-2002 stock market crash as well as during the financial crisis of 2007-2009. We believe right now is a prime time to be heavy in cash.

2. Consider short-term U.S. treasuries (1-3 years max). Yes, we are not too bullish on the long-term prospects of U.S. debt, but short term treasuries like (NYSE: SHY), can offer a bit more yield than a money market. Additionally as rates rise, the yield on this ETF will also rise. Short-term treasuries provide a minimal return so they should only make up a relatively small portion of the overall portfolio. However these investments will add stability to your portfolio.

3. Consider inflation-protected securities. Inflation can significantly reduce your returns over time. Whenever I consider an investment I look at taxes and inflation. Treasury Inflation-Protected Securities or TIPS (NYSE: TIP) provide a hedge against inflation as they track the consumer price index (CPI). The price of TIPS is adjusted to keeps pace with inflation. Another inflation protected to consider is one that tracks world inflations such as (NYSE: WIP).

4. Consider stable foreign currencies. In order to hedge against fiat currencies (those not backed by a precious metal) that are relatively unstable at this juncture, consider more stable currencies like the Swiss Franc (NYSE: FXF) and Australian Dollar (FXA). With the U.S. dollar and Euro in crisis mode, more stable currencies can provide some much needed protection.

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