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How To Invest For The Next Recession.
Stock-market losses during a recession can be jarring.
If defaults, layoffs or bad economic data give markets a whiff of recession, stocks could sell off rapidly, with little spared as investors shed risky assets for safer ones. “There are very few places to hide in a bear market,” says Sam Stovall of CFRA. “Once you scream bear market, everything goes red except for bonds, the U.S. dollar and most times, gold.” So-called defensive sectors such as consumer staples and utilities tend to hold up better than most other sectors—but they still drop. Since 1945, bear-market declines have averaged double-digits in every sector, according to CFRA.
The riskiest and safest investments in a recession
PIMCO thinks the riskiest investments during the next recession include companies with high-yield or junk-rated debt, which will be most vulnerable to default as credit tightens. Safer: Short-term bonds such as highly rated corporates or US Treasuries. PIMCO also thinks tougher regulation during the last decade could shield industries that were highly vulnerable the last time around. “Sectors that have seen a significant increase in regulation, including commercial real estate and the financial sector as well as housing, will likely demonstrate resilience,” PIMCO analysts wrote in a recent report.
Cash is perhaps the most obvious place to put your money during a bear market, since it protects your principal and leaves “dry powder” for buying when you feel the bear market may be close to a bottom. But there are risks with cash, too. First, nobody knows when the next recession will start and end, so you could miss out on market gains by liquidating too soon—or get crushed by liquidating too late. And while your money’s in cash, you’re still losing out to inflation.