Fears of a 2024 recession are growing, especially after disappointing jobs data and a rough patch for the stock market in early September.
The stock market has already felt the tremors, with the S&P 500 seeing one of its worst weeks this year. This has left investors wary of riskier assets like stocks and seeking safety in more stable options such as U.S. Treasurys.
But while the signs of an economic downturn are there, it’s not a guaranteed outcome.
The economy has weathered previous challenges, including bank failures, rising interest rates, and inflation spikes. So, whether a recession is just around the corner or still some time off, the key is being prepared.
In this article, we'll explore five strategies investors can use to safeguard their portfolios against potential economic turbulence in 2024.
5 Strategies for Safeguarding Your Portfolio Against Recession
As the prospect of a recession looms, taking the right steps to protect your investments is crucial. Now, let’s show you some key strategies that can help safeguard your portfolio and even take advantage of opportunities during uncertain times.
1. Be Cautious About Rebalancing
Rebalancing your portfolio is typically a smart strategy to keep your investments in line with your original goals, but doing so during a market sell-off can be risky.
When markets are down, selling off assets to rebalance could lock in losses. It’s often better to hold tight and wait for the market to stabilize before making any major adjustments.
If you rebalance during market lows, you might miss out on the recovery when things improve.
When it’s time to rebalance, consider how you've handled market drops in the past. Did you panic during the last crash and pull out of the market?
If so, it may be worth shifting to a more conservative asset allocation moving forward. This way, you’ll feel more comfortable during the next downturn, knowing your portfolio is set up to handle volatility without causing you undue stress.
2. Consider Buying the Dip
For those who are in a financially stable position, buying the dip can be an opportunity to score long-term gains.
When stock prices drop, it’s tempting to avoid the market, but if you’re ready to invest, downturns can offer a chance to buy solid investments at lower prices.
You don’t need to time the market perfectly – just pick a few stocks you’ve been eyeing and set a price you're comfortable with. If they hit that level, you could end up with a great deal.
However, if you're already stretched thin financially or facing uncertainty like job loss, buying the dip may not be the best move.
In these cases, it’s wiser to focus on building or maintaining an emergency fund rather than risking money in a volatile market. Only invest what you can afford to lose, and remember that market downturns can take time to recover, so patience is key.
3. Focus on Defensive Stocks
During a recession, not all stocks perform equally. Defensive stocks (those tied to essential goods and services), tend to hold up better than others.
Companies in sectors like healthcare, utilities, and consumer staples (think food, electricity, and healthcare products) are less affected by economic downturns because people still need these items no matter what.
These stocks are known for being more stable and less volatile during challenging economic times, which can provide a buffer for your portfolio.
Investing in defensive stocks can help you ride out market storms while reducing your exposure to more volatile sectors like tech or luxury goods.
Adding some of these reliable performers to your portfolio is a smart way to maintain steady returns and protect against large losses when the economy slows down.
4. Diversify Your Investments
Diversification is key to protecting your portfolio, especially during a recession. Just like in a game of Battleship, you don’t want all your pieces in one spot where they can be wiped out at once.
Spreading your investments across different asset types – stocks, bonds, real estate – helps reduce risk. But true diversification goes even further.
You want to make sure your money is spread across various industries, company sizes, and geographic regions. This way, if one sector takes a hit, others in your portfolio might still perform well.
Diversifying is particularly important if you’re considering "buying the dip." Look for assets that will help balance your portfolio, rather than loading up on more of the same.
As the fear of a 2024 recession continues to rise, a well-diversified portfolio can act as a safety net that will help to cushion the blow of a downturn. It will also set you up for recovery when the market bounces back.
5. Stay Invested Through the Storm
It’s easy to feel anxious when the headlines are all about economic downturns, but history shows that staying invested is often the best course of action.
Markets tend to recover over time, and those who hold onto their investments typically see their portfolios bounce back. Panic selling, on the other hand, locks in losses and makes it harder to benefit when the market rebounds.
Staying invested also means being prepared for life’s unexpected expenses. Having an emergency fund in place can prevent you from having to dip into your investment accounts during tough times.
Aim to save three to six months' worth of living expenses, but even a small cushion can make a difference.
If you’re ever in a pinch and have to pull from retirement savings, consider tapping into a Roth IRA, as it allows you to withdraw contributions tax-free.
Final Notes
As we approach the possibility of a 2024 recession, it’s important to be proactive in protecting your investments.
While economic downturns can be unsettling, smart strategies like the ones we have highlighted in this post can help you weather the storm.
So, get to work right away. Preparing your financial strategy now will not only safeguard your assets but also position you to take advantage of future opportunities.