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How to recession-proof your portfolio: restructure your investments in these uncertain times

May 18, 2020 11:59:57 AM / by Charles Agutter

A recession like no other, needs a playbook like no other.

What should you do to get your investment portfolio in ship shape for the volatile times ahead? 

It's as plain as a pike staff - a recession looks inevitable for the first half of this year, it’s also unlikely to be one that we will see in our rear view mirror any time soon. 

Albeit the markets look optimistic and are currently pricing in a relatively speedy recovery,  but that depends on how fast the world can bring the Corona virus under control and keep it at bay,  continue to reduce the rate of contagion without a second wave of infections spoiling the recovery. 

The central bank believes the core banking system has “more than sufficient” capital to absorb expected losses and that there will be capacity to provide credit to support the UK economy. In its scenario, it is anticipating that overall economic activity (GDP) will fall 14% in 2020 but rebound  in 2021. 

As fears of entering a deeper recession mount as market volatility continues, billions wiped off global stock markets and poor US china relations exacerbating negative market sentiment, investors need to look more medium and long term to recupe back losses.

Do your research and sought advice from a qualified investment advisor as it's now a good time to look at alternative investment strategies. One thing’s for sure, savers won’t find relief in a savings account paying measly 0.5% interest.

Look at how much you have in each sector, asset class and country and assess whether you need to rebalance with alternative investment strategies.

 

5 Investing Strategies That Are Recession-Proof

1. Invest in ‘recession-proof’ funds

Look at an investment fund that invests in a range of assets including high-quality companies, short-dated government bonds, cash and gold.

Look for a balanced, global investment portfolio that offers some diversification between different countries and markets.

Just 340 funds out of more than 4,000 have delivered a positive return so far this year, and a large chunk of the ones above water are bond funds, which highlights the importance of having exposure to these assets in your portfolio.

 

2. Drip Feed Investing - buying fewer shares when prices are high and more when prices are low. 

Sounds like an obvious one, but this is what the large fund managers are doing but in much larger chunks.It is a process known as pound-cost averaging.

If you haven't got large lump sums to spare, then drip-feeding your investments on a monthly basis is a great alternative.  This helps to mitigate investment risk and smooth out the inevitable bumps in the market, buying fewer shares when prices are high and more when prices are low. 

These are unprecedented times, and theres no better time to look at alternative investment plans.

3. Fine Wine Investing

Smart investors are considering allocating their available capital to Fine Wine, an alternative asset class with excellent proven defensive characteristic and a genuine alternative investment strategy.  

Current trends in the fine wine market point towards a continuation of its broadening and popularity. The number of different wines traded continues to increase along with a greater diversity of regions accounting for trade. “Italy is the shining light” but smaller regions from the Rest of the World have begun to take up significant share.   

Importantly, in 2020 the fine wine market is now truly diversified and continues to broaden across all regions with growing numbers of individual traded fine wines . Bordeaux now accounts for no more than average 50% of trade value and in April 2020 the composition of trade share saw Bordeaux account for 41%, Italy 22.5%, Burgundy 9.3%, Champagne 8.7%, Rhone 5.2% and the Rest of the World – 13.3%.  

The key messages are – fine wine’s stable asset performance offers an important tool for diversifying your portfolio to manage risk and protect wealth, especially during times of economic uncertainty and volatility. Talk to UKV International about how you can do exactly that, through a strategic selection of fine wine investing.  

 

4. Defensive Stocks

Waste disposal companies are typically considered defensive because no matter the state of the economy at large, humans both generate rubbish and don’t want it around. Weekly bin pickups generally continue across the nation no matter what the economic backdrop, and this makes waste disposal a good bet during a recession. As the COVID-19 recession is unprecedented, with workers across the nation being forced into lockdown, some “nonessential” services of waste management companies, like electronics disposal, have slowed. However, as lockdowns become less severe, waste disposal companies should have no problem rocketing back.

The healthcare industry as a whole historically performs well during recessionary periods. While the recession we’re heading into now is a unique one because it’s being caused by a global pandemic, the healthcare industry is as strong as ever. Also, our aging population and demand for medical attention fortify this industry even more.

Utility stocks tend to pay high and consistent dividends, which makes them more appealing to investors looking to get defensive. Utility stocks fall into the same defensive, necessary category as grocery stores. Even when consumers trim back their spending, they still need water coming in through their pipes and power coming in through their lines. There will always be a demand for the product utilities provide, even during a recession and especially if Covid returns as more lock downs ensue. 

 

5.  Spread Your Assets

Diversify your holdings. This is arguably the single most important message for investors right now. the The recent falls in equity markets should be a wake-up-call for many investors that they had too much risk in their portfolio – and too many of their assets in the stock markets.

 

These articles are provided for information purposes only.   The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

 

Topics: Investing 2020

Charles Agutter

Written by Charles Agutter

UKV International

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