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Investing 101

Recession-Resistant Investments That Can Protect Your Portfolio

You can’t seem to escape iteveryone keeps talking about the next Great Recession or how the stock market is up one day and down the next. This can leave investors on edge and looking for ways to protect themselves, and their portfolios!

We will start by saying that no investment can be 100% “recession-proof.” However, certain assets are definitely positioned better than others to weather a downturn.

When searching for investments that can keep your portfolio afloat during a decline, investors must remember two things. You need a service that will remain unaffected by a poor economy or an investment where demand increases during recessions.

What are Defensive Investments?

Defensive investments can help mitigate loss when the broader market sees swings. Essentially, these are safer, always-needed investments that won’t tank even in a recession. This is due to the fact that people always need these goods or services or they are simply uncorrelated to the stock market.

Stocks that pay dividends have been consistent in recording less volatility than non-dividend payers, and when you focus on defensive sectors, your portfolio will see an added layer of protection.

Examples of Recession-Resistant Investments

  • Consumer Staples: You guessed it—these are products such as food, beverages, and household items that consumers don’t cut out of their budget during a downturn. These are the essentials. Due to their low volatility, consumer staples stocks are considered a recession-resistant investment to be added as part of a defensive investment strategy.
  • Commodities: Examples of commodities can include gold, oil, and gas. Commodities are traded on a global basis which means even if the U.S. is in a recession, there’s not necessarily going to be a large, direct impact on commodity prices.
  • Utilities: Yep, water and electricity. Even in a downturn, people will not cut back on showering or using their electricity! This sector is also unique because, “utilities are basically natural monopolies, implying that in many cases there are no direct competitors to provide these basic but crucial services. Thus, utilities are largely immune from softening sales, demand issues, price volatility, and competition” (Seeking Alpha).
  • U.S. Treasury Bonds: This is the ultimate safe option. Returns are not high, but you will still earn more than you would be sitting on your cash! Greg McBride, Bankrate’s chief financial analyst says, “U.S. Treasury bonds are the de facto safe-haven investment for investors…So when the stock market goes down, you’ll often see investors flocking to the safety of Treasuries” (Bankrate.com).
  • Multifamily Real Estate: Multifamily rental properties were made for the long-term investor and have qualities that allow them to prevail in an unfavorable economy. Multifamily properties do so well because of the influx of new renters in a downturn. Continue on to read more about multifamily properties and what sets them apart.

Why Multifamily Differs From Other Property Types

There are unique features of multifamily investments that put them in the recession-resistant bucket. After all, housing is a basic human need.

A bad overall market can increase the demand for multifamily housing. This is because this type of housing is attractive for those downsizing and/or looking to lower their monthly bills.

Furthermore, the decrease in new construction in an economic downturn will increase the demand for already-built multifamily buildings.

Luckily for multifamily commercial real estate, when single-family residential prices are low, multifamily remains steady. Low correlation to the stock market AND to the regular cycles of residential property markets is an attractive feature when investing.

Summary

Recessions and bear markets are inevitable. Remember, don’t shift your portfolio around or panic sell in anticipation of future events.

The bottom line when preparing your portfolio is to always remember: time in the market, not market timing. This is what will ultimately help one reach their goals and attain financial freedom.

Remember, cash and bonds are always useful and help balance out volatility. However, stocks have proven themselves with their high returns. In addition, adding an extra layer of alternatives to diversify your portfolio, such as multifamily real estate, can play a vital role because of their non-correlation to the stock market

Knowing your risk tolerance, your investment time horizon, diversifying, and having a trustworthy professional on your side are some of the first steps one can take.

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