How to Recession-Proof Your Investment Portfolio

Recessions are a fact of life for investors, but they can still do a lot of damage. Successful investors survive and even thrive during the rough patches because they know how to plan for recessions and keep their portfolio in good shape.

Is a Recession Coming?

Investors are likely to have to deal with a recession during the next twelve months. The state of the bond yield curve indicates a strong risk, and there are also political factors to consider. That is not a guarantee of a recession, but the odds are high enough that it makes sense to start planning for it. Fortunately, there are a few things that most investors can do to reduce their risks.

Avoid Volatile Investments

Some investments lose more value during a recession than others. It can be wise to sell those investments while their price is still high and invest the proceeds into other investments that are less likely to lose value. Every market is unique, but luxury vacation homes, second homes, and other expensive luxury properties are very risky during recessions. Rental properties aimed at the average person and buildings in areas with a low supply of new buildings are much safer.

Plan in Advance

People make stupid decisions when they panic, such as selling their investments are their value plummets. Human instincts simply did not develop to deal with complex markets. The best way to avoid dangerous impulses is to plan ahead. Smart investors know that the may need to tweak the plan as they go, but they should only do so after careful thought.

Aim for Income

Rental properties and others that generate cash are a good choice during recessions. Their value may drop, but their previous income provides insulation from the losses. The added income also makes it easier to invest in new properties when their prices are low from the recession. Those new investments will often regain their value when the recession ends, which can turn the recession into an opportunity for investors who have the cash to make use of it.