Predicting a recession is a lot like forecasting the perfect storm. It’s easy to see the dark clouds sitting on the horizon, but once those gale force winds kick in, there’s no telling where–or even if–it’ll ever make landfall.
Some pessimistic pundits say it’s already here. Other optimists say not so fast! No matter when it hits, here are 5 ways to make sure your portfolio is prepared!
1. Keep Your Eye on the Horizon. History is a great teacher and it’s taught long-term investors that there is more than enough time to ride out any major market drops. So, first and foremost, don’t panic. Keep your eyes focused on your future.
2. Chart Your Own Course. Before the perfect storm hits (and even if it doesn’t) avoid any stomach-wrenching, gut-checking, short-term market mania by revisiting your portfolio allocation and checking to see how your risk tolerance has changed over the years.
3. Stay the Course with Dollar-Cost Averaging. Dollar-cost averaging lets you invest a set amount of money at regular intervals, regardless of a shift in the stock’s price. As many dollar-cost averagers will tell you, this is practice is a recession win-win strategy. This approach not only helps investors keep their balance when those inevitable storm clouds popup but maintain a balanced, long-term financial outlook.
4. Seek Shelter with Low-Risk Stocks. Seek shelter in this storm by investing in low-risk, high-quality businesses that can thrive in rough seas (believe it or not, they do exist!) These are companies whose stocks have historically shown that they can rebound quickly from massive market sell-offs. Look for stocks with a high alphas and low betas (ideally 1 or less) for greater stock price stability and earnings predictability.
5. Don’t Get Frightened Away By the Fear. We’re getting to the point now where people are downright scared to buy stocks, and some folks are even beginning to feel a sort of revulsion toward the market. Ironically, though, that’s when the buying opportunities are best! We’ll be the first to admit that the economic and financial news is none too encouraging. However, it’s always like that at major market bottoms. So take full advantage of this fire sale and buy while you can!
So there you have it: 5 tried-and-true tips to recession-proof your portfolio! Yes, it may get rocky. And yes, it may hurt for awhile. But long-term investors need not worry! This too shall pass!
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