How to invest during a recession

Threats to the US economy have increased dramatically in the first four months of 2022, leaving many investors wondering how to best protect their portfolios.

From war in ukraine And rising interest rates To skyrocketing inflation And falling economic growthThe warning signs of a possible economic downturn are plentiful—to say the least—and both wall Street And the focus is on the main road.

Billionaire Investors Prefer Carl Icahnoo And Leon Cooperman Americans were some of the first to sound the alarm about the growing prospects of a recession, but now, the former Federal Reserve officials And top investment banks are adding to the growing chorus of recession forecasts.

Persistent warnings from Wall Street have prompted 81% of American adults to say they think the US economy is likely to experience a recession this year, according to one CNBC survey conducted by Momentive. And a recent Reuters poll showed that 40% Economist Confident that the US economy will slip into recession within the next 24 months.

If they are correct, investors should be prepared for the worst case scenario. Here’s what some top investment advisors advise investors to do to protect their portfolios in the worst-case scenario.

Think long term and follow investment plan

First and foremost, investors should think long term in times of economic turmoil, and stick to their investment plans. Actively investing in stocks and timing market downturns is a tough game – just ask hedge fund managers.

From 2011 to 2020, a simple investment in the S&P 500 returned nearly three times that of the average hedge fund. Data from American Enterprise Institute,

“Investors should invest for the long term based on a financial plan given their risk, goals and time horizon,” said Brett Bernstein, CEO and co-founder of financial planning firm XML Financial Group. Good luck, “If a recession were to occur, it is more about maintaining a proper asset allocation and making changes to the portfolio based on current market conditions.”

Experts say that avoiding panic selling is the key to long-term investment success. After all, going back to 1927, if an investor puts $100 in the S&P 500 and keeps investing, their portfolio will be worth more than $16,800 by May 2020. But missing the 10 biggest daily stock market rallies would reduce that value to just $5,576. , according to UBS,

“Clients should be comfortable with their allocations and try not to change them once the recession begins,” said John Ingram, CIO and partner at investment advisory and wealth management firm Crestwood Advisors. Good luck. “Given the tendency for investors to sell near the bottom of the stock market (and miss the market’s rebound), a ‘de-risking’ portfolio to protect capital will likely lose money as clients take a temporary market loss.” turn into a permanent one.”

safe haven property

That doesn’t mean investors should sit on their hands during a recession. There are so-called “safe-assets” that can help reduce portfolio risk. But experts say it’s important to get into these assets. before this Recession begins, not after.

“As the market discounts the future, investors need to act before the downturn hits. That’s a healthy dose of cash as well as a small amount,” explained J. Douglas Kelly, partner and portfolio manager at Williams Jones Wealth Management. Bonds with maturity (2 years or so) will provide security. Good luck,

Joseph Zappia, co-chief investment officer at investment advisory firm LVW Advisors, also said it is important to act before the recession begins to protect savings. He advised investors to look Series I Savings Bondswhich are backed by the US government and return inflation rates on an annual basis to protect their portfolios as consumer prices rise.

“It’s more about making a plan before the recession. There’s an old saying that Noah didn’t wait for the rain to start before making his ark rings,” Zappia said.

Then there is the most common safe-haven asset. Data shows that gold outperforms stocks in times of economic turmoil. For example, during the Great Recession, the value of gold increased dramatically, increasing by 101.1% from 2008 to 2010, according to a bureau of labor statistics report,

“As a safe haven asset, a small allocation to gold can have a meaningful impact on overall portfolio volatility and the performance of long-term investors who seek stability in negative market environments and external shocks to capital markets,” said Jeff Wagner, A senior fellow at LVW Advisors told Good luck,

Diversify your portfolio

Experts say a well-diversified portfolio is another way to help prevent serious losses during a recession.

“Sage’s advice is to build a portfolio that can withstand volatility by being well-diversified (including fixed income, equities, alternative investments, private equity, and real assets),” says John Aconiak, CFP, an independent investment firm. Managing partner advisory firm Bordeaux Wealth Advisors told Good luck,

While many investors have flocked to high-flying tech stocks and exchange-traded funds over the years, it’s important to remember that historically, tech-heavy Nasdaq performed poorly during the recession.

The index fell more than 80% during the few years following the dot-com bubble, and during the Great Recession, it fell 46% from November 2007 to November 2008 alone.

So it may be prudent to focus on diversification and look for alternatives to reduce losses.

Zapia said, “A well-diversified portfolio of quality stocks, safe fixed income including inflation-protected U.S. Treasury securities, and diversifiers like real estate (or other options for qualified investors) can be helpful in reducing losses.” “

Remember that not every recession is the Great Recession

While recession fears are spreading like wildfire, it is also helpful to remember that not every recession is as painful as the Great Recession.

“It’s important to differentiate between varying severity of recessions,” said John Ingram of Crestwood Advisors.

Ingram noted that the Great Recession of 2008/09 was a banking crisis that led to a deep, prolonged recession. But in today’s economy, the balance sheets of US banks remain strong, making it “unlikely” that the US will experience the recession at that time.

“Clients should understand that given the low growth outlook, recessions may be more common and will most likely be less impactful for the portfolio than the Great Recession of 2008/09,” Ingram explained. “Maybe investors can allay some of the fear associated with the recession.”

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