Many investors look to stack their share portfolios with defensive ASX shares. After all, one of the biggest fears for any investor is buying a company that ends up going bankrupt. Losing most or all of your capital can have a catastrophic impact on an investor's wealth and retirement prospects. Not to mention their confidence.
As such, many investors like to buy defensive ASX shares – companies with inelastic earnings bases that are less likely to run into serious trouble during a recession or other economic shock.
But finding these shares is easier said than done. No one buys any ASX share expecting it to be a lemon.
So today, let's talk about two ASX shares that, in my opinion, display some of the most defensive qualities on the ASX.
2 defensive ASX shares that lower-risk investors can feel comfortable buying
Telstra Group Ltd (ASX: TLS)
First up is a company that needs little introduction. Telstra is, by far, the largest purveyor of telecommunication services in Australia. It has a clear market lead in both the mobile telephony and fixed-line internet markets across the country.
Telstra is a rather strange company in that it used to be a government-owned monopoly. Telstra's days of being the sole provider of communication services in Australia are long gone, yet it retains some advantages that its history has lent it. Many customers in regional and rural Australia simply have no choice but to use Telstra, given its almost universally regarded superiority when it comes to network coverage.
Until this changes, I don't see Telstra losing its dominant market position any time soon.
But that's not the company's only defensive quality. Telecommunication services are highly inelastic, meaning people don't just stop using them when money is tight. In fact, I'd wager that most people's phone and internet connection would be one of the last things they would be willing to give up.
This means that Telstra's earnings, profits and dividends are likely to remain relatively steady in good economic times and bad, in times of low inflation and high.
All this, in my view, makes Telstra one of the most defensive ASX shares on the market.
Coles Group Ltd (ASX: COL)
Next up, we have another defensive ASX share in Coles. Again, Coles is a company that most Australians would be familiar with, given its ubiquitous supermarket presence across the country.
Coles sells food, drinks, household essentials, as well as tobacco and alcohol (the latter through its First Choice, Liquorland and Vintage Cellars chains).
I like Coles as a defensive ASX share for similar reasons to Telstra. Its products are mostly staples for consumers, not optional luxuries or fancies.
Whether the economy is in a boom or a bust or whether inflation or deflation is rearing its head, we all have (or at least desire) to buy the products Coles sells. And given that this company strives to offer them at highly competitive prices, customers tend to keep coming back.
Again, this makes the earnings and dividends from Coles highly stable and predictable – characteristics that are essential to a defensive ASX share. So like Telstra, I view Coles stock as a perfect fit for a lower-risk investor.
