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8 Investments To Recession Proof Your Portfolio

There are no perfect investments for all times.  When the economy is strong, many of us are open to higher-risk investments because we recognize that the downside is more likely to be lower returns as opposed to loss of our capital.  But, during times of economic uncertainty, investment decisions are much more important, as a common risk isn’t just lower returns but also a loss of our original investment – and potentially the whole investment.


Recession resistant investments are an important consideration for anyone looking to protect their wealth during these times of economic turmoil.  And while no investment is completely immune to market fluctuations, there are certain types of assets that have a history of holding their value or even appreciating during recessions.  In this article, I will provide a list of historically recession resistant investments that may help you weather economic storms and potentially even come out ahead.

It's worth noting that every investor's situation is unique and each of us has a different level of risk-tolerance.  What may qualify as a recession resistant investment for one person may not be suitable for another.  That said, the investments on our list have a track record of performing well during economic downturns and may be worth considering as part of a diversified portfolio.


Which brings up one more important point: the key to building a recession proof investment portfolio is to diversify across a range of asset classes, locations, managers/operators and assets. Not putting all your eggs in one basket is the best way to avoid catastrophic risk when investing during any time or situation.


Okay, let’s jump into our list.  And note that we’re going to go from least risky (investments most likely to just preserve capital) to most risky (investments most likely to generate higher returns, but at risk of loss).


1.  High-Yield Savings Accounts or CDs


The lowest risk way to protect your capital during any part of the economic cycle is to put your money someplace where there is zero risk of loss.  If you’re highly concerned about the economy, or your goal is simply to preserve as much of your capital as possible, savings accounts and CDs are the best way to do this.  The big downside being that your returns will be low (between 0% and 3% these days), and during periods of inflation, you may lose spending power by sticking your money in a savings account – your money today will have less spending power tomorrow.


2.  Precious Metals


Precious metals like gold and silver are popular when investors don’t know where more traditional markets are headed.  People pull money out of the stock market and need a place to put it – that place is often precious metals.  Investors like these metals because they are physical and tangible, and in many cases, investors will acquire the physical asset and store it themselves, providing even more of a sense of investment security.  All that said, consider that gold and silver tend to perform better during low-interest-rate periods; now may not be that time.


3.  Commodities


Commodities are basically raw materials, such as metals and grains, that are often used make other products.  These are things people tend to need regardless of the economy, so commodities are often both a great recession-resistant asset and a great hedge against inflation.  The easiest way to invest in commodities is through a mutual fund that invests in businesses that are involved in extracting or utilizing these commodities – mining, energy or agricultural companies, for example.


4.  Bonds


Click here to learn more about bonds and how they work.  Bonds are typically a good way to preserve and grow capital during recessions, as most recessions see a drop in interest rates (the Fed lowers rates to try to spur the economy).  But, during times of interest rate increases, bonds can be a great way to lose money.  If you think rates are likely to come down over the next year or two, bonds may be a good way to beat inflation.  Otherwise, while bonds are often recession-resistant, this may be one of those few recessions where you want to stay away from bonds.  At least for the time being.


5.  Preferred Equity


Click here to learn more about Preferred Equity and how it works.  Preferred equity investments are a great way to increase your returns over many of the wealth-preservation strategies above, while reducing the risk of many of the growth strategies below.  Whether the preferred equity investments are in real estate, businesses, or other asset classes, this strategy becomes very popular during times of economic uncertainty, as it can provide the best risk-adjusted returns of any recession-resistant investment.  (Want access to a great real estate based Preferred Equity opportunity?  Click here.)


6.  Diversified Real Estate


Real estate, in general, tends to outperform other asset classes during times of economic crisis.  While not all niches within real estate will perform the same – for example, office and retail often lag – a diversified real estate portfolio is a great way to improve your chances of investment success over the stock market or other traditional asset classes.  Those areas of real estate that tend to perform the best during a downturn?  Grocery stores, strip mall anchor stores, multifamily, assisted living and other types of real estate that people will need, no matter what the economic conditions.

7.  Dividend Yielding Stocks


Some people love the stock market.  And long-term performance is a good indicator that the stock market is a great place to be.  Long term.  But, there is certainly risk short-term, and the best way to mitigate some of that short-term risk is to focus on stocks that cash flow.  In other words, stocks that pay regular dividends, which can offset any loss in value of the stock over the short-term.


8.  Targeted Stock / Equities


Want to diversify across stocks and equities and not just focus on dividend-yielding stocks?  In that case, I would highly recommend focusing on the types of companies that typically perform well during downturns.  These include healthcare companies, energy and utility companies, waste disposal companies and pharmaceutical companies.  Better yet, find some good funds that diversify across these markets so that your can diversify your investment even further.

Regardless of your risk-tolerance, the investment strategies above should be able to provide a solid foundation on which you can preserve your wealth and even continue to grow your portfolio during times of economic turmoil.

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