What does recession mean for your portfolio? (2024)

FAQs

What will a recession do to my portfolio? ›

Riskier assets like stocks and high-yield bonds tend to lose value in a recession, while gold and U.S. Treasuries appreciate. Shares of large companies with ample, steady cash flows and dividends tend to outperform economically sensitive stocks in downturns.

During the recession phase of the business cycle, income and employment decline; stock prices fall as companies struggle to sustain profitability. A sign that the economy has entered the trough phase of the business cycle is when stock prices increase after a significant decline.

Cash. Cash is an important asset during a recession. Having an emergency fund to tap if you need extra cash is helpful. This way, you can let your investments ride out market lows and capitalize on long-term growth.

Sticking to your long-term plan and staying invested is vital no matter what the economy is doing. Although recessions are unnerving, they may let you take advantage of potential opportunities. That way, you don't miss out when markets recover.

If investors sell when the market is down, they will realize an actual loss. A lesson many investors have learned is that if they sit tight and wait for the upturn to come, they won't realize a loss. In fact, they may even see their portfolios gain more value than they had before the downturn.

Losses aren't real until you sell. Some investors believe that by selling during a downturn, they can wait out difficult market conditions and reinvest when the market looks better. However, timing the market is extremely difficult, and even professionals who attempt to do this fail more often than not.

Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.

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.

Cash: Offers liquidity, allowing you to cover expenses or seize investment opportunities. Property: Can provide rental income and potential long-term appreciation, but selling might be difficult during an economic downturn.

Most stocks and high-yield bonds tend to lose value in a recession, while lower-risk assets—such as gold and U.S. Treasuries—tend to appreciate.

What do people buy most in a recession? ›

Toothpaste, deodorant, shampoo, toilet paper, and other grooming and personal care items are always in demand. Offering these types of items can position your business as a vital resource for consumers during tough times. People want to look good, even when times are tough.

Cash Purchases

Cash delivers safety in troubled times. Experts recommend keeping three to six months' worth of cash to cover living expenses when people lose their jobs. For businesses, maintaining liquidity through a recession can making the difference between shutting the doors or surviving the downturn.

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 and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

Ready-to-eat canned meats, fruits and vegetables. Canned juices, milk, soup (if powdered, store extra water) Staples " sugar, salt, pepper. High energy foods " peanut butter, jelly, crackers, granola bars, trail mix.

What businesses are profitable in a recession? Many investors turn to stocks in companies that sell consumer staples like health care, food and beverages, and personal hygiene products. These businesses typically remain profitable during recessions and their share prices tend to better resist stock market sell-offs.

Your investment portfolio may take a hit during a recession. You can mitigate your losses by holding certain assets.

Notice the difference between your actual and preferred asset allocation. If your 80% stock, 20% bond portfolio has drifted to 85% stocks and 15% bonds, then it's time to rebalance, either by adding new money or selling stocks and buying bonds.