How to prepare your portfolio for a (possible) recession in 2023

7 January 2023
recession

Kristalina Georgieva, International Monetary Fund Managing Director, said 2023 will be “tougher” than last year as the US, EU and China see their economies slow. It comes as the war in Ukraine, rising prices, higher interest rates and the spread of Covid in China weigh on the global economy. “We expect one third of the world economy to be in recession,” Ms Georgieva said on the CBS news programme Face the Nation. “Even countries that are not in recession, it would feel like recession for hundreds of millions of people,” she added. (source: https://www.bbc.com/news/business-64142662)

What can you do to prepare for it?

There are several steps you can take to prepare your portfolio for a recession.

Diversify your portfolio

This means investing in a variety of different asset classes, such as stocks, bonds, and cash. This helps to spread risk and ensure that your portfolio is not too heavily concentrated in any one area. Diversification can help to reduce the impact of any one investment on your overall portfolio, which can be especially important during times of market volatility. It is generally considered a good idea to diversify your portfolio in order to manage risk and maximize your chances of achieving your investment goals. However, diversification does not guarantee a profit or protect against loss. It is important to carefully consider your investment objectives and risk tolerance before making any investment decisions.

Consider adding defensive stocks

Defensive stocks are those that are expected to perform well during times of economic uncertainty or market volatility. These stocks are often associated with stable, established companies in industries that provide essential goods or services, such as healthcare, consumer staples, and utilities. Defensive stocks are generally considered to be less risky than other types of stocks, and they may provide a measure of stability to a portfolio during times of market turmoil. However, it’s worth noting that defensive stocks may not offer the same potential for growth as other types of stocks and may underperform in a strong market. As with any investment, and as mentioned before, it’s important to carefully consider your investment objectives and risk tolerance before making a decision.

Hold some cash

Having a portion of your portfolio in cash can provide a buffer in case the market falls and you need to sell investments to raise money.

Review your investment mix

Make sure that your portfolio is appropriately balanced for your age, risk tolerance, and financial goals.
Reviewing your investment mix means looking at the various types of assets you have invested in and determining whether your portfolio is well-balanced and aligned with your financial goals and risk tolerance. For example, you may want to consider whether you have too much exposure to a particular industry or sector, or whether you have sufficient diversity within your stock portfolio.

To review your investment mix, you may want to consider the following steps:

  1. Determine your financial goals: What are you trying to achieve with your investments? Are you saving for retirement, a down payment on a home, or another financial goal? Your investment mix should be tailored to your specific goals.
  2. Assess your risk tolerance: How comfortable are you with the level of risk in your portfolio? Your risk tolerance will influence the types of assets you are willing to invest in.
  3. Review your current portfolio: Take a look at the various investments you currently hold and consider whether they are helping you achieve your financial goals and whether they are consistent with your risk tolerance.
  4. Rebalance your portfolio: If necessary, make changes to your investment mix in order to bring it back in line with your financial goals and risk tolerance.

It’s important to regularly review your investment mix in order to ensure that your portfolio is aligned with your financial goals and risk tolerance. However, it’s also important to keep in mind that investing carries risks, and no investment strategy can guarantee a profit or protect against loss.

Consider working with a financial advisor

A financial advisor can help you create a well-diversified portfolio and provide guidance on how to navigate market volatility.

Working with a financial advisor can be a good way to get professional guidance on managing your finances and reaching your financial goals. A financial advisor can help you develop a financial plan, review your investment portfolio, and make recommendations on how to save, invest, and manage your money. They can also provide ongoing support and assistance as your financial situation changes over time.

When choosing a financial advisor, it’s important to do your research and find someone who is qualified and experienced. Look for an advisor who is a fiduciary, which means they are required to act in your best interests when providing financial advice. You may also want to consider an advisor’s fees, their investment philosophy, and whether they have any conflicts of interest. It’s also a good idea to ask for references and to meet with several advisors before making a decision.

Keep in mind that working with a financial advisor is not a guarantee of financial success and that investing carries risks, including the possibility of loss.

Conclusions

No one knows if a global recession will indeed happen in 2023, but what is certain is that if it does, no one will be able to hide from it. The most investors can do is to take educated steps to adapt and protect their portfolios as much as possible. Whether markets will go up or down, tracking one’s portfolio remains of crucial importance: regardless of the weather, would you drive a car without windshield? How would you know if you still on the road? That is what Exirio is for.

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