With the US elections coming up, amid other uncertainties in interest rates, the US debt situation and warfare happening abroad, most professionals recommend these investment strategies to defend your portfolio in the event of an untimely recession.
Bonds
In an environment of rate cuts, we often see bond prices, which move inversely with interest rates, rise. In addition, bonds, being fixed income instruments, are considered to be less volatile instruments as compared to equities. Finally, it is meaningful to diversify one's portfolio with a mixture of investment instruments which are of low correlation with each other.
As such, investments in treasury bonds or well-structured bond ETFs may be a sound solution in current economic conditions, especially with a few more anticipated rate cuts in the upcoming FOMC meetings. A few well-known funds with underlying bonds are iShares 20+ Year Treasury Bond (NASDAQ:TLT) and Vanguard Total Bond Market Index Fund ETF Shares (NASDAQ:BND).
Defensive Industries
Most experts recommend utilities, consumer staples and healthcare as the most defensive sectors in equity markets. Companies providing such services are more likely to weather a recession as the demand for such services, which are considered necessities, would still be sustained to a certain extent in a recessionary environment.
Such companies may not provide the highest capital appreciation during optimistic market conditions, but they definitely hold their own during significant market corrections and economic downturns. Procter & Gamble (NYSE:PG), Johnson & Johnson (NYSE:JNJ) and Coca-Cola (NYSE:KO) are considered by most investment professionals as strong defensive companies which have proven to survive economic turbulence.
Gold
Known by most as a safe haven, investments in gold tend to do decently during times of economic recession. For example, between 2007 and 2011, gold prices doubled while equities took a tumble from the infamous Global Financial Crisis.
We're now, once again, in periods of economic uncertainty and instability. To hedge against potential market downturns, one may consider gold-backed funds like SPDR Gold Shares ETF (NYSE:GLD ETF), gold CFDs or gold futures to participate in the price movement of gold. This is also a decent way to diversify one's investment portfolio with various asset classes.
All in all, these recommendations are widely considered as sound investments during periods of economic uncertainty. While they may not guarantee you substantial returns, we can at least, with reasonable certainty, expect them to hold their own in pessmistic market conditions. Ultimately, it is up to the investor's risk appetite and personal preference to assess the adequacy of such investment recommendations.