How to Get Your Portfolio Ready for a Recession

I’d like to share with you some ideas about how to get your portfolio ready for a recession. But first off, starting with the definition of a recession is commonly known as two negative quarters of GDP or Gross Domestic Product. And the Bureau of Economical Analysis has estimated for 2023 that the third quarter is a +4.9%. The second quarter was at 2.1%. So at this stage we’re seeing positive GDP, so ultimately not a recession at this point in time. But it’s one that you always want to be prepared for. The volatility in the stock market and especially the bond market over the past couple of years has a lot of people opening up their eyes and saying well, where are we with this economy and with this market? So let’s walk through seven different ways to manage your portfolio prior to a recession. So the first is a review of your investment policy statement with your Financial Advisor. So this policy statement is going to define the return objectives including risk tolerance over a certain time horizon. It might have different liquidity factors, taxes, all of those different things that you want within your retirement investment strategy. And have it clearly laid out on this investment policy statement. Number two is don’t try to time the market. You could ultimately pull out of the market at exactly the wrong time and then you’re going to potentially miss that recovery. A lot of times when the market takes a big hit, eventually you may see that bounce back up. And if you miss out on some of those key days in the market where the bounce back up is happening, you’re going to slow down that potential for a recovery. Maybe you should consider dollar cost averaging. So if you’re investing new money, you’re setting aside a fixed amount at regular intervals that you’re investing regardless of market conditions. So that way you’re going to be investing during both good times and bad times. That’s the concept behind dollar cost averaging. Another idea is to determine if a change is needed if you haven’t rebalanced your portfolio in some time. Now might be that time for you. There’s different sectors and asset classes that have maybe fallen worse than others and your portfolio might have shifted. So maybe you’re too heavy now say in technology versus financials, as an example. So you may want to look at does it make sense to rebalance. Another idea is to know your retirement time horizons. If you’re drawing close to retirement maybe you should consider shifting some of the assets to lower volatility. If you have known withdrawals coming up, then you need to take that into consideration. Maybe set that money aside so that you know that money is not going to be affected by the bouncing around of the market. Another idea is to take a holistic view of your retirement savings. Perhaps you’ve set aside money into different buckets. So what that might look like as a visual is maybe you’ve got some money in a bucket that’s more short-term where you’re going to be drawing from that in the near future. That might be for the next few years let’s say. Then maybe you have more of like a mid-term type of bucket of money where that’s going to be let’s say, years three through seven in this example. And so that’s going to have lower volatility, maybe not as a heavy of a risk exposure. And then lastly, maybe there’s more of a growth bucket where you’re saying okay, I have over seven years of time here where the market is going to fluctuate, but I’m more focused on growth. And so you maybe can stomach the ups and downs of that a little better. Lastly an idea is to leverage higher interest rates. We find ourselves in an environment today where the short-term interest rates have risen and so now you can get some better returns. So for those of you that are savers, this is a great time to be taking advantage of some of those higher interest rates. As I’m walking through all of these different ideas and you’re maybe concerned about well is a recession coming. What impact might that have on my portfolio? Then we welcome you to give us a call here at Centennial Wealth Advisory. We’re happy to sit down with you, no cost, no obligation. Sort of a second opinion to sort of see where your risk is. What that income plan, tax plan might look like and ultimately sit down so we can help you plan to retire well.