Recession-proof your portfolio


There’s plenty of debate about whether the UK economy will go into recession with interest rates and inflation climbing while the country’s growth is slowing. A country is said to be in recession if the GDP — which in the UK is the value of all the goods and services added up in pounds — has fallen over two quarters.

All the major UK sectors reported negative growth in April – the second month in a row for GDP to shrink – raising fears that the UK could enter into a recession later this year.

The Bank of England raised interest rates again this month by 0.25% to 1.25% to try and slow the pace of inflation, even though there’s risk of triggering a painful recession

Investors should ensure their portfolio is positioned to weather the upcoming headwinds.

No one knows how long any looming recession will last. But it could pay to be prepared.

Back to basics

Diversification is the bedrock of a long-term investment strategy. Hold a mix of cash, fixed interest and shares spread across global markets – and be prepared for short term volatility.

If you are soon to retire, making decisions about what to do with your pension investments right now is more difficult than normal due to the downward trend in markets. If you have other savings to call on, you could consider delaying accessing your pension until things have settled down.

If you have already retired and are drawing on retirement savings via income drawdown, it’s essential to review and monitor how much you are withdrawing from your pension pot to make sure it lasts as long as you need it to. If you feel you cannot make the decision alone, enlist the help of a financial adviser.

Keep your eye on the future

Ongoing uncertainty over the war on Ukraine and other global events is likely to amplify market volatility in the near future. The key is to focus on longer-term goals and wait to ride out the inevitable bumps in markets. Investor discipline is all about being patient.

Stand your ground

It’s perfectly natural to feel a sense of panic, or to want out, when you see the funds or investments you have money in fall in value. It’s impossible to know what lies ahead, but keeping calm and carrying on, instead of impulsively selling, might benefit you in the long run when prices eventually recover.

Find investments that can weather a recession

If you are looking to make new investments, look for recession-proof industries. Arguably, regardless of how the economy is performing, people get ill and need ongoing medical support! In this sense, healthcare stocks or funds that have a heavy weighting in healthcare could be a smart choice. Exposure to buoyant sectors such as commodities and oil and gas provides will provide some protection from inflation.

Consider ready-made portfolios

If you have recently started investing or prefer not to select your own stocks or funds, many platforms offer ready-made Isa portfolios. They aim to have a sensible spread of investments, including non-stock market assets such as bonds and property.

Many are labelled according to your risk tolerance so you can choose according to how much risk you are comfortable taking. Alternatively, you could opt for a one-stop-shop multi-asset fund where a dedicated manager deals with the important job of asset allocation, providing built-in diversification. Lots of platforms provide their own multi-asset funds too.

Drip feed money into investments

It is very difficult to time trades, buying or selling, in any market. Investors are better off establishing a regular savings habit where you drip-feed your money into your investments. It ensures you benefit from pound-cost averaging — where you buy more units in your investments when prices are low.

Don’t be tempted to give up on your regular investment plan. While you don’t want to lose too much as and when the markets fall, you don’t want to miss out on any rallies either.

Keep costs low

Make sure you’re not paying over the odds in platform charges. All investment platforms charge for running your money and there are fees for holding funds as well as trading costs for funds and shares. Platform costs, which eat into returns, vary so you might save money by switching to one offering better value. If you know what you hold in different wrappers and accounts use this calculator to review your platforms or this one if you’re a novice or inexperienced investor.

Photo by Tonik on Unsplash