Investors Have Been Expecting a Recession for Months. So Where Is It?
KEY POINTS
- After months of incessant warnings, it seems like economists are finally backing off of the idea of a 2023 recession.
- While your portfolio may not take a beating due to a broad economic downturn, other factors could result in a lower balance.
- It's important to keep your holdings diversified at all times, especially since a recession could hit in the future.
Throughout 2022, especially the latter part, economists were quick to issue warnings about a 2023 recession. But thankfully, we've made it all the way to October without the economy taking a notable turn for the worse.
In fact, unemployment only sat at 3.8% for September. Historically speaking, that's a low rate. And consumer spending increased $83.6 billion in August compared to a month prior.
All told, it seems pretty likely that a recession is not going to hit in 2023. And as an investor, that may be the sort of news you want to hear. But just because the economy didn't tank in 2023 doesn't mean you shouldn't be mindful of your portfolio.
A recession could hit at any time
Let's be clear about one thing -- recessions don't always cause brokerage account balances to plummet, and it's possible for the stock market to take a beating even when the broad economy is doing extremely well. In fact, despite healthy levels of consumer spending and low unemployment, as of this writing, the S&P 500 index is down roughly 3.4% over the past month.
But it's easy to see why investors can get so worked up over the idea of a recession. The reality is that a broad economic downturn could impact portfolio values for the worse, so it's natural to be worried about the idea of that happening.
It's also important to realize that while we may have skirted a recession in 2023, there's no telling when one will hit. So it's important to make sure that your portfolio is recession-ready at all times.
Diversification is key
A recession is the sort of thing you might experience multiple times in your life. And it's important to set up your portfolio to withstand a recession or stock market decline. In that regard, diversifying may be your best bet.
If you load up on a wide range of stocks across different market sectors, you might minimize your losses in the event of broad economic or market-related upheaval. And if you think the idea of going out and buying stocks from 12 or 15 different industries is daunting, you can invest in the broad market instead.
If you buy shares of an S&P 500 ETF, or exchange-traded fund, you'll effectively be putting your money into the 500 largest companies that trade publicly today -- only without having to go out and buy shares of each and every one. You can also buy sector-specific ETFs so that if, for example, you already own plenty of tech and bank stocks, you can branch out by buying shares of an auto or retail ETF.
You might also want to make sure your portfolio contains at least a few stocks that are fairly recession-proof. Granted, any stock could lose value during a recession. But certain industries tend to be less vulnerable to recessions. Healthcare stocks, for example, are a good bet in this regard because people will always need medical care, regardless of economic conditions.
Make sure you're ready
It looks like we may be in the clear as far as a 2023 recession is concerned. But don't be lulled into a false sense of security. An economic downturn could happen in the not-so-distant future, so it's important to set up your portfolio to withstand one.
Finally, do remember that if a recession does hit and your portfolio is negatively impacted, that hit isn't guaranteed to be permanent. Often, if you leave your investments alone, your portfolio can recover in time. But it's still a good idea to take steps to try to minimize a recession-related hit -- for your own peace of mind.
Our Research Expert
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