Has your portfolio taken a hit over the last year? You wouldn’t be the only one whose savings are taking a beating between the ongoing bear market and runaway inflation. With the looming prospect of a recession and the inevitable hit to small businesses that will entail, it’s more important than ever to find new and effective ways to diversify your portfolio so that you can ride out the storm.
Smart investment choices can put you in a better position when markets finally return to growth. Rebalancing and diversifying your portfolio can help you navigate a tougher economy and protect more of your purchasing power in the long run. As you put together a recession-era portfolio, these are some of the assets that have a history of performing well through the bad times.
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Gold Bullion
Bullion investing is an alternative to the usual stocks and bonds that can spread out your risk exposure and provide a cushion against losses in a recession.
Gold is often used as a safe haven during stock market crashes and as a hedge against inflation. While the precious metal comes with its own risks and price volatility, it’s seen as a defensive asset that often maintains or rises in value when other sectors are in free-fall.
If you’ve never bought physical gold bullion, it’s simple. You can find gold coins for sale with a local bullion dealer in-person or online. You can often book a free bullion consultation to get started and learn more about what products are considered investment-grade bullion.
There are other ways to invest in gold as well, such as an Exchange-Traded Fund or investing in mining stocks, but buying physical bullion cuts down on fees and counter-party risks. With the right bullion dealer, it can be as simple as making any other investments. Gold can even be included in registered retirement accounts.
Utilities & Consumer Staples
You’ll often hear advice to invest in necessities when a recession hits. Luxury spending is the first to get cut when people feel the pinch, but utilities are necessities that people will keep paying for, making them recession-friendly investments.
Commodities that go into consumer staples are another great bet. This includes agricultural products, livestock, coffee, lumber, and metals. If you’re looking for a more affordable commodity to invest in than gold, silver is the more affordable precious metal that’s also used more widely for industrial purposes, including electronics, solar panels, and medicine.
As with any investment, over-committing to utilities is unwise, but targeting a few utilities or consumer staples through exchange-traded funds can provide some much-needed stability in a volatile market.
Core Sector Stocks
As tempting as it may be to avoid stocks altogether during a recession, equities still offer great liquidity and growth potential on the other side of a downturn. Core sectors include all of the big and boring companies. They provide an element of stability to your portfolio.
Core sectors include major companies in industries like technology, fast food, pharmaceuticals, home appliances, and oil and gas. More important than the sector is the company itself. You’re looking for stable and reliable companies like Microsoft, McDonald’s, and Johnson & Johnson.
Real Estate
Residential real estate is just as much a necessity as groceries. People will always need a place to live, and during a recession, many would-be homebuyers take a step back from the market and decide to continue renting instead. The result can be rising rents, as was seen in the aftermath of the 2008 financial crisis.
Even though housing prices collapsed during that crisis as people lost their homes, they still had to go somewhere. Demand shifted from the homeownership market to the rental market. If you’re investing in an income property, you’re renting it out, and rental income can be a reliable revenue stream during a recession.
Real estate investing is not risk-free, and you may want to consider crowdfunding platforms or REITs if you want to protect yourself from taking on 100% of the risk and avoid the work of managing a property.
Don’t Exit The Market
As much as it may look like your portfolio is taking a hit, exiting the market during a dip is the worst possible time to leave. News outlets will do their best to generate traffic by fear-mongering, but it almost always makes the most sense to stay invested.
When you exit during a market crash or a recession, you’re selling at the lowest value. You’re more likely to generate a negative return, and, crucially, you miss out on the possibility of recovery. Most public companies will survive a recession, and if you’ve diversified your portfolio well enough, you should benefit from the subsequent recovery.
