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Stocks have fallen into a bear market this year and the Federal Reserve is aggressively raising interest rates in an effort to cool soaring inflation.
Many experts believe an economic recession is right around the corner.
So what’s the average investor to do?
While there’s no such thing as a “recession-proof” investment, certain stocks, mutual funds and investment strategies can help your portfolio survive an economic downturn better than others.
Why Making Your Portfolio “Recession-Proof” Is Harder Than It Sounds
If you believe that a recession is imminent, you might think it makes sense to allocate more funds to investment-grade bonds, since such investments tend to hold their value better than stocks during recessions.
Alternatively, if you believe the economy will grow even faster than expected, you might try to invest more of your money in stocks. The return on stocks is typically better than bonds during periods of economic growth, which is most of the time.
Simple, right? In principle, yes.
But to correctly allocate your funds in anticipation of a recession, you first must correctly predict the recession. This is much harder than it sounds.
Keep in mind, also, that the US stock market is itself one of the strongest leading indicators of a recession.
Analysis shows that most investors reallocate their investments in response to an economic downturn only after the stock market has already declined in response to those expectations. This is frequently described as the market “pricing in” the cost of the recession or other seemingly relevant investment information.
If you’re new to investing, there’s a lot to learn. Our guide to investing as a beginner breaks down everything you need to know.
4 Tips for Investing if You Think a Recession Is Near
For all the challenges facing individual investors, how can you make intelligent and responsible investment decisions before a recession hits?
Here are some…
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