Q: Most experts seem to agree that we're long overdue for a recession, so I want to prepare my portfolio. Can you recommend some stocks that should perform well even if a recession hits?
I don't want to suggest any individual stocks, but there are some good guidelines if you want to set your portfolio up for success during tough economic conditions.
The most important thing is to focus on businesses that aren't terribly cyclical, or economically sensitive. In other words, businesses like luxury retailers, cruise lines, resorts, and automakers tend to do really well when the economy is strong, but not so well in bad economies, just to name a few examples. On the other hand, businesses like utilities and grocery stores tend to hold up far better, as these provide goods or services that people need no matter what the economy is doing.
So if you're trying to build a recession-resistant portfolio, focus on stocks that provide needs, not wants, to consumers.
Going a step further, you can actually identify some businesses that can do even better when the economy turns sour. For example, discount-oriented retailers were among the best performers during the Great Recession, as they benefited from bargain-seeking consumers.
By focusing on companies that provide nondiscretionary products or services and businesses that sell things at a discount, your portfolio should be well-positioned to weather any economic storm.