Is a Recession Coming? How to Prepare Your Portfolio Now

Our President's (whose name shall not be uttered) tariffs on foreign goods have created the threat of a massive recession. I recently learned that tariffs have not been as high as today's since the 1930s – you know, the decade that gave us The Great Depression. Okay, economic forecasts are complex and depend on numerous interconnected factors, including fiscal policy, monetary policy, global economic conditions, and consumer behavior. Attributing a recession threat solely to tariffs is not entirely accurate, but I need someone to blame.

However, evidence from the 2008 recession shows that you can turn these challenging times into opportunities for growing wealth. As traditional investment strategies often falter during economic downturns, exploring unconventional avenues may be the key to financial resilience. I don't have a lot of advice, but the advice I do offer is some of the most recommended.

What's a Recession Anyway?

Before diving into investment strategies, it's crucial to understand what an impending recession means. Economic slowdowns often result in reduced consumer spending, increased unemployment, and greater market volatility. This DOES NOT mean that you sell your investments. If you do, your newly liquid assets will be realized at a loss. Instead, as we have discussed, wait; the market turns around eventually.

The key to surviving a recession is also something we have previously discussed- diversification. Here's the kicker: a recession can actually be a prime time to buy. Think of it as a massive clearance sale on stocks. Prices are low, and history shows us that over the long haul, the stock market has a pretty impressive track record of bouncing back and then some. Peep this graph if you need convincing:

Source: Fidelity Investments. Past performance is no guarantee of future returns.

Being aware of recession indicators can also reveal opportunities amid the turmoil. For instance, while traditional investments may waver, certain sectors can remain stable or even thrive. For example, during the 2008 recession, utility stocks saw a modest increase of about 5%. Savvy investors can leverage these shifts to protect and grow their wealth, even in tough times.

Alternative Assets: A Different Kind of Investment

When traditional markets face turbulence, consider alternative investments. Options like real estate, commodities, and foreign stock can provide a safe haven.

Real Estate Investment

If you are able, investing in real estate can be particularly advantageous during a recession, especially in rental properties. Between 2009 and 2019, home values increased by 23% overall, showing that real assets typically appreciate over time.

With job security uncertain for many, the demand for rental properties tends to stay steady. Focusing on properties in desirable areas or emerging neighborhoods can create reliable rental income. The crucial part is conducting thorough research on market trends to select properties with strong growth potential.

Precious Metals

Gold, silver, and other precious metals are classic safe-haven assets during economic downturns. Historical trends indicate that during market declines, precious metals can retain their value. For instance, during the recession of 2008, gold prices surged by nearly 25%.

Consider allocating a portion of your portfolio to physical metals or commodities ETFs. This approach not only diversifies your assets but also serves as a safeguard against inflation and currency devaluation. These investments are most suitable for those who maintain a long-term outlook.

Don't forget to do your research. Here are a few ticker symbols to get you started.

Ticker Symbols for Precious Metal ETFs: GLD, SLV, PPLT, GLTR, and PALL Ticker Symbols for Precious Metal Funds: FSAGX, GLDAX, USAGX, OPGSX, EKWAX

Foreign Stock

Foreign stock may also provide a safety net. As the US market takes a downturn, other markets may be thriving. Do your research. Here are a few ticker symbols to get you started: VXUS, EWJV, IEFA, FLGB

Investing in Dividends and Defensive Stocks

Defensive stocks often outperform the market in uncertain times. These shares are in companies that provide essential goods, like food and healthcare, which remain in demand regardless of economic conditions. Historically, companies in these sectors may provide enough stability to mitigate financial risk.

Additionally, stocks that offer dividends can provide a steady income stream. For instance, in the last five years, companies with consistent dividend payouts have demonstrated less volatility, with average annual returns of around 10%. Focus on companies with a strong history of dividends for better liquidity during a recession.

Networking

Talk to people! Your friends may know something that you don't.

Embracing Opportunity Amid Uncertainty

While economic downturns can trigger anxiety, they also offer unique opportunities for growth. By exploring unconventional investments, you can diversify your portfolio and create a stable financial footing.

Adopting a proactive mindset not only helps mitigate risks but may also reveal paths to financial growth when they matter most. Remember, investing in yourself is crucial. With the right strategies, your wealth can not only survive but also thrive during tough times.

As the adage reminds us, "No storm lasts forever.” New opportunities will always arise, and it’s essential to stay confident and adaptable.