Is Your Portfolio Ready for A Double-Dip Recession?
Rob Silverblatt and Ben Baden
Here are 10 portfolio themes to keep in mind
With the threat of a double-dip recession in the near future, investors should position their portfolios to protect themselves from another downturn. "Now is not the time for heroic bets," says
Make a plan.
Before you start investing your money, it's important to make sure you have a plan. If you'll need the money within a few years, say for a home downpayment, it should be in less volatile investments. Many investors get burned by being greedy. "Don't get sloppy, because a big part of these bear markets is they really expose flaws in your financial plans," says
Treasury notes, which are backed by the full faith and credit of the U.S. government, are a reliable source of income even in the midst of a souring economy. Experts suggest that investors keep some portion of their portfolios in treasuries. Still, now is not the ideal time to buy treasuries. For starters, investors have begun crowding the treasuries market, driving the yield on 10-year notes below 3 percent for the first time since 2008. "I'm afraid that by suggesting that people need more, there can be some momentum-chasing," says
Timing markets is a dangerous game. That's why many advisers suggest that investors practice dollar-cost averaging, which means investing the same amount of money on a regular basis regardless of what the market is doing. This way you don't risk putting all of your money into the market when it's at or near its peak. "You may not get the maximum returns, but if it keeps you from panic-selling, then you're still better off than you would have been," says
In times of uncertainty, many investors turn to gold. The precious metal is a good alternative in the sense that it's generally not correlated to basic economic activity, says
Certain industries have a reputation for performing comparatively well during tough times. Healthcare stocks, for instance, are widely considered to be defensive investments. In 2008, funds in
The economic devastation of 2008 debunked the myth that there is a wide array of "recession-proof" industries. But that doesn't mean that there aren't individual companies that tend to get a boost when consumers are struggling. In particular, stores that sell staple products at sharp discounts will often benefit from consumers who are suddenly hunting for bargains.
Money market flows have been seesawing as investors try to determine how much of their portfolios they should stash away in cash. A double-dip recession would be accompanied by a plunge in the stock market, so opportunistic investors may want to keep some cash on hand to capitalize on beaten-down prices. At the same time, holding cash insulates investors from losses. "Nobody likes zero-percent returns on cash, but it's better than the significant losses that we can see if a crisis environment reemerges," says
Don't miss the rebound.
Still, putting too much money in cash can have unintended consequences. Namely, investors often take money out of the stock market when prices are tumbling and neglect to put it back in before stocks start to rally. For instance, over the 52-week period immediately after the stock market bottomed on
A number of different strategies allow investors to hedge risk during uncertain times. For example, long-short mutual funds, as their name implies, have both long and short positions in the market. When the long positions suffer, which typically happens during a downturn, the shorts pick up the slack and put a damper on volatility. "You don't want to go whole-hog on them, but I do think there are some good ones out there," Kinnel says of long-short funds. Meanwhile, bear market funds allow investors to get much heavier exposure to shorting techniques. These funds are designed to generate positive returns when the stock market goes down, and vice-versa.
Compared with the developed world, emerging markets have less debt on their books and much higher growth prospects. Arnott estimates that the aggregate public debt in
Available at Amazon.com:
- Is Your Portfolio Ready for A Double-Dip Recession?
- Anatomy of a Risky Target-Date Fund
- When is the Best Time to Buy An Immediate Annuity
- 5 Tips For the Average Investor
- Why Emerging Markets Belong in Your Portfolio
- What China's Currency Reform Means For Investors
- Financial Reform For the Retail Investor
- Target-Date Funds Are Not A 'Sure Bet'
- ETFs Can Be Volatile Too
- Chinese Growth Expected to Boost Asian Markets Long-Term
- 3 Mutual Funds to Steer Clear Of
- Mutual Fund Buzz: Alternatives On The Rise?
- Mutual Fund Buzz: The Tax Man Eyes The Fund Manager
- Mutual Fund Buzz: Bond Bubble?
- Ease Back Into Stocks With These Mutual Funds
- Value and Growth: Why Investors Need Both
- Investing Your Social Security Check? Consider These Factors
- New Efficiencies Should Help Alcoa as Recession Lifts
- Mutual Fund Fees: How Much is Too Much to Pay
- In Gold's Shadow: How Other Metals Fit Into Portfolios
- Should Investors Sit This One Out?
- There's No 'Perfect Time' to Dive Into Investing
- How to Keep Your Cool in a Turbulent Market
- How to Repair Your Damaged Portfolio
- Keep Bond Portfolio Broadly Diversified
- Why Not All Target-Date Funds Are Created Equal
- Five Tips to Avoid Confirmation Bias
- Financial Reform Legislation Gives Shareholders More Say
- Fiduciary Provision May Be Most Important Part of Financial Reform Bill
- What Gold Can and Cannot Do For You
- Why Your Portfolio Needs More Risk
- Read Mutual Fund Ads Critically
- Keep the Right Bonds in Your Portfolio
- European Debt Crisis Affects Investments
- 7 Valuable Lessons For Investors
- The Reality of Mutual Fund Returns
- Mutual Funds and a Changing Landscape
- Assembling a Sturdy Retirement Portfolio
- Funds for Recent College Grads
- Many 'Wide Moat' Companies Losing Competitive Advantage
- Who Got Hit Worst in the Market Crash
- Utility Stocks: Trade Flash for Dependable Payouts
- Formulate Strategy Before Diving Into Higher Risk Mutual Funds
- Contrarian Investors Target Promising Out-of-Favor Stocks
- Income Investors Face Challenges as Economy Shifts
- Can SEC Beat Goldman Sachs?
- Business Schools' Great Ethics Debate
- Investing for Retirement A Balancing Act
- Fees Can Take Big Bite Out of Retirement Fund Contributions
- Small-Cap Stocks Poised For Big Comeback
- John C. Bogle's Old-fashioned Investing Advice Still Applies
- 10 Great Mutual Funds You've Never Heard of
- Mutual Funds Fees & Expenses Only One Factor
- Why Investors Are Flocking to Index Funds
- Trend Setting Companies Target Hip Young Consumers
- Weakening European Stocks Offer Some Bargains for U.S. Investors
- Investing: What to Do About Inflation and What Not to Do
- Kick-Start a Portfolio With Just a Little Cash
- Exchange Traded Funds Offer Low-Cost Diversification
- Fresh Look at Socially Responsible Mutual Funds
- Technology Opens Doors for Investors
- Make the Most of Your Mutual Fund Money
- Fiduciary Standard for Giving Investment Advice
- 'Investment Rewards' Credit Cards Well Worth A Look
Investing - Is Your Portfolio Ready for A Double-Dip Recession? | Successful Investing
(c) 2010 U.S. News & World Report