There are ways to protect your portfolio from a recession.
But what is a recession? There is no universal definition of a recession. However, it is often referred to as a period of widespread economic declines that lasts more than six months and is characterized by a decline in gross domestic product (GDP), increased unemployment, and a decline in business activity.
The recession coincides with the bear market, which is often a market decline of over 20%. However, even if you look at the recession-driven bear market, there are several steps you can take to protect your portfolio and overall finances. Let’s take a closer look.
Continue the course
One of the worst things you can do during a market slump is to sell all your investments. This is because it means locking up losses. And when the market recovers, you will miss out on any profits and future compounding interest. And it will.
Even the bear market is short-lived.
It is also important to understand that recessions are an inevitable example of the economic cycle. Since 1948, the United States has experienced 12 recessions. It averages one every six years. And the average recession lasts for just 11 months.
Related Stories
So, don’t succumb to your emotions and keep the course. If you are investing in retirement plans such as a 401(k) or an individual retirement account (IRA), keep up with your contributions. In a market recession, you will “buy a dip” and basically buy stocks at a discounted price. However, when the market recovers, stocks will rove. You can also consider looking at the stocks you want to own all the time. Give these a price threshold. And if they fall below that threshold, consider cleaning them cheaply.
Diversify your portfolio
A diversified portfolio, consistent with investment goals and time horizons, should be able to survive any economic cycle in the long run. Make sure you diversify into different sectors, geographic locations, and businesses of different sizes. You can also look closely at industries in demand under any market cycle. These include consumer staples, utilities and healthcare. Index funds or exchange funds (ETFs) tracking these industries can provide exposure without the need to separately analyze and select different stocks in these sectors.
Strengthen the emergency fund
If you are unemployed or are expecting to be unemployed, your money will be more useful to you in a liquid and high yield emergency fund that is more fluid than a market where it is unstable. Most financial experts suggest that there are at least six months’ worth of expenses held in the emergency fund.
Conclusion
Recent economic turmoil has led some analysts to project the recession within the year. Recessions are often associated with declining GDP, increased unemployment, slower business development and market slump. However, there are ways to protect your portfolio from a recession. Avoid panic sales and maintain a well-diversified portfolio that aligns with your unique goals. But more importantly, make sure you build an emergency fund that can survive the storm.
Epoch Times Copyright©2025. The views and opinions expressed are those of the author. They are for general informational purposes only and should not be interpreted or interpreted as recommendations or solicitations. Epoch Times does not provide investments, taxes, legal, financial planning, real estate planning, or other personal financial advice. Epoch Times is not responsible for the accuracy or timeliness of the information provided.
