A time-honored strategy for dealing with market downturns is to move money from one stock market sector to another. During times of high growth, for instance, tech stocks seem to do well. When the economy slows, meanwhile, “boring” sectors like utilities stocks tend to hold up better.
Downturns Are Followed by Upturns
However, the decline of portfolio value normally won't last. Prices will go back up. If investors sell when the market is down, they will realize an actual loss. A lesson many investors have learned is that if they sit tight and wait for the upturn to come, they won't realize a loss.
If you are a short-term investor, bank CDs and Treasury securities are a good bet. If you are investing for a longer time period, fixed or indexed annuities or even indexed universal life insurance products can provide better returns than Treasury bonds.
Bottom line. Moving your portfolio from stocks to cash is an understandable instinct when savings rates are high and there are concerns about a possible recession. But it's important to remember that stock market investments are part of your long-term plan, and selling could have tax implications.
In short, if you have less than $250,000 in your account at an FDIC-insured US bank, then you almost certainly have nothing to worry about. Each deposit account owner will be insured up to $250,000 - so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.
Stock Market Performance In 2023
U.S. stock market gains in the first half of 2023 have been rosier than some entire years in the past. This alone raises the risk for a spill in prices. The S&P 500's rise in 2023 reached almost 16% in mid-June.
Meanwhile, experts from Goldman Sachs recently predicted in their 2023 outlook that the stock market will “most likely rally” by the end of 2023.
As shown in the table below, the recovery period for U.S. stocks has been as long as 15 years: In the wake of the 1929 Crash, the IA SBBI US Large Stock Index didn't fully recover until late 1944. For gold bugs, the longest recovery period spanned more than 26 years (from October 1980 until April 2007).
After all, even when the market has had a good run, lifting your holdings, you might still have some stocks that are below where you bought them. If you're looking to lock in some of those gains (aka tax-gain harvesting), selling some of your losers can help minimize your capital gains taxes.
Defensive Industries
Historically, the industries considered to be the most defensive and better placed to fare reasonably during recessions are utilities, health care, and consumer staples.
The Australian economy entered a recession after GDP fell 0.3% in Q1 2020 and a whopping 7% in Q2 2020 - the steepest contraction in the nation's recorded history. Prior to this economic anomaly, the last time Australia endured a recession was 1990-1991.
In general, a recession lasts anywhere from six to 18 months. For example, the Great Recession that started in December 2007 lasted 18 months. But the recession prompted by the pandemic in 2020 only lasted two months. When a recession is on the horizon, it's impossible to know how long it will last.
Online savings accounts are among the safest savings vehicles, with federal insurance covering up to $250,000 in deposits per holder, whether through a bank or a credit union. (A joint account with two holders is insured for up to $500,000.)
Yardeni's price target implies a potential 6% to 20% jump in the S&P 500 by the end of 2024, and while that may sound dramatic after this year's gains, it's based on fundamentals.
Fixed-Income: Companies that issue bonds or other fixed-income securities may be negatively impacted by inflation because rising inflation can lead to higher interest rates, which can reduce the value of existing bonds and make new bonds less attractive to investors.
Food and drink
Food and drink continue to be essentials during economic downturns. You may think that consumers turn to rice, potatoes, and tap water when money is tight, but this isn't always this case! Many times, luxury food and drink products perform well for a few reasons: People need comfort (like with candy).
GOBankingRates consulted quite a few finance experts and asked them this question and they all said basically the same thing: You need three to six months' worth of living expenses in an easily accessible savings account. The exact amount of cash needed depends on one's income tier and cost of living.
The stock market is entering the second half of 2023 with positive momentum, which historically bodes well for returns for the rest of the year. The S&P 500 could be on track for its best annual performance since 2019.
As people get older, they generally become more risk-averse. This is understandable, as seniors have less time to recover from financial losses than younger people. For this reason, our advice to seniors is that they should only invest in stocks if they can afford to lose money.
Yardeni's price target implies a potential 6% to 20% jump in the S&P 500 by the end of 2024, and while that may sound dramatic after this year's gains, it's based on fundamentals.