investment

Recession-proofing your portfolio: A guide for investors in 2023

Most economists agree that we are headed for a recession. Though there is no official definition for a recession, we’ll know when we spend less, businesses sell less, and layoffs and wage cuts ensue.

For investors, a recession can take a toll if your portfolio is not sturdy enough to withstand market fluctuation. That’s why now is a good time for a portfolio checkup and maybe a little tweaking. Let’s take a look at how to make your portfolio recession proof.

Resilient stocks

Here is a short list of solid stocks from sectors that should be able to withstand a recession:

  • McDonalds (NYSE: MCD)
  • Procter & Gamble (NYSE: PG)
  • United Health Group (NYSE: UNH)

Recession-proof industries

Some sectors of the economy fare better against recessions. That doesn’t mean they don’t dip from time to time. But they tend to withstand a recession better than other industries. Here’s a list of these recession-proof industries:

  • Utilities – People always need gas, electricity, and water. Your utility bills fluctuate only with the season and are generally stable when other parts of your budget change. In the same way, investments in utilities show consistent returns when other parts of the economy are in chaos. NextEra Energy (NEE), Exelon Corp. (EXC), and Southern Company (SO) are nationally known utilities, or you may check out a local or regional utility that you use.
  • Consumer goods – Any company that sells essential products is a good investment during a recession. Every home keeps a supply of things like paper towels, deodorant, soap, or baby products. That means they are always in demand, and the companies that produce them will stay on course during tough times. Procter & Gamble (PG), Unilever (UL), and British American Tobacco (BTI) are examples of resilient consumer goods companies.
  • Healthcare – The products and services you receive from a doctor, hospital, or pharmacy are also consistent in the face of economic instability. So stocks in pharmaceuticals and health-related services will stand up to a recession. Johnson & Johnson (JNJ), United Health Group (UNH), and Cardinal Health Inc. (CAH) are companies worth a look.
  • Telecoms – These were once considered utilities, but with technological advancements, the internet, and smartphones, it has grown into a whole new sector of the economy. Now, these services and the companies that provide them are in constant demand. AT&T (T), Verizon (VZ), and Comcast (CMCSA) are part of a telecommunications industry that has proven to hold up during bear markets. Telecoms have remained stable while other big-tech companies have shown signs of recession pains.
  • Others to check out – There are other industries you may not think of that have shown promise in recent years and can be considered. For instance, some people like to seek shelter in gold, but gold mining stocks are an option that can produce consistent returns. Gaming came on strong during the pandemic because people were at home so much. But the industry remains a growing sector and should be a winner, even in the face of recession. And with shipping a vital part of any economy, logistics companies such as FedEx (FDX), CH Robinson, and XPO are worthy of note for recession investing.

Three Major Asset Classes to Consider

What types of assets are best during a recession? Here are three to consider and why:

Stocks

Though stocks can retreat during a recession, some stocks are good to buy or hold onto when the economy is in flux. Solid stocks that pay dividends are a good place to start because they can provide a little insurance. Look for stocks that have a long-time reputation for paying dividends. These are usually bigger and more diverse companies more likely to withstand down times.

Bonds

When the market falls off, many investors take shelter in bonds because of their guaranteed interest until maturity. A highly rated bond will never lose money and always pays interest. If you buy a good bond while interest rates are up, you will even have a hedge against inflation.

Cash Equivalents

Ideal for short-term investing, cash equivalents are good to hold you over for a few months or years. When your stocks head south, you may want to move your cash into a savings account that pays a good rate. Savings accounts also have built-in FDIC insurance.

Certificates of deposit (CDs) are also insured and pay higher-than-average interest rates guaranteed until maturity.

What Type of Stocks Perform the Best During Recession

In addition to stocks with good reputations for dividends, there are other stocks that will help your portfolio battle the recession.

Stocks in budget businesses provide coverage in a tough economy because these are companies people turn to for bargain essentials. Bargain stores like Dollar General (DG) and fast-food operations such as McDonald’s (MCD) are good examples.

Stock funds such as a mutual fund or an exchange-traded fund (ETF) are diversified enough to prevent exposure to volatility. Mutual funds are a variety of assets that investors share. They can emphasize certain types of assets but are not weighted too heavily in a single sector. Since real estate rarely loses value, a real estate investment trust REIT is an excellent defensive investment. ETFs are also pooled between investors, and they track a wide variety of specific indexes. Mutual funds and ETFs involve fees for expert fund managers.

THINGS TO KEEP IN MIND

With the economy showing signs of recession, your finances become Item No. 1. So, you should have your financial portfolio battened down to weather the storm; you want to be able to rest easy during tough times.

The best way to ensure your portfolio is in order is to have everything in one place so that you can keep a close eye on things. This is why having a reliable and accurate stock portfolio tracker is vital for investors and traders alike.

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