Offensive investing is a strategy where you, as an offensive investor, choose an active approach to achieve higher returns. It is a way of investing where you are willing to take more risk for potentially larger gains. But what exactly does this entail? In this article, we explain what offensive investing is so that you can start your investment journey with confidence.
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Offensive: A definition
Offensive is another word for ‘attacking’ or ‘an attack’. Offensive is the opposite of defensive.
What does offensive investing mean?
In the world of investing, offensive means an investment strategy where the focus lies on achieving higher returns, even if this means you have to take more risk. With offensive investing, you are therefore looking for the balance between risk and return.
What does it mean to invest very offensively?
Very offensive investing goes a step further. This implies that you go for the highest risks with the goal of achieving the highest returns. Think of speculative stocks or crypto investments. These investments can yield substantial profits if everything goes well. But if things go wrong, the losses can be just as large. Very offensive investing requires a lot of investment experience to be able to tolerate the fluctuations in the market.
7 offensive investment products
If you choose an offensive investment strategy, you can use various financial products that are specifically aimed at higher returns. Below you will find a number of the most used offensive investment products.
1. Options
Options are financial contracts that give you the right – but not the obligation – to buy (or sell) an underlying asset at a predetermined price within a certain period. Investors use options to respond to the volatility of the market, and they can cause both profit and loss. Options offer the possibility to take large positions with relatively little capital. But this also increases the risk.
2. Futures
Futures are binding agreements to buy or sell a certain product or asset on a future date at a set price. Investors use futures to profit from price movements in, for example, oil, gold or stocks. Futures can magnify the profit or loss of your investment.
3. Speculative stocks
Speculative stocks are stocks of companies with high growth potential. Here, it is still unclear whether that potential will be realised. Think of a market with a lot of competition or a new product. Investing in speculative stocks can provide profit in a short time, but the risk you run is also high.
4. Cryptocurrencies
Cryptocurrencies have become very popular in recent years. The volatility of the crypto market can be extreme. This means that the chance of large profits, but also of large losses, is present. Cryptocurrencies are often seen as a very offensive asset class.
5. Margin trading
Margin trading, or securities credit, implies that you borrow money to trade or invest more than just your own money to achieve a higher return (leverage). Your existing portfolio of investment products serves as collateral for the loan. If the coverage value of your portfolio drops, the bank or broker can demand that you deposit more of your own money or sell investment products. This is called a margin call.
6. Going short
Going short is a form of risky investing and implies that you speculate on an investment product. You sell borrowed products that you do not own, with the hope that their value drops. Subsequently, you buy these back at a lower price to make a profit. Do the prices of the borrowed products actually rise? Then you can suffer a large loss. Please note, past performance is no guarantee for the future.
7. Leveraged products
Leveraged products are used to take a larger position in the market with a small deposit. As a result, the profit can be higher, but the loss as well. Examples of leveraged products are the so-called turbos, sprinters, speeders, warrants and factors.
What is the difference between defensive investing and offensive investing?
The complete opposite of offensive is defensive investing, part of the five different risk profiles. But what is the difference? It lies mainly in the amount of risk you are willing to take.
With defensive investing, the emphasis is on safety and stability. This means that defensive risk profiles choose less risky investments. Such as bonds. They yield a lower return, but also have a lower risk. Offensive investing, on the other hand, revolves around taking higher risks in exchange for potentially higher returns. This can involve investments in stocks, options or futures.
Neutral investing
You can also have a combination of defensive and offensive investing. This is called ‘neutral investing’. This strategy offers a balance between risk and return, where you have both safe and growth-oriented investments in your portfolio.
How can you limit the risk with offensive investing?
Although offensive investing is often accompanied by higher risks, there are ways to manage this risk. Below you will find a few tips:
- Diversification: Spread your investments across different investment products in diverse markets. Also ensure that this is well distributed across these markets.
- Understand your risk profile: Determine how much risk you are willing to take before you start investing. This helps you to make choices that fit your financial goals and personal situation. Reading tip: what type of investor are you?
- Stop-loss orders: Use stop-loss orders to limit loss in the event of negative market movements.
Is offensive investing right for you?
Offensive investing has many peaks and troughs. That can be stressful as an investor. Therefore, this form of risky investing is more suitable for investors who can handle stress, are looking for higher returns and are willing to take more risk.
For those who are just starting to invest, it can be wise to first start with less risky investments, such as ETFs. Remember that investing always involves risk.
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Investing involves risks. You can lose your investment.
All views, opinions, and analyses in this article should not be read as personal investment advice. Individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
