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How to Recession-Proof Your Portfolio


Who’s afraid of the big bad recession? As finance dries up, businesses go into administration and interest rates plummet, it seems harder and harder to pick a good investment. The stock market reached new lows in 2008 and it seemed like buying shares would never be safe again. With the low returns from cash savings and other investments, equity can still be profitable in a recession, if you know how to recession-proof your portfolio. Here are three areas to invest in to counter the effects of a downturn.

Buy gold

Not all stocks are made equal, and in a recession, the safest bet is to buy shares in gold producers. The recent flight to gold is directly correlated to the downfall in the share market – the price of gold has increased from $750 to $1,000 over the last two years, roughly 30%, or the same percentage in the fall of share prices. Gold is seen as a safe investment, whether in good or bad times. Allocating some of your portfolio to good gold producers will help hedge your bets and partially protect you from volatility in a recession.

Eat, drink, be merry

The food and beverage market are also good choices during a recession. Demand for drinks or groceries are not significantly hit by downturns and discount stores generally perform particularly well. In the UK, discount supermarkets Asda and Lidl reported increased demand for value-for-money food and drink which helped boosted their share price.

Tobacco companies also show steady profits regardless of whether the economy is in recession or not. For example, British American Tobacco PLC (London) share prices have remained at a relatively stable range between £14 and £20 since the recession started.

Health equals wealth

Healthcare and pharmaceuticals are considered relatively immune from the effects of a recession. In fact, pharmaceutical company AstraZeneca has bucked the downward trend in the stock market to show an overall improvement as the recession gained steam. Overall this is a robust sector that shows little indication of being affected as sharply as other sectors in the recession.

These sectors of the investment market are referred to as defensive or non-cyclical. This is because they are usually less affected by economic downturns than their cyclical counterparts. However, as can be expected, when the economy gets rolling again they will generally lag more cyclical areas of the market.

How you shift your portfolio depends on your attitude to risk, your outlook and your investment aims. Cautious investors will usually shift into defensive stocks at the first sign of trouble where they will wait it out before balancing out their portfolio again. More aggressive investors will see the sell-of as a buying opportunity. How you invest depends on your individual circumstances.

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