In the financial sector, there is a lot of talk about potential recessions. What should I do?
Recent headlines and newspapers about potential recessions on the horizon may scare you. In fact, an analysis released this month by JP Morgan could potentially land 60% by the end of this year.
What is a recession? Although there is no universally recognized definition, it is often referred to as a prolonged period of economic decline characterized by a decline in gross domestic product (GDP), an increase in unemployment, and a decline in stock market performance.
The Economic Research Bureau, which officially declares a US recession, defines the recession as “a significant decline in economic activity that spreads across the economy and continues for more than a few months.”
That sounds terrible, but there are ways to protect your portfolio in a recession. A well-diversified portfolio that aligns with your investment goals should be able to maintain itself during periods of recession or other economic decline.
In light of this, what investments should be considered?
stock
The recent stock market may encourage people to consider selling their investments to avoid any major losses in the future. Unfortunately, this strategy locks your losses. And miss the returns that come when the market recovers.
The recession often coincides with the bear market. The bear market is the period during which the stock market falls by more than 20% from its previous high.
Related Stories
It is important to note that the bear market will not last forever. According to an analysis by the Hartford Fund, the typical bear market lasts around 9.6 months.
However, Bull Market, where the stock market has grown by more than 20% from its previous low, averages around 2.6 years. So, if bull markets followed the recession, they would have missed out on profits by selling stocks.
Meanwhile, you can buy stocks at premiums during the market decline, making profits when the market recovers and profiting from compound interest profits.
Some market sectors, such as consumer staples and healthcare, tend to outperform others during the recession. This may be because these companies are involved in the products and services that everyone needs, regardless of where they are in the economic cycle.
Consumer classics include food, drinks, personal items, household items, alcohol and cigarettes. The healthcare sector includes companies involved in medicines, hospitals and biotechnology.
gold
For centuries, gold has been seen as a sign of valued shops and social status and luxury. There is a good reason why this yellow metal is highly sought after. In fact, gold not only holds its value, but is even better at various points of economic uncertainty, such as recession, bear markets, and periods of high inflation.
To put this into perspective, the S&P 500 fell 27% during the recession between 1980 and 1982, but gold rose 46%, according to a survey by brokerage Rjofutures. Also, in the DOT.com market crash between 2000 and 2002, Gold spiked 12% and the S&P 500 surged 49%.
REIT
Real Estate Investment Trusts (REITs) are companies that own and operate income-generating real estate such as apartments, shopping malls, and warehouses. You can invest in REITs through your Brakerage account in much the same way as buying stocks. REITs allow investors to access real estate income without the need to purchase and manage actual property. Furthermore, REITs worked well in times of economic turmoil.
In fact, according to an analysis by the Trade Association, representing REIT interests, the FTSE Nareit All Equity Index (a broad index of US stock REITs) accounted for an average annual total return of 15.9%, of 15.9% in the six recessions prior to 2022.
Additionally, REITs pay dividends. This is benefits that the company makes from its profits to shareholders, often paid quarterly. In fact, REITs are legally required to distribute at least 90% of their taxable income as dividends to shareholders.
Financial debt
Treasury debt, or T-Bond, is a loan that Uncle Sam will expand to the government to assist him in his operations. T-Bond is considered among the safest investments, as it is supported by the full faith of the US government.
Conclusion
There is much talk in the financial sector about economic uncertainty, the potential impact of recent tariff policies, and the potential recession that could unfold in light of stock market slump. Nevertheless, there are ways to protect your portfolio from the effects of the recession. If you’re worried about a recession, consider diversifying your portfolio with ETFS tracking sectors like consumer staples and healthcare, as well as alternative investments like REITs and Gold.
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.
