For the first half of 2023, market analysts waffled back and forth. The question was everywhere: are we headed for a recession? Many indicators certainly pointed in that direction: inflation remained stubbornly high, the yield curve has been inverted for over a year, and steep mortgage rates and high housing costs forced many first-time home buyers to pause their plans.
Even the Federal Open Market Committee, chaired by Jerome Powell, believed a recession was approaching. From their March 2023 committee meeting minutes: “Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
Despite that earlier messaging, however, recent market benchmarks may be signaling we’re not as close to a recession as analysts previously expected. According to a recent survey by the National Association for Business Economics, a 71% majority of economists put the odds of a recession in the next 12 months at 50% or less.
So, are we headed for a recession? Or aren’t we? And what can individual investors do?
No matter what lies ahead, your Physicians Thrive advisor can find investment strategies to relieve some of the risks of recession, helping to protect the buying power of your dollars. While no investment is ever completely immune to market fluctuations, certain types of investment accounts have historically performed relatively well during recessions. Here are some ideas:
- Defensive Stocks: these types of stocks include sectors which are less sensitive to economic cycles, such as utilities, consumer staples (e.g., food, beverages, household products), and healthcare. These sectors tend to perform relatively well during recessions because their products and services are essential, and demand for them remains relatively stable even during times of economic stability.
- Bond Funds: Diversified bond funds can be an attractive option during recessions. These funds invest in a portfolio of bonds, which may include government bonds, corporate bonds, and municipal bonds. Bond funds tend to be less volatile than stocks, providing income through regular interest payments.
- Focus on the Long-Term: dollar-cost averaging is a strategy that involves investing a fixed amount of money regularly over time, regardless of whether the markets are up or down. This approach is designed for investors who want to build wealth steadily over time, which helps them avoid the stress of trying to predict market movements.
- Private Equity: consider alternative investments (such as CNL Strategic Capital), where you can purchase shares in privately held businesses. Investments like these provide the potential for meaningful returns outside of publicly traded markets.
- Diversify: building and maintaining a well-diversified portfolio can help mitigate risk during a recession. By having a healthy mix of investments (including stocks, bonds, real estate, etc.), your assets are spread across many different types of industries, reducing the impact of a downturn in any one sector.
Talk to your Physicians Thrive advisor today to make sure your portfolio is well-protected against a recession. Working together, your advisor will assess your unique financial circumstances and make sure your specific risk tolerance is taken into consideration. At Physicians Thrive, we partner with you on your path to financial independence, as we pursue our mission of empowering all to flourish.
