By Ryan Yuhnke
It’s no secret that the stock market has seen increased volatility in the last couple of months—partly due to geopolitical events and partly due to the continued effects of historically high levels of inflation, which hit 9.1% in June. (1)
With the S&P 500 now officially in a bear market, defined as a 20% decline from a recent peak, (2) experts and some of the country’s top CEOs, like Elon Musk and JPMorgan Chase CEO Jamie Dimon, are warning that a recession is coming. (3)
Are you worried about how your portfolio will handle the recent stock market volatility? Do you want to preserve your gains from previous years and make smart investment decisions even in a recession? At Court Investment Services, we believe that investing in a recession doesn’t have to be scary or overwhelming. In fact, it can actually be profitable if you know where to look. Here are 5 tips for investing in a recession.
Create an Emergency Fund
This strategy is all about being conservative. While cash investments may not provide a lot of growth, having a cash contingency fund with at least one year’s worth of living expenses will protect you against having to sell investments at low values. Examine spending patterns and find ways to invest even more into cash or cash equivalents, such as short-term bonds, certificates of deposits, or Treasury bills.
Stay Calm
One of the most important rules in investing is to refrain from making emotional decisions. It’s easy to get swept away emotionally when the market seems to be wreaking havoc on your finances. But if you stay true to your investment strategy and avoid making decisions when emotions are running high, you won’t run the risk of losing even more. As long as you have created a disciplined investment plan and know what you own, you are doing your part to prepare.
Organize Your Assets Into Time-Specific Buckets
Consider organizing your investment assets into time-specific buckets; this way you can keep track of which funds are needed immediately, and which can be left to recover over time. There are three categories you can utilize:
- Short-term investments are those that will be held for 2 years or less. These investments are usually needed for short-term goals or expenses, so they should be in easily accessible accounts like high-yield savings accounts, money market funds, or T-Bills. You won’t get the highest return, but your money will be there when you need it.
- Intermediate investments are between 3-7 years, and this is where you can get creative with your investment choices. These funds can be used to purchase investments that may have come down significantly in price due to market volatility but have the right characteristics to rebound over time.
- Long-term investments are used for goals that are 10-plus years away, like retirement. These have the longest time frame to recover, so depending on your specific situation and risk tolerance, it may be worth holding on to the investments you already have to ride out the recession.
At CIS, we can help you organize your investments according to your specific financial goals. We will also design an investment plan that makes the most of the value opportunities a down market presents.
Consider Trade Down Investments
Another option to consider during a recession is investing in trade down companies. These might include companies that have more resilient profits or even experience growth in recessions. Examples of companies might be industries like discount and off-price retailers, discount and low-cost airlines, fast food, health care and pharmaceuticals, auto repair and maintenance, household products, utilities, soft drinks, and more. THE MOST IMPORTANT consideration in owning these exposures is for them to be priced ATTRACTIVELY. Even the companies with the safest and most stable earnings can fall in price by 50% if not purchased CHEAP, so it’s important to work with a professional that can assist or pay extreme attention to valuations for those more experienced investors doing it on their own.
Don’t Forget About Bonds
Though the bond market has suffered quite a bit in recent years, don’t write them off completely. As interest rates rise, this presents an opportunity to purchase new bonds at more attractive yields. Knowing the risk and reward characteristics of bonds can help the informed investor capture the safe and consistent returns they might be seeking. As many have learned in 2021 and the first half of 2022 simply chasing past performance in bonds has led to disastrous returns, especially for those with longer maturities. As the U.S. economy now dives headfirst into a recession, credit risk might become more important as companies strive to weather the downturn and continue to pay their bondholders. Bonds can remain a VERY safe investment providing low single-digit returns if you know where to look to minimize risk.
Is Your Portfolio Ready for a Recession?
Investing in a recession can make even the most seasoned investors nervous, but you are not alone. At Court Investment Services, we are working overtime to understand and analyze what worked in the 2008-2009 recession and what did not. We are ready to handle this current recession and as the market pulls back, we are excited at the once-in-a-decade opportunity to buy fantastic companies and exposures at attractive prices. We are eager to share this information with our clients allowing us together, to make less emotional and more informed decisions with CONFIDENCE. If you are worried about your portfolio or would like to learn more about our investment services or what makes us different, schedule an appointment by contacting us at (800) 880-2760 or Kitty at kchu@CourtInvestmentServices.com.
About Ryan
Ryan Yuhnke is founder and Principal at Court Investment Services, an independent, fee-based investment firm that serves attorneys and fiduciaries as they manage estate-held assets. With two decades of experience, Ryan’s proactive, relationship-based process saves his clients time and money while putting them first in everything. He provides services and support to help attorneys and professional partners oversee and manage special-needs trusts, estates, conservatorships, guardianships, and other court accounts, including IRAs, 401(k)s, and all manner of retirement accounts that also fall under his clients’ management. Ryan is known for his commitment to excellence and transparency and his deep knowledge of probate laws, court compliance, and strategies to keep assets safe while abiding by all court and probate code directives. Ryan’s goal is to make his clients’ lives easier, providing investment support and education along the way.
Ryan has a bachelor’s degree in economics from the University of California, Irvine, and built his career working in banks, national investment firms, and registered investment advisory firms (RIAs.) Prior to starting CIS, he earned the title of First Vice President, and Portfolio Management Director while employed at Morgan Stanley in Newport Beach, CA. When he’s not working, Ryan can be found traveling to experience new cultures and environments, focusing on personal development through mental, social, spiritual, emotional, and physical growth, and most importantly enjoying quality time and creating new memories with family and friends. To learn more about Ryan, connect with him on LinkedIn.
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