As market volatility continues to grab headlines, many investors – especially those nearing retirement – are asking how to protect their portfolios without exiting the market altogether. The good news? There are ways to play defense without giving up the long-term growth potential of stocks. At Stone Oak Wealth, we help clients implement thoughtful strategies that reflect their risk tolerance and timeline. Whether you’re looking to reduce volatility, seek income, or stay grounded with solid fundamentals, these three stock-focused approaches may help you stay invested with greater confidence.
Defensive investment strategies have a goal in common – to help a portfolio better weather an economic downturn and/or bouts of market volatility. But there are some key differences in the details, including the specific criteria by which particular stocks are selected. If you are nearing retirement or just have a more conservative risk tolerance, one of these defensive strategies may help you manage risk without giving up exposure to the growth potential of stocks as an asset class.
Tilt toward value
Growth and value are opposite investment styles that tend to perform differently under different market conditions. Value stocks are associated with companies that appear to be undervalued by the market or are in an industry that is currently out of favor. These stocks may be priced lower than might be expected in relation to their earnings, assets, or growth potential, but the broader market is expected to eventually recognize the company’s full potential.
Established companies are more likely than younger companies to be considered value stocks. These firms might be more conservative with spending and may emphasize paying dividends over reinvesting profits. Unlike value stocks, growth stocks may be priced higher in relation to current earnings or assets, so investors are essentially paying a premium for growth potential. This is one reason why growth stocks are typically considered higher risk than value stocks.
Sector Snapshot
At the end of Q2 2025, there were 407 dividend-paying companies in the S&P 500 Index, with yields averaging 1.51%. However, the number of dividend issuers and yields varied significantly by sector.
The S&P 500 Index is an unmanaged group of securities that is considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not a guarantee of future results. Actual results will vary.
Source: Dow Jones Indices, 2025
Temper volatility
All stocks are volatile to some degree, but some have been less volatile historically than others. Certain mutual funds and exchange-traded funds (ETFs) labeled “minimum volatility” or “low volatility” are constructed with an eye toward managing risk.
One commonly used measure of a stock or stock fund’s volatility is its beta, which is typically published with other information about an investment. The stock market as a whole (represented by the S&P 500 Index) is generally considered to have a beta of 1.0. In theory, an investment with a beta of 0.8 might experience only 80% of market gains during an upswing and only 80% of losses during a downswing – and thus would have less ground to regain when the market turns upward again.
Seek out dividends
Whereas stock prices are often unpredictable and may be influenced by factors that do not reflect a company’s fiscal strength (or weakness), dividend payments tend to be steadier and more directly reflect a company’s financial position. Comparing current dividend yields, and whether companies have a history of dividend increases, can be helpful in deciding whether to invest in a stock or a stock fund.
Dividend stocks tend to be sensitive to interest rate changes, so there are times when they can either drag down or help boost portfolio performance. For example, when rates fall, the lower yields on fixed-income investments could make the yield on dividend stocks seem more attractive. The flip side is that dividend-paying stocks can provide steady income during downturns. To complement this strategy, many investors pair defensive allocations with dollar-cost averaging frameworks to systematically smooth out entry points into fluctuating equities.
The return and principal value of all investments fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Investing in dividends is a long-term commitment. The amount of a company’s dividend can fluctuate with earnings, which are influenced by economic, market, and political events. Dividends are typically not guaranteed and could be changed or eliminated. Low-volatility funds vary widely in their objectives and strategies. There is no guarantee that they will maintain a more conservative level of risk, especially during extreme market conditions.
The bottom line is this: you don’t have to abandon stocks to reduce risk – you just have to invest more intentionally. Whether you shift toward value, prioritize dividends, or seek lower-volatility positions, building a defensive stock strategy can help create a smoother experience through unpredictable markets. At Stone Oak Wealth, we help clients build portfolios that are prepared for both upside potential and downside protection – because the best offense often starts with good defense.
- Defensive stock strategies aim to reduce portfolio volatility without exiting the market entirely.
- Value stocks are typically priced below their perceived worth and tend to be more established, dividend-paying companies – generally considered lower risk than growth stocks.
- Beta measures a stock’s volatility relative to the market. A beta below 1.0 suggests the investment has historically moved less than the overall market in both directions.
- Dividend-paying stocks tend to be steadier than non-dividend payers and can provide income during market downturns.
- At the end of Q2 2025, 407 S&P 500 companies paid dividends, with an average yield of 1.51%.
- Dividend payments are not guaranteed and can be reduced or eliminated – they should be evaluated as part of a broader strategy, not relied on in isolation.
Frequently Asked Questions
What is a defensive investment strategy?
A defensive strategy is designed to reduce portfolio risk and cushion against market downturns – without abandoning stocks altogether. Common approaches include shifting toward value stocks, selecting lower-volatility investments, and focusing on dividend-paying companies. The goal is to stay invested while reducing the severity of losses during volatile periods.
What is the difference between value stocks and growth stocks?
Value stocks are shares in companies that appear underpriced relative to their earnings, assets, or growth potential. They tend to be more established businesses that pay dividends rather than reinvesting all profits. Growth stocks are priced at a premium based on future potential – which makes them higher risk. In uncertain markets, value stocks are generally considered the more defensive choice.
What does beta mean for a stock or fund?
Beta measures how much an investment has historically moved relative to the overall market. A beta of 1.0 means it moves in line with the market. A beta of 0.8 suggests it captures roughly 80% of market gains – but also only 80% of losses. Lower-beta investments don’t eliminate risk, but they can make for a smoother ride and less ground to recover after a downturn.
Are dividend stocks a safe investment?
Dividend stocks tend to be more stable than non-dividend payers, but they are not without risk. Dividends are not guaranteed – they can be reduced or eliminated based on a company’s earnings. Dividend stocks are also sensitive to interest rate changes, which can affect their relative appeal. They work best as part of a broader, intentional strategy rather than as a standalone safety net.
How do I know which defensive strategy is right for me?
It depends on your timeline, risk tolerance, income needs, and overall financial picture. Someone five years from retirement has different priorities than someone already drawing from their portfolio. At Stone Oak Wealth, we help clients think through which combination of value, low-volatility, and dividend approaches makes sense for their specific situation – and we build from there.
Sources: Broadridge Investment Management Solutions
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