Matt Featured In Advisor Perspectives: Defense Wins Championships – and Preserves Wealth

People say that the best defense is a good offense. They are wrong, at least when it comes to protecting wealth.

Investing is about more than aggressive plays and big, risky bets. It’s easy to forget the other side of the equation after a decade-long bull market defined by slow-but-steady growth. Here’s a refresher: Sometimes the best defense is a good defense, and financial advisors have plenty of tools to craft defensive strategies that will stand up to all but the harshest economic headwinds.

U.S. Treasury bonds

If all else fails, history says buy Treasury bonds. They’re as close to risk-free as possible. Treasury securities are a great wait-and-see investment: stable, liquid, and backed by the full faith and credit of the most powerful country in the world.

Municipal bonds

While they aren’t as stable as Treasury bonds, municipals offer an enticing mix of low prices, relatively high yields, and tax-exempt returns. Munis aren’t always a safe haven against inflation and recessions, but 2023 may be different. As J.P. Morgan pointed out, most municipalities have remarkably strong financial positions, so their bonds could be both safe and lucrative in the short to medium term.


It is the original store of value. Gold futures have often served as a fallback or insurance against adverse economic conditions, and many investors have the same idea as we head into 2023. Unfortunately, that means gold futures are near record highs, so their upside potential may be limited.


Defensive asset management in 2023

The signals I’ve seen from prominent firms like Goldman Sachs, Morgan Stanley, BlackRock, and J.P. Morgan point in the same direction. This year will see continued weakness in equities, strong returns for investment-grade fixed income and (to a lesser extent) government bonds, stubborn – if declining – inflation, and a possible recession that could hurt all assets. Traditional safe-haven investments may not cut it in such a strange market environment.

Treasury bonds, municipal bonds, gold, and currency have historically been safe bets for defensive planning, though inflation may still dampen returns. They’re almost entirely defensive plays, focused more on preserving value than increasing it. For a less traditional safe haven, however, the guidance provided by some of the biggest banks and investment firms for 2023 has a few interesting ideas.

Fixed income may be a breakout star in 2023, as favorable interest rate and price activity put bonds and securitized products in prime position to outperform. Morgan Stanley forecasted high single-digit returns in 2023 for German Bunds, Italian government bonds, investment-grade bonds, AAA-rated securities, and mortgage-backed securities issued by government-sponsored agencies. Mortgage-backed and auto-backed securities and collateralized debt obligations may also offer high returns relative to their risk, though their viability in defensive planning strategies may depend heavily on the individual securities and their issuers. BlackRock also recommended a focus on fixed income in 2023, albeit with an emphasis on short-term and investment-grade debt.

The equity markets may continue to struggle this year, but there are a few defensive plays that could maintain their value, if not deliver returns that outpace inflation. J.P. Morgan’s 2023 insights pointed to defensive stocks – those with pricing power, consistent cash flows, and trading at relatively stable and reasonable valuations – as the most attractive options for equity investors, though all equity plays carry some degree of risk in today’s market environment.

The U.S. economy may avoid a recession in 2023. If one does occur, there’s a chance it’s both short and shallow. That should be a weight off advisors’ chests, though it doesn’t mean we can sit back and relax. While conditions seem to be improving, the global economy is still fraught with risk, shortages, inflation, and uncertainty.

As stewards of your clients’ financial future, reevaluate your risk-management strategies and adopt defensive postures as needed. Noteworthy returns may be scarce in 2023, but history shows we may be able to preserve the value of client portfolios by shifting allocations away from riskier assets and toward traditional and nontraditional safe havens.

It may not be this year, but be patient.

Read the Advisor Perspectives article here.