As the new year gets into full swing, the possibility of an upcoming recession still looms large and may feel like a big gray cloud hanging over your finances. But it’s not all doom and gloom. There can be ways to protect your portfolio and investments to weather the storm by using some subtle recession-proofing diversification tactics.
You’ve probably heard plenty of people go on and on about diversifying, and for good reason! When the economy and markets are as unpredictable as they are right now, your best bet for staying on top is to diversify wisely. But how should you diversify during a recession?
How a Recession Impacts the Stock Market and Investments
Typically, a recession leads to quieter returns across the board for most stocks and investment asset classes.
Some businesses and securities will still do great. Yet, who comes out on top is never a guarantee. Also, the high inflation and rising interest rates you’re seeing right now will play a role that’s yet to be fully determined and accounted for.
During a recession, investors tend to look for more “secure” options, which sometimes means bonds or Treasury bills. Or dividend-paying stocks that pay out a level of regular income.
This way, if there is little or no growth, investments can still generate a return that you can reinvest or spend. But remember, you don’t have to follow the pack. You can diversify and invest in other ways that suit your outlook and wealth-building goals.
Five Diversification Methods to Use in a Recession
Here are five strategies you can take on board to help with your portfolio if we stumble into a recession.