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Worried about a recession? Here’s how to prepare your portfolio


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Elliot Herman is a certified financial planner and partner with PRW Wealth Management, Quincy, Massachusetts.

He advises clients to take proactive measures with their asset allocations, as no one knows when or if there will be a downturn.

Diversify your portfolio

Anthony Watson is a CFP, founder, and president of Thrive Retirement Specialists (Dearborn, Michigan). He believes diversification is essential when preparing to face an economic downturn.

It is possible to eliminate any company-specific risk by investing in funds, rather than individual stocks. You are less likely to experience a company go bankrupt when you invest in an exchange traded fund that contains 4,000 others.

When there is a recession, value stocks are more likely to perform than growth stocks.

Anthony Watson

Founder and president, Thrive Retirement Specialists

He advises you to review the mix of growth stock, which generally provide higher returns than average, and value stocks that trade at a lower price, usually less than the asset’s worth.     

Watson said that value stocks outperform growth stocks when there is a recession.

It is crucial to have international exposure. Many investors are unable to allocate stock portfolios with 100% of their domestic assets. Although the U.S. Federal Reserve fights inflation aggressively, it is possible for other central bank strategies to trigger additional growth paths.

Allotments of bond bonds

Because bond prices and market interest rates typically coincide, move in opposite directionsBond values have declined due to Fed rate increases. This benchmark 10-year TreasuryThe price of bonds falls and a rises in. reached 3.1% on ThursdayThe highest yielding year since 2018: 

Watson stated that bonds remain a crucial part of any portfolio, despite the slumping market. In the event that stocks fall during a recession, interest rate may decrease. Bond prices can recover which could offset stock losses.

He stated that “over time, that negative correlation tends to manifest itself.” But it doesn’t always happen daily.

Advisors take into account duration. It measures the bond’s vulnerability to change in interest rates based upon the amount paid, the time until maturity, and the coupon. Rising interest rates are more likely to affect bonds whose duration is longer than their maturity.

Herman of PRW Wealth Management stated that higher-yielding bonds have shorter maturities and are more attractive right now.

Reserves of cash

It’s becoming less appealing to keep cash in the face of high inflation and low yields on savings accounts. However, retirees still need a cash buffer to avoid what’s known as the “sequence of returns” risk.

Pay attention when selling assets and withdrawing money, because it could cause damage to your portfolio over the long-term. Watson stated, “That’s how you become a victim to the negative series of returns that will kill your retirement.”

He said that retirees might be able to avoid tap their nest eggs during times of high losses if they have a substantial cash buffer or access to a home equity credit line.

However, exact amounts will vary depending on the amount of monthly expenses, income from other sources, like Social Security or pension. 

The average recession from 1945 to 2009 lasted approximately 11 months according to the National Bureau of Economic ResearchThe official recorder of economic cycles is. There isn’t any guarantee that there won’t be another downturn in the future.

Investors in the accumulation phase need cash reserves, which can be more difficult than for those who are already retired.

My tendency to be conservative is because I have had to cover emergency expenses for at least three to six month.

Catherine Valega

Green Bee Advisory is a wealth consultant

“People need to ensure that they have enough emergency savings,” she stated. She suggested that individuals save 12-24 months’ worth of expenses to be prepared for layoffs.

“I am more conservative than most people because I have had to cover emergency costs for at least three to six month, which I do not believe is enough.”

Extra savings means you have more time to plan your next career move following a job loss than feeling under pressure to accept the job.

She stated that if you have sufficient liquid emergency savings, it will give you more options.