Why is it important to focus on defensive assets now?
In 2024, the US stock market has been driven by AI-related topics, with most stocks accumulating significant gains. The price-to-earnings ratios are at relatively high levels, and investor sentiment remains high. Financial institutions generally expect a short-term peak to occur soon. Additionally, factors such as the potential start of interest rate cuts in the US and the upcoming presidential election increase market volatility risks. Against this backdrop, many investors are beginning to consider how to participate in growth while hedging against the risk of sharp downturns.
Defensive assets are crucial tools for dealing with such situations. Simply put, when the market faces a decline, these assets either experience smaller fluctuations or move inversely to the stock market, effectively buffering the risk of an investment portfolio.
What types of defensive assets are there?
Defensive assets can be broadly divided into three categories, allowing investors to choose based on their risk tolerance:
Market inverse assets — tools such as gold, US dollar cash, US Treasury bonds, and others that move opposite to stocks