Investment Portfolio Strategy in a Recession (2024)

FAQs

What's the best way to recession-proof your investment portfolio? ›

Rebalancing your portfolio — which involves buying and selling investments to restore your original asset allocation, or mix of stocks, bonds and other investments — is usually a good idea, but not during a market sell-off. When things are looking bleak, consider holding on to your investments.

Strong Balance Sheets. A good investment strategy during a recession is to look for companies that are maintaining strong balance sheets or steady business models despite the economic headwinds. Some examples of these types of companies include utilities, basic consumer goods conglomerates, and defense stocks.

Stock prices are lower than they've been in a long time, and it's a smart time to buy the dip and invest at a discount. If we face a recession, the market may fall further. But it will recover eventually. By investing during the low points, you'll be in a perfect position to take advantage of the upswing.

Healthy large cap stocks also tend to hold up relatively well during downturns. Investing in broad funds can help reduce recession risk through diversification. Bonds and dividend stocks can provide income to cushion investors against downturns.

Widely used during the global financial crisis of 2007–2008 and the Great Recession that followed, the phrase was also often used to describe companies which could avoid share issues or bankruptcy. Commercial establishments that accept only cash payments have become suspect in the modern age.

During a recession, stock values often decline. In theory, that's bad news for an existing portfolio, yet leaving investments alone means not locking in recession-related losses by selling.

In addition, during recessions, people with access to cash are in a better position to take advantage of investment opportunities that can significantly improve their finances long-term.

What is the most successful business in a recession? ›

What are some examples of businesses that thrive in recession? Due to the elasticity of demand, recession-proof industries are usually in essential services, like health care, senior services, grocery stores, and maintenance, such as plumbing and electrical.

Consumer staples, including toothpaste, soap, and shampoo, enjoy a steady demand for their products during recessions and other emergencies, such as pandemics. Discount stores often do incredibly well during recessions because their staple products are cheaper.

The best recession stocks include consumer staples, utilities and healthcare companies, all of which produce goods and services that consumers can't do without, no matter how bad the economy gets.

The easiest way to get rich during a recession is to invest as much money into the stock market as you can. When there's a recession, stock market performance declines. Consumers spend less and companies earn less, causing investors to worry.

Odds of a recession in 2023 hover at 64% amid bank failures and higher rates. Economists see jump in unemployment and major job losses over next 12 months.

1. Warren Buffett. In October 2008, Warren Buffett published an article in the New York TimesOp-Ed section declaring he was buying American stocks during the equity downfall brought on by the credit crisis.

Generally, the industries known to fare better during recessions are those that supply the population with essentials we cannot live without that. They include utilities, health care, consumer staples, and, in some pundits' opinions, maybe even technology.

GOBankingRates consulted quite a few finance experts and asked them this question and they all said basically the same thing: You need three to six months' worth of living expenses in an easily accessible savings account. The exact amount of cash needed depends on one's income tier and cost of living.

Will recession end in 2023? ›

Global Recession likely in 2023

According to the British consultancy's annual World Economic League Table, the global economy topped $100 trillion for the first time in 2022 but will halt in 2023 as governments continue to struggle against growing costs.

Holding long-term fixed-rate investments, such as long-term bonds, fixed annuities, and some types of life insurance policies, during inflation can be bad because their returns may not keep up with inflation.

In general, prices tend to fall during a recession. This is because people are buying less, and businesses are selling less. However, some items may become more expensive during a recession. For example, food and gas prices may increase if there's an increase in demand or a decrease in supply.

Recessions are periods of widespread economic downturn. Cash, large-cap stocks and gold can be good investments during a recession. Stocks that tend to fluctuate with the economy and cryptocurrencies can be unstable during a recession.

Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

In a recession, the rate of inflation tends to fall. This is because unemployment rises moderating wage inflation. Also with falling demand, firms respond by cutting prices. This fall in inflation can benefit those on fixed incomes or cash savings.

Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.

The longer an investment window you give yourself, the more wealth you might gain over time. It's a smart idea to invest extra cash in 2023 if you're managing your bills well. Before you invest, make sure you have money set aside for emergencies and eliminate high-interest debt.

Should I keep investing in my Roth IRA during a recession? ›

Even during tough times, there are reasons to keep up your retirement contributions, if you can. While you may be looking for ways to have more money in your budget, it might be tempting to stop contributing to your retirement account.

Should Investors Ever Pause 401(k) Contributions? Investors should avoid pausing their 401(k) contributions during a bear market, recession or market downturn. The loss in compounding earnings typically outweighs any potential for savings you think you're getting by keeping the cash out of your retirement savings.

Obviously, stocks did horribly during the Great Depression. But bonds did well. Interest rates and bond prices are two ends of a seesaw.

During a traditional recession, the Fed will usually lower interest rates. This creates an incentive for people to spend money and stimulate the economy. It also typically leads to more affordable mortgage rates, which leads to more opportunity for homebuyers.

The threat of a U.S. recession remains alive in 2023. The consensus estimate on the probability of a meaningful downturn in the American economy in the next 12 months is at 65%, according to Goldman Sachs Research. But our own economic analysis rates that probability much lower, at 35%.

Lasting from December 2007 to June 2009, this economic downturn was the longest since World War II. The Great Recession began in December 2007 and ended in June 2009, which makes it the longest recession since World War II. Beyond its duration, the Great Recession was notably severe in several respects.

Buy Quality Assets During a Recession

“Investors should seek out quality across asset classes to protect a portfolio during a downturn,” Katz says. “Low beta, high return on investments and low leverage are hallmarks of quality investments.”

Recessions typically go hand in hand with higher unemployment, and finding a new job may not happen quickly. Catherine Valega, a CFP and wealth consultant at Green Bee Advisory in Winchester, Massachusetts, suggests keeping 12 to 24 months of expenses in cash.