A lot of Wall Street banks' sell side analysts are presently suggesting that you should pick defensive stocks to protect against difficult economic times. Defensive stocks are companies in food, drugs, health care, utilities and consumer staples. It's just dumb.
The logic of course is that to spread risk, you should have a diversified portfolio of assets; in other words, a spread of cash, stocks, bonds, real estate, commodities and gold. As we are all bad at market timing and economic analysis, we will benefit by having this spread of assets. We no longer have to decide on the next recession or buying levels for any asset. There are no sleepless nights, wondering if you have just missed a major top or bottom in any one of the markets. I have no problem with this strategy, it is probably the best way to make money in the long term. The other major consideration for portfolio selection is the required income from the portfolio.
So you have decided on an asset allocation for your portfolio that suits your risk profile and your need for income. This will be different for all investors. Some investors are more risk tolerant and some are cautious. Some portfolios have no need to generate income and others are purely based on the income that they produce. The asset allocations will reflect these choices. If you are not making these decisions, you are either a trader at heart or you are not investing wisely (and probably not successfully either). Personally, I like to make calls on the economic environment and often have asset allocations that are very unusual. That is my preference. However, I am always aware of the asset allocation and the risks of the choices that I have made.
If you are a disciplined investor, your
