Taming the Bear Market: How to Recession-Proof Your Portfolio

It’s the biggest debate on Wall Street right now – are we in a recession or are we not? 

Many within the industry define a recession as two consecutive declining quarters of GDP, which we have now officially seen. However, if you ask the National Bureau of Economic Research (the body that officially declares a national recession), it’s not that simple. The Bureau looks at a wider array of economic data, including the health of the jobs market. Currently, jobless claims are at historically low levels, which has been a key factor in preventing them from defining current conditions as a recession. 

Regardless of what side of the fence you fall on in this debate, one thing can be agreed upon – 2022 has been a challenging year for the markets, and let’s face it, there’s no doubt we’re in a prolonged bear market.

So, how does one handle this challenging environment? Is it possible to “recession-proof” your portfolio? Well, there’s no silver bullet to avoid an economic downturn (don’t we all wish there was?), but there are approaches investors can consider that can help minimize losses over the short-term and maximize profits in the long-term. 

First off, be careful not to put all your eggs in one basket! A well-diversified portfolio is a great way to avoid some of the major pitfalls that can occur when one specific area of the economy cools off. During a recession, when several areas of the economy cool off, it’s no different. It can be helpful to focus on things people need and use every day. What does this mean? Stocks that may not sound sexy, but are staples in our lives and pay a healthy dividend – that way, you’re still getting some income even in a decline.

The companies that make products that people use every day have historically held up in downturns. This could mean a basket of utilities (everybody needs to keep their lights on!), or even cereal, personal care, healthcare, or supermarket stocks -–industries that affect the lifestyles of the everyday person. Whether it’s an index tracking several securities or a singular stock, these have tended to be a safer haven in the short-term than securities like high growth technology stocks, which tend to be more volatile.

For investors around the world, giving them a gateway to trade fractional shares is an opportunity like no other. It gives them the ability to continue to passively invest using  small sums of money – psychologically insignificant amounts to the average customer – during times when they may be hesitant to spend across the board. A number of retail investors who trade through our platform are young and active – they’re trading small amounts and diversifying their portfolios, which can be one of the best ways to attack a declining market. 

But, they’re not just investing in fractional shares of popular stocks like Tesla and Apple, they’re also getting involved in the markets in other ways, such as through round-up or stock reward products. While the value of money can feel as if it doesn’t go as far during periods of high inflation, products like round-ups and rewards can make it easy to bridge the gap between spending and investing for consumers, offering a “set it and forget it” investing functionality that’s embedded into the point of transaction. We’ve seen investors utilize tools like these to continue to passively invest, as seamlessly rounding up your usual purchase to buy into a company through the good and bad times can help build wealth and compound over time.

Nevertheless, regardless of market conditions, it’s important to know your individual timeframe and risk tolerance and keep that in mind when investing, while also choosing a well-diversified portfolio of stocks that you know, use, and believe in.

It’s been an interesting year for markets thus far, but it’s important to recognize that this isn’t the first bear market and it won’t be the last. More importantly, the markets always seem to bounce back and those who put their money to work and continue to invest during bear markets are typically rewarded long-term.

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