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When the market is soaring, it’s easy to forget that what goes up can also come down. But economic slowdowns tend to be cyclical, which means that another recession is in the future. Whether it’s fast-approaching or still a ways off, it’s wise to be prepared for its eventuality. This way, you won’t join the panicking stampede out of stocks and into cash. Instead, you’ll remember that stocks can perform even during a recession – you just need to know which ones.


Core Sector Stocks


During a recession, you might be inclined to give up on stocks, but experts say it’s best not to flee  completely. When the rest of the economy is on shaky ground, there are often a handful of sectors that continue to forge ahead and provide investors with steady returns.


So if you want to insulate yourself during a recession partly with stocks, consider investing in the healthcare, utilities and consumer goods sectors. People are still going to spend money on medical care, household items, electricity and food, regardless of the state of the economy. As a result, these stocks tend to do well during busts (and under-perform during booms).


Reliable Dividend Stocks


Investing in dividend stocks can be a great way to generate passive income. When you’re comparing dividend stocks, some experts say it’s a good idea to look for companies with low debt-to-equity ratios and strong balance sheets. If you don’t know where to start, you may want to look into dividend aristocrats, which are companies that have increased their dividend payouts for at least 25 consecutive years.


Bottom Line


If you’re invested for the long term, a looming recession shouldn’t set you off into a panic. You may want to off-load some investments to take some profits off the table. But for the most part, your strategy should not be to sell when prices are low. You may think you’ll get back in when prices have stopped falling, but it’s impossible to call a bottom until it has passed.


Instead, you should hold the positions that you entered as long-term investments. That said, if you have cash to invest, you may want to consider buying recession-friendly sectors such as consumer staples, utilities and health care. Stocks that have been paying a dividend for many years are also a good choice, since they tend to be long established companies that can withstand a downturn.



Tips for Smart Investing


If you’re unsure how to build a portfolio for a recessions, a financial advisor can help. Finding the right financial advisor that fits your needs doesn’t have to be hard.


Contact us today.