Worried About a Recession? 3 Things to Do With Your Brokerage Account Now

In 2022, economists were sounding warnings about an impending recession. These days, however, experts seem more confident about the country avoiding a recession in the near term. But if you're still concerned about a potential recession, then there are certain moves you may want to make in your brokerage account. Here are three to prioritize.

1. Make sure you don't have too much money tied up in investments

It's a good thing to invest money for far-off goals, like retirement. The stock market's average annual return over the past 50 years has been 10%, whereas if you were to keep your money in a savings account, you might get 2% or 3% on your money on average -- if that.

However, recessions and job loss can go hand in hand. So if you're worried about a recession, take a look at your savings and see how many months of bills you can pay in the absence of a paycheck. If you can't cover at least three months, you may want to liquidate some investments now and move that cash into the bank for emergency savings purposes.

You may be thinking, "Couldn't I just leave my brokerage account alone and liquidate investments on the spot as needed?" But the danger of doing that is that you might need cash at a time when the market is down. You're better off cashing out investments now, when the market is in better shape.

2. Make sure you're well-diversified

A diversified portfolio might lose less value during a recession that impacts the broad stock market than a portfolio that's heavily concentrated in a single market sector, or in a select few companies.

Take a look at your investment mix and make sure it's diversified enough. If you only own shares of seven stocks, you probably need to make changes. If you own 27 stocks, you're probably OK as long as those stocks are spread out across a range of industries. If you've got 15 tech stocks and 12 energy stocks, you'll want to branch out into different sectors.

Another good way to branch out in your portfolio is to buy an S&P 500 ETF (an exchange-traded fund). This allows you to invest in a few hundred businesses with a single investment.

3. Consider shifting to investments that are generally regarded as recession-proof

Certain stocks or industries tend to be regarded as recession-proof. This doesn't mean that they can't lose value during a recession. Rather, it's that they're such essential items or services that consumers tend to prioritize them during a recession. It's stocks like these that may be less likely to plummet in value if broad economic conditions deteriorate.

Healthcare stocks, for example, have long been considered a good example of a recession-proof investment. That's because people will always need medical care. Residential REITs, or real estate investment trusts, are another example of a recession-proof investment, because people will always need housing.

Again, you might still see the value of your so-called recession-proof investments drop during an economic downturn. However, they may not drop to the same degree as other stocks in your portfolio, which could limit your overall losses.

Even though a near-term recession isn't very likely, it's always a good idea to know how to prepare for one. And frankly, the above moves are good ones to make in general -- even if you're not necessarily convinced that economic conditions are going to sour in the next few months. It's never a bad idea to make sure you're all set on emergency savings, diversify your portfolio, and load up on at least a few investments that are naturally suited to withstand a recession.