Protecting Your Investments: Recession-Proof Strategies With Fidelity

As the US economy continues to grow, investors are anxious about where to put their money before a potential recession. While there is no such thing as a recession-proof investment, there are strategies to consider to help your portfolio better weather an economic downturn.

Firstly, it is important to review your spending and savings. Bolstering your emergency savings can provide a financial cushion during hard times. It is recommended to save at least $1,000, and ideally, three to six months' worth of essential expenses.

Secondly, try to stick to your investment plan and avoid making impulsive decisions driven by fear or anxiety. Market volatility is a regular occurrence, and historically, the stock market has produced positive returns following significant corrections and bear markets.

Thirdly, consider diversifying your portfolio by investing in broad funds, such as exchange-traded funds and low-cost index funds, which provide exposure to specific baskets of securities. This reduces the risk associated with investing in individual stocks.

Additionally, look for sectors that traditionally perform better during recessions, such as healthcare and consumer staples. These sectors include food and beverages, household products, and essential goods that people will continue to purchase regardless of economic conditions.

Finally, fixed-income investments, such as bonds, and dividend-yielding stocks can provide a stable source of income during recessions.

Remember, investing during a recession requires discipline and a long-term perspective. It is crucial to make informed decisions based on your financial goals, risk tolerance, and the specific economic conditions at play.

Fixed-income investments

When considering dividend-yielding investments, look for companies with a strong track record of paying and increasing dividends. Consistency in dividend payments and increases is a good indicator of good corporate governance. However, it's important to note that yield shouldn't be the sole determining factor as the highest yields often come with additional risk.

As for bonds, investment-grade corporate bonds and government bonds, such as US Treasurys, have historically delivered higher returns during recessions than high-yield corporate bonds.

Money market funds

In addition, money market funds can be a good option for investors who want to earn income while preserving capital. During the late phase of the economic cycle, which precedes a downturn, interest rates typically reach their highest levels. This makes it a good time to consider purchasing longer-term certificates of deposit (CDs) that can provide income through a recession and beyond.

It is important to note that money market funds are not a guarantee against loss. While they seek to preserve the value of your investment, there is a risk of losing money. Additionally, a fee may be imposed upon the sale of your shares, and the fund's sponsor is not legally obligated to provide financial support.

Consumer staples stocks

When investing in consumer staples stocks, it's important to consider companies with a strong track record of paying and increasing dividends. This can provide a stable source of income even during economic downturns. Additionally, investing in funds that focus on consumer staples, such as exchange-traded funds (ETFs) or mutual funds, can help reduce risk by providing exposure to a basket of companies in this sector.

It's worth noting that while consumer staples stocks can be a good option during a recession, a well-diversified portfolio that includes a mix of stocks, bonds, and cash is generally recommended. This diversification can help investors weather different market conditions and reduce the impact of recessions on their finances.

Large-cap stocks

When considering large-cap stocks, it is advisable to use a stock screener to identify companies that meet specific criteria. This could include setting the market capitalization to "large-cap" or higher, performance filters to find stocks that have outperformed the market, selecting common stock, and choosing a specific sector, such as consumer staples or healthcare.

While large-cap stocks tend to be more stable, it is important to remember that past performance does not guarantee future results. Therefore, it is crucial to conduct thorough research and consider multiple factors before making investment decisions.

Dividend-yielding investments

When considering dividend-yielding investments, it is important to look beyond the yield and instead focus on the consistency of dividend payments and the company's track record of paying and increasing dividends. This indicates good corporate governance and a lower risk of default.

Additionally, dividend-yielding investments can provide a stable source of cash flow, even during recessions, as they are often offered by companies that sell goods and services that people need regardless of their financial situation. Examples of such companies include those in the healthcare, food, and utility sectors.

It is worth noting that while dividend-yielding investments can provide a source of income during a recession, they may not provide the same level of growth potential as other investments during times of economic expansion. Therefore, it is essential to carefully consider your financial goals and risk tolerance when deciding whether to include dividend-yielding investments in your portfolio.

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