How to protect your portfolio in a recession

how to protect your portfolio in a recession

Are we facing a recession, or at the very least a downturn? Probably.

Every indicator and expert seem to agree that we are in a bear market, or in layman’s terms, a sustained period of falling prices.

If you have a stock portfolio either standalone or as part of a self-managed superannuation fund, the first rule is do not panic.

Stocks are long-term investments. If you are expecting a return in less than two years, stocks are probably not for you. Aim for decades-long growth.

However, bear in mind that while there are some ‘safe’ stocks, all investing comes with an element of risk.

Read: ATO reveals shortfall in super balances

Generally, if you are approaching retirement, financial advisers will recommend moving your assets into more stable risk territory, but personal choice should always be considered. Some people enjoy the thrill of trading, no matter their age.

During a recession, while it may white knuckle territory watching the prices ease or even tumble, there is plenty you can do to protect your portfolio.

Read: Is there a mini goldmine sitting in your driveway?

Stay calm

Stocks go up and stocks go down, but it pays to hold on in the long term.

The knee-jerk reaction is to jump off a sinking ship, but it’s better to take the long view.

If stocks are falling, the best time to sell has already passed. If you sell in a falling market, you may very well miss out when it inevitably rises again.

Hold on

Keep stocks that pay regular dividends. This ensures a flow of income during uncertain times. Your stocks may have lost value on paper, but if you are still receiving income, there is still some value to be had. Dividend reinvestment might even be a good idea, to buy stocks at a cheaper price.

Read: How the banks get away with offering paltry term deposit rates

Be prepared for volatility

If you have managed your portfolio well, then the next inevitable crash or market slowdown won’t be such a drama. If you are suffering at the moment, but are taking action to manage volatility, consider it an investment in your future.

Why not take this time to reassess your portfolio. Do you have too many high-risk stocks? Is there enough variety in small cap to mid-cap stocks? Commsec has a handy guide to working out where a company is trading, if you want to balance out your portfolio.

Keep something aside

Cash is a good alternative at the moment. It’s always good to diversify, more so in a recession. When something falls, something else rises. High interest rates suck for mortgagees but are a small comfort for those with money in the bank.

Buy cheap

Consider buying stock you believe might have been a bit overheated but now might offer some value in the future as the price is low. Some research on who is weathering the storm well could bag you some bargains and good returns when the market bounces back.

Other good options in a recession are utilities and food. People still have to eat and will always need energy.

Has your portfolio taken a beating? Why not share your strategy in the comments section below?

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Written by Jan Fisher

Accomplished journalist, feature writer and sub-editor with impressive knowledge of the retirement landscape, including retirement income, issues that affect Australians planning and living in retirement, and answering YLC members' Age Pension and Centrelink questions. She has also developed a passion for travel and lifestyle writing and is fast becoming a supermarket savings 'guru'.

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