Defined: ‘Growth’ And ‘Defensive’ Assets And Investments

Generally speaking, growth assets are higher risk and higher reward investments. Defensive assets are lower-risk lower-reward.

However, everyone has a different interpretation of ‘risk’ and ‘reward’. Most academic literature says ‘risk’ is volatility.

Risky Versus Defensive Assets / Investments

Risky Assets Defensive Assets
Australian shares Australian fixed income (e.g. bonds)
International shares International fixed income (e.g. bonds)
Cryptocurrencies Cash management trusts
Property Government guaranteed deposits
Infrastructure Government bonds (from a developed country)
Private Equity Cash
Venture capital
Most other ‘alternative’ strategies
Real assets (e.g. office buildings or farms)
Hybrid notes / Convertible notes
“Junk” bonds

Does More Risk = More Reward?

That depends on how you define risk. If you ask me, volatility isn’t risk.

The random ups and downs (volatility) of an investment’s price is only a concern if you’re investing for the short term (e.g. less than 3 years) or if you rely on your investments for income (e.g. dividends).

But you wouldn’t sell out if the price of your house fluctuated by 1%, 2% or 3% each day, week or month… would you? 

To me, a business person and long-term investor (3+ years), risk should be defined as “losing your entire investment”. But, obviously, everyone is different and your tolerance and willingness to take on risky investments will depend on many things, such as your:

Your risk profile should not be based on:

  • What your parents or brother-in-law tell you is right (unless you do your research and agree)
  • Purely what you read online (oh, wait…)
  • What someone else is doing
  • The investment potential, with no consideration of the risks

A Typical ‘Balanced’ Strategy

A Typical ‘Growth’ Strategy

 

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