Tips for recession-proofing a portfolio: where to start?

Our experts provide some insight into how to recession-proof an investment portfolio.

In the current environment, it is hard to know what our lives will look like in a few weeks let alone a few years. But since even optimists might struggle to find a path that does not have ‘recession’ at the end of it, how long and winding that recession will be is the big question.

So, how do you recession-proof an investment portfolio? Experts at ii share some thoughts.

Three months' salary in cash? Aim to double it

Myron Jobson, Personal Finance Campaigner, says: “Historically, it’s often said that three months salary is a fair rule of thumb for an emergency cash safety net. That will be a tough challenge for many of us at the best of times. But given what we been through, many people will want to double that, even amid paltry savings rates. You can’t always fix the roof while the sun is shining – this crisis has definitely taught us that.

“While there will always be some companies that might seem ‘recession proof’, and they can certainly have a place in a portfolio, this is not necessarily the best starting point. It’s hard to see how our lives might change as we dare to dream about life after lockdown. So the most important thing is to get your risk profile right.”

Get defensive?

Richard Hunter, Head of Markets, says: “While a disparate group, what defensive stocks have in common is they all have produced something that we all need - whether that’s consumer, utilities, pharmaceuticals and supermarkets. Even the oils are looking attractive in places despite recent dividend trims.”

Lockdown Lives

Lee Wild, Head of Equity Strategy, says: “Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) were among the most-bought US stocks on interactive investor in April, alongside Zoom (NASDAQ:ZM) and Walt Disney (NYSE:DIS) – no doubt in part informed by our new ‘lockdown lives’.

“A lot of US tech stocks have held up extremely well over the recent crisis. But remember, customer trends can be fickle, and they all come with their own risks, and if not immediately economically, it can be regulatory.”

Go global

Moira O’Neill, Head of Personal Finance, says: “One of the best ways to recession-proof your portfolio is to have a balanced, global portfolio. F&C Investment Trust (LSE:FCIT) is a great one stop shop and has been serving shareholders for generations, through the Great Depression, two World Wars, through boom, bust, and beyond. 

“Other global funds that have also managed to sensibly increase wealth include Fundsmith Equity. You might also want to take a multi asset perspective, and the Vanguard LifeStrategy 60% Equity and 80% equity options are a good option for those who want access to hundreds of stocks around the world, at low cost, and with some bond exposure to take at least some of the sting out of equities when times are tough.”

Myron Jobson adds: “Some people may be waiting for a better time to invest in the market, but the truth is, without a crystal ball no-one knows when that might be and there is a good chance that you would be unaware when that time comes. 

“An alternative for lower-risk investors, or those without lump sums to spare, is drip-feeding your investments on a monthly basis. This helps to mitigate investment risk and smooth out the inevitable bumps in the market, buying fewer shares when prices are high and more when prices are low. It is a process known as pound-cost averaging - interactive investor offers a free regular investing service to help you with this.”