Recession Proof Investing

Recession Proof Investing

How to navigate choppy markets

The recent financial downturn and falls in global equities markets has caused many investors to wonder where best to put their funds in order to both protect and attempt to grow their portfolios. With recession now looking more and more of a certainty perhaps now is the time to look at how best to navigate through one in investing terms.

What kind of stocks beat a recession - growth or value?

Research has been conducted that looked at how stocks performed in the various recessions that have occurred over the last 45 years. Naturally average stock returns were lower accross the board during these times of recession however what is interesting to note is that value stocks fared much better than growth stocks during these downturns. In fact their average performance was 3.9% better, which is a figure worth paying attention to, particularly as the average value returns were positive and growth returns were actually negative. From this past data we can conclude that when entering a recession you should adjust your portfolio to be more heavily weighted towards value stocks.

Which market sectors are recession proof?

On top of moving your portfolio to more value orientated stocks you can further reduce your recession exposure by considering which sectors will be hit worst by recession. Recessions tend to pull sectors down one by one until the whole economy is stagnent or in decline. The current economic down turn clearly started in the real estate market which in turn hit the bottom line of banks hard. Tumbling prices caused the so called credit crunch pushing up the cost of borrowing. In todays debt fuel climate this naturally is having a big impact on consumer spending power. As a result retail companies are more likely to be hit next.

One sector that appears to be as yet unaffected by the rcession or downturn is the energy and commodity sector. Rising prices have contiinued through the credit crisis and as is the case with these products demand remains fairly flat in the West and continues to rise from the booming Chinese and Indian economies.

What makes great sense then is to move towards being overweight in value stocks in the energy and commodities markets in order to get your portfolio through this recession. However this method is not cast in stone. Two years ago nobody foresore the credit crunch so the main lesson to learn is to pay attention to how the recession evolves and be willing to react to it when it does. Do not be afraid to move more of your assets into cash if you feel that is required.