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How Badly Will a Recession Impact Your Portfolio?

How Badly Will a Recession Impact Your Portfolio?

We imagine you’re a bit curious about how the next recession will affect your investments. Global growth has waned for some time and now many U.S. economic metrics are decelerating. Kick in a trend toward negative interest rates along with widespread geopolitical uncertainty and it becomes perfectly logical for investors to anticipate a recession. But, is it logical to conclude that a recession will ravage your investment portfolio? History suggests otherwise.

Through popular media headlines and  conversations with other investment professionals, worry surrounding an upcoming recession is evident (yes, we’re in the longest expansion in U.S. history though a recession will occur at some point). Much like developing a fear (often unwarranted) of pain before a routine visit to the dentist, investors may be overly concerned with the pain their portfolios might experience from a recession.

First the facts: (Sources: National Bureau of Economic Research (U.S. Business Cycle Expansions and Contractions). Total returns used for S&P 500 and Barclays Aggregate.)

  • There have been five recessions since 1980 (average length of contraction is 11 months)
  • The S&P 500 declined less than four percent, on average, one year out from the economic peak and was up more than seven percent after two years
  • A balanced portfolio including bonds fared even better on average

Most investors are surprised by how well stocks held up

                                        Total Returns – average of previous 5 recessions

 

 And balanced portfolios actually performed well

                                            Total Returns – average of previous 5 recessions

Everyone knows a recession will ensue at some point but we sense a growing concern among investors that was perhaps unwarranted.  The fear of loss outweighs what investors historically experienced.

Here are three prudent practices that you and all investors can embrace to help navigate the inevitable recession.

  1. Ensure you have a keen grasp on the current return and risk profile of your portfolio… and that a direct link between your overall objectives and your allocation exists.
  2. Use knowledge to temper your emotions. A recession will occur; knowing how stocks and bonds have historically behaved is information you can use to your benefit.
  3. Seek assistance. While our investment consultants set strategy with most clients during the early part of each year (and that strategy tends to have good “shelf life”), circumstances can change and objectives may evolve. If in doubt, reach out to be certain you fully grasp the characteristics of your portfolio.

As you’ve heard many times, history does not repeat itself, but it rhymes. Hopefully these insights will help you better navigate the next economic downturn, whenever that transpires, and as always please feel free to contact any of the professionals at MPS LORIA.

 

 

Disclaimer:  Values are for illustrative purposes only and do not guarantee current or future values.  This and/or the accompanying information was prepared by or obtained from sources that MPS LORIA Financial Planners, LLC believes to be reliable, but does not guarantee its accuracy.   This has been prepared manually from client records.  No party has certified this is correct.  It has been assembled to provide a best look into the history of the account.  For actual history each individual investment company would need to be contacted to provide such information.

All advice is offered through: MPS LORIA Financial Planners, LLC, a registered investment advisory firm. Securities offered through: LORIA Financial Group, LLC, a registered broker dealer; member FINRA & SIPC. Please read all investment material carefully before any investing. It is important to consider all objectives, risks, costs and liquidity needs before investing. Please contact an investment professional for a copy of any investment’s most recent prospectus.   MPS LORIA Financial Planners, LLC and LORIA Financial Group, LLC do not provide tax or legal advice.  While reasonable efforts are made, information provided is not guaranteed to be accurate. This report is intended for the exclusive use of clients or prospective clients of MPS LORIA Financial Planners, L.L.C.  Content is privileged and confidential.  Dissemination or distribution is strictly prohibited

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