There are ways you can defend your portfolio from a recession.
But what exactly is a recession? There’s no universal definition of a recession. But it’s often referred to as a period of widespread economic decline lasting more than six months and characterized by a drop in gross domestic product (GDP), increased unemployment, and reduced business activity.
Recessions also often coincide with bear markets, which are market declines of 20 percent or more. But even if we do see a recession-driven bear market, there are some steps you can take to protect your portfolio and overall finances. So let’s take a closer look.
Stay the Course
One of the worst things you can do during a market downturn is sell off all your investments, as this means you would lock in losses. And you’d miss out on any gains and future compound interest when the market rebounds. And it will.
Even bear markets are short-lived.
It’s also important to understand that recessions are inevitable instances in economic cycles. Since 1948, the United States has gone through 12 recessions. That’s an average of one every six years. And the average recession lasts only 11 months.
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So try to avoid giving in to your emotions and stay the course. If you’re investing in retirement plans such as a 401(k) or individual retirement account (IRA), keep up with your contributions. In a market downturn, you’d be “buying the dip” and essentially purchasing stocks at a discount. But your shares could come roaring back when the market recovers. You could also consider taking a look at stocks you’ve always wanted to own. Give these a price threshold. And if they fall to or below that threshold, consider sweeping them up for cheap.
Diversify Your Portfolio
A well-diversified portfolio that aligns with your investing goals and time horizon should be able to weather any economic cycle in the long run. Make sure you’re diversified across different sectors, geographic locations, and companies of varying sizes. You could also take a closer look at industries that are in demand under any market cycle. These include consumer staples, utilities, and health care. An index fund or exchange-traded fund (ETF) that tracks these industries could give you exposure without the need to individually analyze and pick different stocks in those sectors.
Beef Up Your Emergency Fund
If you’re unemployed or expect a job loss, your money would serve you better in a liquid and high-yield emergency fund than it would in a volatile market. Most financial experts suggest you have at least six months’ worth of necessary expenses shored up in an emergency fund.
The Bottom Line
Recent economic turmoil has pushed some analysts to project a recession sometime this year. Recessions are often associated with GDP decline, unemployment increases, slowing business development, and market downturns. But there are ways you can defend your portfolio from a recession. Avoid panic selling and maintain a well-diversified portfolio that aligns with your unique goals. But more importantly, make sure you build an emergency fund that could weather the storm.
The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
