It’s Belts and Braces Time: How to Prepare for a Recession
Key takeaways
- The Fed’s battle in lowering inflation has found a new hurdle, with the jobs market remaining far more resilient than expected
- Interest rate increases might not be over as expected, which puts more pressure on the economy
- The best approach is diversification, taking a long-term view and taking on some recession-proof stocks
Recession: the dreaded word none of us wants to hear, yet the word has been bandied about for months as the U.S. economy teeters after the global pandemic. Inflation has been sticky and interest rates raised, but it looks like the turmoil is set to continue for a while — and we could be facing a recession as a result.
Luckily, there are some steps you can take now to prepare for the worst and protect your portfolio from the worst of the fallout. Here are the details.
Recessions can be challenging, but there are ways to weather the storm. Q.ai’s Recession Resistance Kit uses AI to find the best-performing recession-proof stocks for that week by scanning through massive amounts of data. It then readjusts the holdings as needed to help you build wealth in a tough market — though fair warning, it could lose value if a recession doesn’t happen after all.
Download Q.ai today for access to AI-powered investment strategies.
Are we facing a recession?
What we’ve seen for the last year is a cycle of inflation rising, then the Fed reacting by hiking up interest rates to counteract the damage. Inflation in the U.S. is now at 4.9%, which is the lowest figure in two years but well above the Fed’s 2% inflation target.
All looked well until the latest jobs report was way hotter than expected. While unemployment rose slightly and wage growth inflation decreased, there were 339,000 additional jobs added to the economy in May — far ahead of the expected 190,000 figure.
This means the jobs market isn’t cooling off quickly enough and further interest rate increases might be needed from the Fed, pushing up the likelihood of a recession.
How to prepare for a recession
There are, of course, the age-old adages about money during hard times: prioritizing saving cash, avoiding taking on new debts and cutting back on unnecessary expenses are always good pieces of advice.
As for your portfolio, it’s all about keeping a calm head and adopting a sensible approach. Investing in ‘recession-proof’ stocks, or companies that stay strong and steady no matter what’s happening with the economy, is an excellent strategy to weather the storm. Some examples are consumer goods and utilities.
Diversifying your portfolio also becomes essential in a recession, as companies or whole industries could fail. Ensure you’re invested in different asset classes, global markets and industries so you don’t have all your investing eggs in one basket.
And finally, take a long-term view of the whole situation. Trying to time the market and find cheap stocks or the next big thing never works out well: instead, remember this too shall pass and aim for high-quality stocks and bonds with a long-term view of investing in them.
The bottom line
A recession doesn’t have to mean ‘game over’ for your portfolio. If you adopt different strategies that prioritize the long-term health of your investments, you’ll be able to weather the storm and even benefit from the situation, depending on your risk appetite.
The key to winning at investing is finding the value stocks and adding them to your portfolio for the long term. Q.ai’s Value Vault Kit makes the process much easier with the help of AI, which does the heavy lifting with the data to find the best companies with strong financials and inexpensive valuations. It then adjusts your investment in the Kit’s holdings, helping you grow your net worth.
Download Q.ai today for access to AI-powered investment strategies.
