Geopolitical shocks — terrorist acts, wars or military action — can give your portfolio a significant negative charge. The leading geopolitical source of market instability in 2025 has been the Middle East, as in years past. Israel’s decision to attack nuclear facilities in Iran in an attempt to retard that country’s weaponization efforts prompted a 1.1% drop in the S&P 500 index on June 13.

Among the losers that day, according to S&P Global Market Intelligence, were leisure-travel companies Norwegian Cruise Line Holdings (NCLH) and Carnival Corp. (CCL), which each fell about 5%. Other travel and leisure companies that fell at least 3% that day included United Airlines (UAL) and Delta Air Lines (DAL); Caesars Entertainment (CZR), MGM Resorts (MGM), Las Vegas Sands (LVS), and Wynn Resorts (WYNN); Expedia Group (EXPE); and Marriott International (MAR). Several energy and agricultural companies and defense contractors gained at least 2% that day.

Any unrest in the Middle East can have a major impact on the global economy if oil production gets disrupted. Oil shocks in 1973, 1979, and 1990 caused recessions and bear or near-bear markets.

But this past June, the market rebounded quickly as investors saw Iran’s retaliatory measure of limited strikes on a U.S. military base as a moderate response.

Seven of the 10 travel and leisure companies noted above gained at least 7% from June 13 to the end of the month. Norwegian and Carnival went up 14% and 26%, respectively. Many of the energy, agriculture and defense companies gave back all their gains, plus more. Halliburton (HAL) rose 6% on June 13, then fell 12% by June 30.

The lesson for investors: Markets typically recover from a geopolitical event quickly.

“It ends up being much more of a headline event than a bottom-line event,” says market historian Sam Stovall, chief investment strategist at market research firm CFRA. Stovall has studied nearly a century of shocks and found that seven out of 10 times, the stock market is up — sometimes meaningfully so — three months after the event.

Take, for example, the Boston Marathon bombing in April 2013. That day, the S&P 500 fell 2.3%. Ninety calendar days later, the S&P index was up 5.7%.

Stovall’s list contains 25 events dating back to Pearl Harbor. In 11 cases, the markets were up 30 days later. In 16 cases, they were up 60 days later. And in 18 cases — or 72% of the time — they were up 90 days later.

Long-term buying opportunities

Some events are sufficiently cataclysmic to trigger a recession; Iraq’s August 1990 invasion of Kuwait is one example. (The market fell 1.1% that day, and 90 days later it was down 14.5%.) But, Stovall says, most shock-driven market drops may instead be buying opportunities for the longer-term investor, in terms of the market as a whole or specific stocks or sectors.

Matt Gertken, of BCA Research, who gauges the geopolitical risk of certain scenarios, has moderated his assessment of the situation in the Middle East.

In mid-June, he saw a 60% probability of a major oil shock resulting from the current strife, with a 40% probability of a minor shock. (A minor oil shock is a reduction in oil output that can be solved in short order by other countries increasing their production. Major oil shocks are longer-term problems.) After the muted Iranian response, he reduced the probability of a major shock to 25% and allowed for a 25% chance that there will be no geopolitical impact on oil from the current events.

“As of mid June, I was basically saying there was a 0% chance that oil would be unaffected,” Gertken says.

Stay cautious amid the volatility

The market’s quick recovery and subsequent gains suggest investors are placing even less probability on Middle East risk and oil shocks. Nonetheless, says Gertken, it’s not the time to become complacent.

“Individual investors should recognize that with the market having recovered from Trump’s tariff announcement and rallied in the wake of what appears to be a dodged bullet with the Iran conflict, we’ve had a lot of good news priced in,” he says. “It might be a good time to take some risk off the table because there are still plenty of reasons to be cautious going forward.”

Chris Haverland, a global equity strategist at Wells Fargo Investment Institute, says the research firm currently prefers quality large-company stocks over small caps, and it prefers developed international markets over emerging economies. Recommended portfolios currently have more commodity exposure — to both energy and precious metals — than is typical.

“It’s obviously unpredictable,” he says. “You can’t really position a portfolio tactically prior to an event. And then you don’t want to be making changes during an event, because typically they’re short-lived — for example, the 12-day Israel–Iran war. So the best defense is to be diversified going into geopolitical events.”

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Everyone knows I love bonds, and after the recent turmoil in so many other corners of finance, I trust you agree. Once again in 2025, bonds' dual mandate of timely, reliable income and risk mitigation is proving its value.

Hence my segue into an assessment of the various sectors heading into summer. Despite lagging performance in early 2025, municipal bonds offer clear and present value, with yields as a percentage of Treasury rates that are extremely high.

While a 10-year T-bond yields 4.2%, for example, you can find AA-rated and AAA-rated tax-free issues galore priced to yield as much or more to maturity, for a taxable-equivalent yield in the range of 6% to 7%. This is due to what U.S. Bank bond honcho Bill Merz calls "an incremental blend of a variety of things," including a burst of new muni supply in 2025 that was just in time for mass selling of illiquid municipal exchange-traded funds that cheapened the entire sector.

But now yields are high enough to bring insurance companies back alongside individuals. And if you reckon the world is quasi-boycotting Treasury debt and other U.S. assets, foreigners are not much of a factor in municipals.

Next — and this sounds counterintuitive — I would not avoid high-yield corporate bonds. Yes, this group is more closely correlated to stocks than munis and Treasuries. And yes, in April some of my favorite high-yield funds, such as Fidelity Capital & Income and Hotchkis & Wiley High Yield, got body-slammed while stocks crashed. But unless you think the economy is failing — the first-quarter decline in economic growth is misleadingly negative — the extra yield will still pay for itself.

"Fifty percent of high yield is double-B, while it used to be only one-third," says American Century's corporate bond chief Jason Greenblath. While bank-loan defaults may be creeping higher and CCC-rated bonds are dicey, BB bond credit problems are not.

Most high-yield funds lean toward the stronger layers of the sector. And after the struggles in April, the spread between BB bonds and Treasury yields has narrowed again after spiking to more than 3 percentage points in the April trading panic. But at around 2 to 2.5 percentage points, the extra income is still greater than at the start of the year.

Nice yields, minimal risk

I also see fresh opportunities in preferred stocks, either via funds or in the individual issues of banks, utilities and insurance companies.

The rule is that any $25-par-value investment-grade preferred priced at around $23 is safe to buy and becomes an instant source of extra yield. Various Allstate, Bank of America, JPMorgan, Truist and electric-company preferred shares occupy this zone, for current yields between 6% and 7% and minimal risk.

If you go down in quality to BB, you can find more than 7%. Banks and insurers are in better condition than in 2008, so if the entire economy really does falter, they will not fail or get downgraded to where the value of these obligations takes another whacking.

I’ll note that the stocks and stock funds that did the best during the worst of the unpleasantness are the most bondlike: AT&T, Realty Income, Franklin Low Volatility High Dividend ETF — or pretty much any fund with "dividend" in its name. Nothing is immune from renewed pressure if the political situation, the economic situation or both descend into another, more intractable crisis.

The chance of stagflation and that sell-America theme rule out long-term Treasury bonds unless you can hold to maturity. But the domestically focused high-income standbys that have been dear to my heart for decades are likely to survive.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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I am long on record as an extreme skeptic of doom-loop and daisy-chain scenarios, where action A causes market reaction B and then investments C, D and E crash as traders and investors lose nerve and everyone's portfolios drown in a flood of madcap selling.

For 40 years, I have written that it is dumb to make quick portfolio decisions based on political and international events. And I have been correct to believe that when reliable investments get indiscriminately slammed, there is enough smart money to undo some of the damage.

That is the DNA of my three-day rule, which holds that in any news-driven plunge, sober-minded buyers will arrive in roughly 72 hours wielding significant sums of cash.

The exception was the crash of 2008, and that was because multiple banks went bust and Wall Street had no rescue money. Bank failures and widespread bond defaults are crushing. Fortunately, with the U.S. economy borderline booming entering this year, the banks seem sound.

But the trade war and, worse, the utter confusion about what it is supposed to achieve and on what timetable stand to undermine all my time-tested doctrines. I wish I were confident that financial markets will push back enough to influence the policymakers.

But all indications say that this is not a three-day story. S&P 500 companies earn 40% of their profits outside the U.S. And America's fixed-income markets depend more than before on overseas buyers looking for higher yields along with the comfort of owning debts denominated in strong dollars.

For now, I expect a rush to find both relative protection from the protectionists and the most-secure cash flows. The consensus is that economic growth will slow if not roll over into a recession, and inflation will head back up above 3%.

Long-term interest rates may fall further for a while on fear, but this stagflation implies they will eventually climb. Do not fall for the temptation to buy long-term Treasuries or bond funds, including high-yield bonds, which are closely correlated to stock prices. Feel free to lighten up on those assets, too.

The least bad options

So, then, what else do I suggest? I'll highlight four ideas that start with D – as in detergent, diesel, dividends and dollars (meaning cash and cash equivalents). But even these might be just the least bad options.

In early April, as shell-shocked shareholders watched the stock market disgorge trillions of dollars, detergent, which is shorthand for Procter & Gamble (PG) and other makers of consumer staples, withstood the worst, as did utilities and high-dividend names such as AT&T (T) and Verizon (VZ).

Low-volatility dividend funds such as the Franklin U.S. Low Volatility High Dividend Index (LVHD) and the Federated Hermes Strategic Value Dividend (SVAAX) are keepers.

Diesel, by which I mean fuel handlers such as pipelines, is under pressure from fast-falling oil prices. But the cash flows from the volume of energy use are reasonably predictable, so you can expect high dividends.

The best D of all for now is dollars, as in cash or ultra-short-term bond funds such as the Fidelity Low Duration Bond Factor (FLDR).

The Federal Reserve may cut interest rates in the coming months to support employment, so you might be wise to lock in CD and Treasury-bill ladders sooner rather than later.

But there are no sure things in the short run. I've seen a lot in my long career. This breaks the norms.

This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Europe's stocks have been terrible for investors. The MSCI Europe Index, which captures the performance of 399 mid- and large-capitalization stocks across 15 markets, returned an annual average of just 4.2% over the past 10 years. The equivalent MSCI index for U.S. stocks returned just over 11%.

Since 2018, the European index has beaten the U.S. index in only one year, 2022. But in 2023 and 2024, the U.S. beat Europe by an average of some 15 percentage points.

Europe's markets have done poorly because Europe's economy has been puttering along with minuscule growth, and Europe's companies have, with some important exceptions, lacked the drive and innovation of U.S. firms.

So why on earth am I recommending the stocks? First, Europe is being shaken out of its lethargy, militarily and otherwise, mainly by Donald Trump's changes in U.S. policy. Second, Europe's economy and its businesses are improving. Third, European stocks are cheap.

I am not the only one recognizing Europe's investment potential. Despite recent market turmoil, so far this year, the iShares Europe (ticker symbol IEV, $52), a broadly diversified exchange-traded fund, has returned 0.10%, compared with a loss of 13.6% for a U.S. equivalent, the SPDR S&P 500 (SPY). (Prices and other data are through April 7; investments I like are in bold.)

U.S. stocks have dropped for several reasons, including the persistence of inflation. But in my view, the main issue is that investors are spooked by the Trump tariffs.

Like the rest of the world, as a trade war breaks out, Europe will suffer. But Europe is in a relatively good position because of the strength and history of the European Union as the world's largest trading bloc, with more than 440 million consumers and $4 trillion in trade among the 27 EU countries themselves.

With the Trump administration attempting to reduce the commitment of the U.S. as the world's military leader, European nations – notably Germany, Poland and the Scandinavian countries – are taking steps to fill the gaps, to the potential benefit of Europe's own defense and aerospace businesses.

Estimates are that Europe will need 300,000 more troops and nearly $300 billion in additional defense spending in the short term to deter Russia. Whether Europe has the will or the desire to spend the money is still uncertain, but the markets have responded in the affirmative.

Consider European defense, bank stocks

When I wrote about defense stocks recently, I mainly recommended U.S. companies. But as the new administration's national security policy has unfolded, European defense and aerospace stocks have been by far the best performers.

You can invest in them through their American depositary receipts (ADRs), which are bank securities that represent the actual foreign shares.

The stock of U.K.-based BAE Systems (BAESY, $77), which specializes in electronic warfare, has jumped 35% since the start of the year. Italy's Leonardo (FINMY, $21), which makes helicopters and cybersecurity tools, has soared 59%.

ThyssenKrupp (TKAMY, $9), a 213-year-old German industrial firm with a marine component that it plans to spin off, is up 124%. France's Thales (THLLY, $50), a diversified defense technology company, has risen 75%.

Unlike many other European stocks, these firms are no longer cheap, and while I don't believe in market timing, it may be prudent to wait and gauge the market effects of tariffs. Still, they are well-run companies that deserve to be on your buy list.

In a recent report, Morgan Stanley pointed out that "Europe is meaningfully outpacing the U.S. in positive 'economic surprises,' with economic data coming in better than analysts expected."

Bank profitability, according to the firm, is hitting record highs. The banking sector, in fact, is a good way to buy Europe as a whole, and attractive stocks abound.

The STOXX Europe 600 Banks Index has risen 4.1% for the year to date, compared with a decline of 14.5% for the Dow Jones U.S. Banks Index.

Among the best European banks is Milan-based UniCredit (UNCRY, $24), a business lender and wealth-management specialist with a strong presence in eastern and central Europe, where growth is brisk. The stock has returned 19% so far this year, and it carries a dividend yield of 6.9%.

BNP Paribas (BNPQY, $36), the largest French bank, has returned 18% and sports a yield of 7.2%, with a single-digit price-earnings ratio. Spain's Banco Santander (SAN, $6), based in the large EU nation that's growing the fastest, has gained 25%; it has a price-to-earnings (P/E) ratio of 7.

I especially like Brussels-based KBC Group (KBCSY, $39), which focuses on serving small to midsize businesses and, like UniCredit, recognizes the opportunities in the eastern half of the continent.

KBC is among the top 10 holdings of the Brown Advisory WMC Strategic Europe (BIAHX), one of the best of the managed European stock funds. Its expense ratio is 1.2%, but it's worth it.

Also in the portfolio: AIB Group (AIBGY, $12), a 200-year-old financial services firm that mainly operates in Ireland and the U.K. It has a low P/E, with a 7.0% dividend yield.

European bank stocks, as opposed to defense stocks, are bargains. So are European stocks in general. The average component of the MSCI Europe Index recently traded at a P/E, based on analysts' estimates of earnings for the year ahead, of just 14.

For the MSCI USA Index, the average P/E is 21. European stocks have an average dividend yield of 3.1%; U.S. stocks, 1.4%.

Avoid potential casualties

Most of Europe's largest companies – including pharmaceutical giants such as Novo Nordisk (NVO) and Roche (RHHBY), as well as LVMH Moët Hennessy Louis Vuitton (LVMUY), the luxury-goods conglomerate – sell their products all over the world, especially in the U.S. and China.

They will be hurt by what I believe will be slower economic growth in those countries in a trade war. Instead, look for businesses such as banks that are mostly Europe-focused.

Or look for smaller retail stocks. Consider Dino Polska (DNOPY, $57), which runs midsize grocery stores in Poland, one of the fastest-growing European countries.

Helsinki-based Kesko (KKOYY, $10) sells groceries, electrical supplies and automobiles in Finland and the rest of northern Europe and sports a 5.4% yield. Jeronimo Martins (JRONY, $42) owns a wide range of supermarkets, health and beauty stores, and restaurants in its home market of Portugal, as well as in Poland.

Finally, utility stocks are both Euro-centric and likely to be shielded from tariff wars. They are also benefiting from rising demand from electric vehicles and data centers.

Spain-based Iberdrola (IBDRY, $63), the largest in the sector by market cap, has been growing fast and carries a 3.9% yield.

For a smoother ride, check out Vienna's Verbund (OEZVY, $14), a smaller utility with sizable investments in wind and solar. Share prices have been static over the past few years, but the yield is 5.4%.

With the U.S. reducing its presence geopolitically, will this be Europe's decade? We'll have to see, but I am optimistic about European stocks for the first time in years.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. He owns none of the securities mentioned here. You can reach him at JKGlassman@gmail.com.

This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Bridgewater founder Ray Dalio has been sounding off about his concerns for the global economy and global future in general, ringing alarm bells that danger's afoot. He has been saying not only are we at risk of a recession, but of more disruption as a result of certain economic policies and other factors.

His comments come both online — he posted an essay to X, formerly known as Twitter, last week — and on television, as he spoke to NBC News' Meet the Press on Sunday. The 75-year-old has called on his listeners to look beyond the immediate shock of President Donald Trump's tariff announcements and see underlying factors that indicate instability.

"The far bigger, far more important thing to keep in mind is that we are seeing a classic breakdown of the major monetary, political, and geopolitical orders," Dalio wrote in his post on X. "This sort of breakdown occurs only about once in a lifetime, but they have happened many times in history when similar unsustainable conditions were in place."

Dalio's predictions for the future and analysis of the present

Specifically, Dalio wrote, unsustainable conditions are a breaking down of...

• ...the "monetary/economic order" as a result of "too much existing debt" (i.e. the U.S. borrowing from China)
• ...political order due to rising inequities in opportunity and education
• ...geopolitical world order as the U.S. shifts to an "America-first" mentality

...as well as disruptive acts of nature, like floods and pandemics, and disruptive technology like AI.

Rather than looking at tariffs or Trump's election in a vacuum, he argues, it's part of a larger overall cycle in power and order (he explains the cycle concept further in his 2021 book Principles for Dealing with the Changing World Order).

David Payne, staff economist for The Kiplinger Letter, has a more measured take in response to Dalio: "Yes, these are concerns. Yes, Trump is accelerating some of these issues. But doomsday predictions tend to undervalue strengths, such as the productiveness of the capitalist system and the U.S. economy."

Following up on his writing, Dalio said on Meet the Press he is "worried about something worse than a recession if this isn't handled well." The billionaire, who said during the 2024 election the country needed a more moderate leader than either candidate, said the U.S. should cut the federal deficit to 3% of gross domestic product, or otherwise "we're going to have a supply-demand problem for debt at the same time as we have these other problems, and the results of that will be worse than a normal recession."

Particularly last week as the stock market reacted to Trump's tariff announcement, experts said a recession is increasingly likely in the face of economic and market disruptions caused by Trump's trade stances.

"Worse than a recession" to Dalio could mean a devaluation of money, internal conflict threatening democracy, and international conflict that could turn violent. He referred to our current situation and its combination of factors, which he called "a decision-making point," as "very much like the 1930s."

Dalio's past thoughts on politics and Trump

These are not particularly new comments for the hedge fund powerhouse. During the 2024 presidential election, Dalio also expressed concerns for the future of the U.S.

While he refused to endorse either candidate, calling it in a Time essay a "choice between a strong, unethical, almost fascist Republican Party and a frail, untruthful, and enigmatic Democratic Party," he did say he was worried democracy would be at risk if Trump were to lose but reject the results.

Speaking more broadly, he told BBC last September: "This reminds me of the 1930 to 45 period in which there was an economic crisis followed by democracies becoming dictatorships. Germany, Italy, Spain and Japan had parliamentary systems, and they broke down in terms of internal conflict between the the hard left, the hard right, communism and fascism. We are today seeing modern day versions of some of these things."

Payne, the Kiplinger Letter staff economist, also sees echoes of the past, but with more optimism than Dalio.

"Adjustments will be made, and perhaps some GDP growth points foregone, but we've muddled through crises before," Payne said. He pointed to the tumult of the 1960s-70s between war, Nixon's resignation, gas prices and social change.

"The stock market was moribund for a long time," Payne continued. "But the turbulence subsided in the '80s, and technological progress continued, setting the stage for the growth surge of the '90s. Of course, some of that growth surge was the result of globalization, which has begun to reverse, but there is a still a lot of promising tech out there."

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During the past few months, the “Sahm rule” has become a ubiquitous part of the conversation surrounding issues such as the economy, unemployment and the Federal Reserve interest rate policy. The Sahm rule was created in 2019 by economist Claudia Sahm, who sought to build a recession indicator that would not be dependent on the whims of committees or politics. Instead, her rule would be rooted in one of the foundational elements that all recessions share: rising unemployment. 

As of Aug. 2, the day of the July jobs report, the Sahm rule was triggered, causing many to believe we are entering a recession.  

What is the Sahm rule?

The Sahm rule is simple and straightforward, which adds to its usefulness as a measure of economic and employment health. The Sahm rule states that the economy has entered or is entering a recession when the current three-month average unemployment is 0.5 percentage points higher than the three-month average within the past 12 months.  

Rather than using any one month’s reported unemployment rate, the average three-month unemployment rate is used to avoid overreacting to spiking data. With any measurement, avoiding false positives is important for designing accurate policy responses. This rule is meant to be an early warning sign that shows how quickly unemployment is rising over time in the hopes that policymakers will begin to craft a response to correct or dull the effects of worsening economic conditions. 

How does the Sahm rule differ from other recession indicators?

Unlike many other metrics and measures meant to predict recessions, the Sahm rule is not a prediction tool at all. Per Sahm herself, her rule is meant to show that a recession may be imminent, and therefore the Federal Reserve and other governmental authorities can begin to fight back.  

Claudia Sahm, who writes on the Substack Stay-At-Home Macro (SAHM), explains that the criteria for the measure were to use a simple and highly accurate formula that follows a well-known statistic and will be triggered early in a recession. Her rule meets these criteria. Based on her research, this rule has been triggered early on in every recession since 1970 and, most importantly, never outside of one.  

This can be compared to one of the other popular leading recession indicators, the inverted yield curve, which has alluded to past recessions but has not proven perfectly accurate. While an inverted yield curve has preceded recessions, it has not done so with any predictable time frame. Over the past 60 years, there have been recessions that take place concurrently with the inversion as well as recessions that have lagged by 30 or more months. This makes the yield curve inversion an imprecise trigger for economists and investors alike. 

Why does the Sahm rule matter?

After 27 straight months of unemployment below 4% (February 2022 through April 2024), unemployment has risen the past three months. It is the speed of this rise that the Sahm rule is most focused on, rather than the absolute number reported.  

In May, unemployment measured 4.0% for the first time since January 2022. This is still a historically low number and well below the 5.69% average since 1948. However, since May, unemployment has continued to rise and hit 4.3% in the July report, triggering the Sahm rule’s threshold for a 0.5 percentage point rise on the three-month average unemployment rate.

Since its creation, this will be the first significant test of the Sahm rule under relatively normal circumstances. During the economic shock that followed the response to the COVID pandemic, the rule was also triggered, but it was during a time when businesses were being forcibly shuttered and demand for many businesses dried up inorganically. If the rule proves accurate under more normal circumstances, then it means that we are likely in a delicate economic position today — albeit, one that still has many bright spots, including low unemployment and a brisk GDP growth rate.  

How should investors respond?

It is not time to panic nor predict forthcoming doom even if (or when) the markets continue to respond negatively.

It is important to realize that no one indicator is perfect, because many measures of our economy are also not perfect. No one data point can be used in isolation to build or change an investment thesis. As more economic data becomes available in the coming months, we will have more certainty about the direction of the economy and how policymakers will respond. 

How you should respond will depend greatly on how you invest today. If you are trading on news, you will have your fill of it through the end of the year and may find that this will be a boon for your strategy. If you are investing for the long term, this is one of many future bumps in the road, and you should be well-prepared. Maintain a disciplined risk management strategy and seek professional advice if you are anxious about your current financial standing.  

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Coming into 2023, a lot of very smart people made a lot of very scary predictions about the economy and about the markets. Sitting on the other side of it, I'm sure glad they were wrong. It caused me to look back on the year to see what lessons we can learn from what did and did not happen in 2023. Below is my list of the biggest financial stories of 2023 and the timeless lessons they reinforced.

Event #1: Aggressive interest rate increases to combat inflation.

This was the dominant story of 2023. Nothing moved the markets more than what Fed Chair Jerome Powell said at his pressers. The Fed was late to the game and took aggressive action to tamp inflation that peaked at 9.1% in June 2022. I think everyone reading this would agree that it felt like much more than a 9% increase in our expenses.

There were three main drivers of inflation: supply chain issues caused by COVID, the war in Ukraine and a domestic labor shortage. While it’s easy to highlight just how much interest rates peaked, it’s important to remember how long we were in a zero-rate environment. We grew accustomed to being paid 0% in our checking account, and 3% mortgages became the norm. But, alas, those things are not normal.

The lesson: Take advantage of opportunity.

If you refinanced below 3.5%, high five! This is just the most obvious one, but it illustrates an important lesson: When opportunity presents itself, we must be willing to take swift action.

If you’re sitting at a major bank with a major balance, you are missing out on major interest. Many of the most popular money market funds are paying 5% interest. That can change at a moment’s notice and investing does involve some risk, but beyond what you need in an emergency fund, you deserve to be paid to lend your money to the bank. After all, they are certainly charging more when they lend it out.

The Roth conversions, capital gains recognition and taxable estate-reduction strategies among certain clients follow the same pattern. If we know tax rates will increase for you in the future, we are taking advantage of today’s lower tax rates. Additionally, the individual side of our current tax code (the Tax Cuts and Jobs Act) is set to expire Dec. 31, 2025. If nothing changes before then, the marginal income rates would move up, and the estate exemption would be cut in half. Depending on your situation, it may make sense to make tax moves before that deadline.

Event #2: Bank failures.

In March, it felt like the sky was falling when Silicon Valley Bank and Signature Bank failed, followed by the collapse of First Republic Bank. Were we entering the recession that so many economists had promised? Was it a repeat of the 2008 Global Financial Crisis? Both were reasonable questions. The reality is that the three banks involved all had an unacceptable amount of interest-rate risk because of the industries they dealt with and the investments they made. They were the first high-profile victims of the Fed rate increases.

The lesson: Concentration creates wealth; diversification preserves it.

In 2017, my wife and I took a clipper cruise through the Greek islands. My guess is that the next-youngest passenger was a woman we had dinner with about halfway through the trip. I learned that she had retired from Apple in her 40s. I also learned that she was able to do that solely because of the AAPL stock acquired through her tenure. People are quite forthcoming with their personal finances when they learn what business I am in.

Her story was amazing and probably similar to one you’ve heard before. As someone who sits with clients most of most days, I’m here to tell you, I hear many more on the other side: “I bought (fill in the blank), it rose to (fill in the blank), and then the company filed for bankruptcy.”

Wealth is often created from a concentration in one or a few things. It could be your business, your company’s stock, a real estate portfolio. It’s likely not where you want your money while you’re living off of it in retirement. Think Eastern Air Lines and Pan American Airways in 1991, Enron and PG&E in 2001, and Lehman Brothers and Washington Mutual in 2008. You get the picture. Even the biggest and most dominant companies today may not exist tomorrow.

Diversification and indexed strategies are boring, but they work, and they significantly reduce the downside risk of concentration, but they cannot guarantee a profit or protect against a loss.

Event #3: Another debt crisis ‘avoided.’

On June 3, President Biden signed the Fiscal Responsibility Act, once again increasing the debt ceiling and ending months-long speculation that the U.S. might default on its debt. The debt crisis was “over.” It feels sort of like Ground Hog Day…

The lesson: Don’t miss the forest for the trees.

I am, by nature, an optimist. The debt situation, however, challenges that attitude. Raising the debt ceiling does not solve our debt problem; it merely allows us to keep borrowing to finance the federal budget. That budget for 2024 is estimated by the CBO to be about $6.4 trillion. We have enough income to cover only 75% of that expenditure, according to the Congressional Budget Office. Therefore, we must borrow $1.6 trillion to keep the lights on.

Now, let’s put this in a different context. Imagine your monthly expenses total $10,000. The problem is your income is only $7,500. You put the additional $2,500 on a credit card. When you approach the limit, you call your credit card issuer and ask them to increase it. Before long, it becomes a spiral you cannot escape. You see where I’m going with this … Once again, I am an optimist, but this is an issue that needs addressing.

Event #4: AI comes front and center.

The movie I, Robot came out nearly 20 years ago. Artificial intelligence is not a new story. In November 2022, OpenAI made GPT-3, aka ChatGPT, free to the public. By January 2023, it had surpassed more than 100 million users. For the first time, we got a taste of just how powerful and useful these tools could be. Even in its infancy, AI seemed to spell the end of humans doing mundane white-collar work.

What happened in the stock market? It ripped! Nvidia (NVDA) was definitely the biggest known benefactor as the leading producer of the chips necessary to run AI applications. And the tech-heavy Nasdaq Composite has gained about 40% since the end of 2022. 

The lesson: Embrace technology, and don’t fall behind.

If you said to me, “It’s the end of mundane, white-collar work,” I’d be pretty excited. You mean I don’t have to spend hours creating or pouring over data sets? You mean I don’t have to hire an intern to organize information? But if I’m that intern or anyone in the early stages of my career, I’d probably be singing a different tune.

But let’s shift our perspective. Imagine you have an assembly line of 15 steps. The entry-level folks have steps 1-5, mid-career get 6-10, and the senior folks are tasked with quality control in 11-15. Now imagine AI takes 1-5. Everyone else shifts up. So, what do the senior people do? They innovate. They think of, and produce, more impactful products and services. They solve the bigger problems. They move society forward. That is the upside here.

Innovation creates upside beyond what we thought was possible. Technological advancements in health care didn’t replace doctors, physician assistants or nurses. They led to the discovery of vaccines, antibiotics and surgical techniques that have dramatically reduced mortality rates. Cue Ozempic ;). Technological advancements in agriculture didn’t replace farmers; they allowed us to feed a growing global population.

Event #5: The one that didn’t happen: A recession.

In December 2022, 70% of economists polled by Bloomberg predicted a recession in 2023. It seemed to be the Fed’s intent: Drive up rates so dramatically that companies will be forced to make layoffs. Once unemployment rises, consumers stop spending, prices come down with demand, and we find ourselves in a recession. The problem (only with the prediction, not an actual problem): Unemployment barely moved. Our labor market flexed its muscles, and consumers kept their wallets open.

The lesson: There is almost always more good news than bad. It’s just harder to find.

On Oct. 2, the World Health Organization (WHO) recommended a vaccine that could significantly reduce the toll of malaria, which WHO estimates kills 500,000 African children a year. This is undoubtedly good news. However, if you scanned the front page of The New York Times on Oct. 2, the only malaria headline was: An Invasive Mosquito Threatens Catastrophe in Africa.

There is war in the Middle East and Europe. It seems there is a new, devastating weather event every two weeks. Even with inflation largely tamed, things are still more expensive than they were before the pandemic. Deaths due to drug overdoses have skyrocketed. And yet, unemployment remains near 50-year lows. And, as of December, S&P 500 earnings have grown year-over-year by almost 9%. Our clients are largely reliant on the performance of U.S. companies. The longer you stretch out that time horizon, the safer that bet is. My opinion: Don’t bet against the U.S.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Citi expects a recession as a result of several macroeconomic factors, including persistent inflation in services and rising debt, CEO Jane Fraser said today, December 6, during testimony before a Senate Banking Committee hearing.

“Although we don’t see a drastic downturn on the horizon, we do expect a recession as the result of a range of macroeconomic factors,” Fraser said in her opening remarks. “This includes persistent inflation in services, rising debt, a slowdown in global growth and two major conflicts in Europe and the Middle East.”

Fraser, along with seven other banking and financial services executives including JP Morgan CEO Jamie Dimon and Bank of America CEO Brian Moynihan, were called to testify today during the Banking Committee's annual oversight of Wall Street firms hearing.

Neither Dimon nor Moynihan commented on a recession in their opening remarks at the hearing. However, Dimon echoed similar concerns as Fraser when he spoke at the 2023 New York Times DealBook Summit last week.

“A lot of things out there are dangerous and inflationary,” Dimon said. “Be prepared. Interest rates may go up and that might lead to recession.”

Moynihan only mentioned that the economy is volatile and uncertain as he delivered opening remarks at the hearing.

A slowdown more likely?

Kiplinger staff economist David Payne reported last week that an economic slowdown is expected in the first half of 2024, but not a recession. “Despite the slowdown, 2024 growth should still be a moderate 1.7%.”

He added that the Federal Reserve is unlikely to raise interest rates anymore because of the expected slowdown. However, he said, the Fed "is also not likely to cut rates anytime soon because it is still determined to combat inflation. Inflation is on a downtrend, but the Fed wants to make sure it doesn’t get stuck at a level higher than 2%.”

Related Content

• Kiplinger's GDP Outlook: Slowdown in 2024 Will Be Short-lived
• Kiplinger's Jobs Forecast
• Kiplinger's Housing Forecast
• Kiplinger's Business Spending Forecast

If you're feeling like the financial news is coming at you fast and furious, you're not alone. Between inflation, rising interest rates, the markets stumbling and recent bank failures, there's a lot going on.

One of these events alone could be overwhelming. Taken all together, they seem downright scary.

Before you let it all overwhelm you, stop and take a deep breath. The key to getting through it is to put things in perspective. Focus on what you can control and not on what you can’t control. The direction of the Fed’s interest rate hikes? You can't do anything about that. A sound investment strategy and ample emergency savings? Now that's something you have a big hand in.

Let's look at some simple truths that can help put the current financial news in perspective.

Market declines are inevitable.

Looking at the balance on your 401(k) plan is a lot less enjoyable today than it was a year ago. Since reaching a high in early January 2022, the S&P 500 was down about 12% in early April. But throughout 2022, the index had dropped more than 20% off its high, and every day seemed to bring bigger declines.

At times like these, I advise my clients to adopt a long-term perspective. The market is built to last, even though there might be periods of volatility along the way.

In 2008, the S&P 500 fell 38% due to the subprime mortgage crisis. Almost daily, there were new headlines about company bankruptcies and bank bailouts. But in March 2009, stock prices hit a bottom and started rising steadily, closing out 2009 with a 27% gain. With just a few brief periods of interruption, the bull market lasted for more than a decade.

More recently, stocks fell sharply at the beginning of the COVID-19 pandemic as people lost jobs and economic activity ground to a standstill. The S&P 500 dropped nearly 35% from Feb. 19, 2020, to March 23, 2020. But then it became clear that the government planned to support the economy with stimulus funds and interest rate cuts, setting the stage for a stock rebound, and the S&P 500 doubled from March 2020 to December 2021.

Markets come back fast.

Investors who pull up stakes when things seem at their worst don't get to participate in the eventual rebound. For example, research from JPMorgan shows that someone investing in the S&P 500 over the last 20 years would have an annualized return of 9.7%. But if that same investor missed just 10 of the market’s best days during that time, their annual return would drop to 5.5%.

What's more, those best days tend to occur less than a month after the worst days. In other words, you need to be in the market when things seem at their bleakest.

Investing through a workplace retirement account can help you keep your emotions in check. By dollar-cost averaging — investing the same dollar amount at each pay period — you will continue to purchase shares at all different prices. When markets are down, you'll be able to purchase more shares, and when they're higher, you'll be able to purchase fewer.

Retirees should think long term, too. Even though you might be at the point where you need to start spending down your nest egg, you could still have 20 or 30 years left in retirement. If you want your money to continue to keep pace with inflation, investing in stocks is a must.

In order to keep your emotions in check and avoid selling shares while the market is down, I recommend retirees practice a “bucket strategy," which involves setting aside up to three years of expenses in risk-free areas such as certificates of deposit or money market accounts. You can spend down this money while the market is in free fall so you don't have to lock in losses. You can replenish that short-term bucket by selling appreciated stocks once the market recovers.

Prepare for a recession.

According to experts, a recession happens when the nation's gross domestic product is down two quarters in a row. We aren't there yet, but that doesn't mean it might not happen.

Again, take a long-term view and keep in mind that economies are cyclical. On average, recessions last about 10 months, according to the National Bureau of Economic Research. After that, the economy typically enters an expansion phase when the jobs are once again plentiful, and wages rise. If you've lost your job, it might take time to get a new one, but the economy will recover.

If you're nervous about losing your job, prepare now. Make sure you have emergency savings. For most people, that means that having enough savings to cover about six months of expenses. But if you work in a volatile field, you might consider more. Of course, this won't take away the anxiety of losing a job, but it will give you some breathing room while you line up a new job.

Banks are safe, despite some failures.

Another source of anxiety for many is the recent collapse of several high-profile banks. You may be wondering if your bank is next and whether your money is safe.

While the collapses of Silicon Valley Bank, Signature Bank and others is disturbing, it's important to keep things in perspective. Bank failures aren't as uncommon as you might think. Since 2001, there have been 563 bank failures, the Federal Deposit Insurance Corp. (FDIC) reports. However, that doesn't mean that depositors lost their life savings.

Currently, bank deposits are insured up to $250,000 through the FDIC — although Congress has talked about raising that limit. Even though some deposits in the failed banks exceeded the FDIC limit, regulators stepped in to guarantee them. Another thing to keep in mind: Most people don't have more than the FDIC limit sitting in a bank account in the first place.

If you do, then it's wise to hedge your bets. The FDIC will insure $250,000 per depositor per bank. If you have money in a CD, a checking account and a savings account, those sums are all added together. So, if you have more than $250,000 in banked assets, you should consider spreading out your deposits among more than one bank.

Keep your eyes on the long term.

No one likes going through periods of uncertainty. Unfortunately, they're inevitable and part of the normal economic cycle. The best thing you can do is maintain a long-term perspective. You can't control markets or whether the Federal Reserve will raise interest rates.

You can control how you respond to those events. If you stay calm and remember some market history, it will help you get through the current volatility. And when conditions change, you'll be ready.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Today, people’s financial anxiety is palpable. Two-thirds of American adults (67%) expect the economy will enter a recession later this year.

As Warren Buffett once said, “Only when the tide goes out do you learn who has been swimming naked.” It appears increasingly likely that the economic tide is going out. Alongside worries about a downturn, inflation and high gas prices continue to comprise people’s top financial concerns.

These are some of the key findings of Northwestern Mutual’s 2023 Planning & Progress Study, which were announced earlier this month.

In response to the uncertainty, many Americans are taking positive steps to prepare for whatever economic season may come. Nearly two in three (64%) are cutting costs, half are building up savings and four in 10 (41%) are postponing large expenses until the economy is on a more stable footing.

As consumers grapple with these fears of what the future may bring, let’s all remember that periods of uncertainty provide opportunities to stress-test a financial strategy. Now is an ideal time for people to audit their financial position and weigh opportunities to build financial flexibility and resilience. These seven steps can help Americans enter a potential recession from a position of strength and opportunity.

1. Tap the brakes.

In a downturn, most people’s gut reaction is to pull back on expenses. Spending cuts can certainly help anyone build up short-term financial reserves — but that’s not the only tool in a financial resilience toolkit.

People can also pay down high-interest debts, shift their timelines, mitigate other financial risks and take advantage of higher yields that come with higher interest rates. It’s generally a good idea for people to save about 20% of their income, but this may be a time to push to raise that percentage a bit and funnel the additional dollars toward an emergency fund.

2. Don’t over-rotate.

Live for now, too. If you have built up emergency savings and improved your financial habits over the last few years — as many have — recognize those accomplishments. Don’t oversacrifice if you don’t have to. If a cup of coffee matters to you, buy it.

That doesn’t mean throwing caution to the wind. It means making data-driven decisions based on an honest assessment of your financial plan.

3. Watch your debt.

Manage debt strategically and make sure healthy debt doesn’t slip into something more debilitating.

4. Find flexibility.

Everyone knows they can tap a bank savings account in an emergency. Fewer people know that they can tap the cash values built up in a permanent life insurance policy. These policyowners can tap cash value funds at any time for any reason.

Repayment terms are flexible, and the process to access the funds is typically quick and easy. Just keep in mind that the death benefit will be reduced by the loan amount until it is repaid.

5. Remember that down markets can have long-term upside.

People tend to think market and investment declines hurt everyone equally. But if you have the benefit of time and stick to your financial plan, down cycles can be buying opportunities.

Remember the old market maxim: Buy low, sell high!

6. Work with an adviser to create a plan, maintain discipline and build confidence.

Many people rely on fitness trainers to develop a custom exercise plan, monitor progress, celebrate successes and ensure accountability. Financial advisers offer the same expertise and empathy for anyone seeking to improve their financial strength.

7. Maintain perspective.

The road to financial security doesn’t move in a straight line. Market cycles move up and down, and economic eras come and go. Keep a long-term perspective while making sure your plan enables you to enjoy the journey.

The bottom line is this: The best financial decisions are always made as part of a long-term, comprehensive financial plan. The best antidote for financial anxiety is information, custom context and understanding.

Now is a good time for anyone to take stock of their financial situation and determine if any adjustments are appropriate. And if anyone is feeling uncertainty about the answer, an adviser can help free people from financial fears by helping them to build financial security.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Just like spring and summer always lead to fall and winter, we know winter is coming and another recession is on the horizon, we just don’t know when. If you have a leak in your roof, when's the best time to fix that leak? Before it rains, because once the rain comes, it's too late.

We've seen this movie before — sky-high real estate prices coupled with sky-high stock market prices — and we have our own ideas on how it’s going to end. Some retirees may be concerned about going through another 2008-type of crash again at this age now that time is no longer on their side. I'm 48 years old, so I have 20 more years before I even need my money. However, my retired clients are living off their money today.

I believe retirees should consider being more disciplined and risk averse in the good times so you can take advantage of the bad times and not lose more than you’re comfortable with when the bad times do come.

For retirees who are no longer working, their tolerance for risk at this age and stage of life has gone down. They’ve typically switched from the growth stage to the distribution stage, where they want to help preserve their wealth and generate income from their retirement assets.

When's the right time to make sure your financial house is protected? Before the winter storm.

Our brain is designed to think that if you keep doing the same thing that worked during the good times, those things will work forever. However, last year was a reminder that's just not the case.

The financial adviser and investment strategy that got you to retirement might not be the right person and strategy to get you through retirement, as your goals might have changed now that you’re in retirement.

Since 2009, the S&P 500 has been going up almost every year for the past 14 years! Do you think the next 10 years in the economy will look like the last 10 years? We don’t.

2022 was a rough year for both stocks and bonds:

• FAANG stocks: -44%
• Nasdaq: -33%
• S&P 500: -19%
• Corporate bonds: -18%

2022 reminds us that markets don’t go up forever.

The definition of insanity is doing the same thing over and over again and expecting a different result. You want to have the right retirement plan for you, right now. Let’s look at some important retirement planning and tax planning considerations and strategies for a retiree.

1) How much risk do you want to take in your retirement plan, and how much do you have right now?

It’s of utmost importance to figure out how much risk you’re comfortable with at this age and stage of life. It’s also important that as a retiree you’re not taking more risk than you should. We at Kirsner Wealth Management use Riskalyze Software Program, which helps calculate exactly how much risk you want to take and how much risk you have in your portfolio now. It will also show you exactly how much you could lose if you’re faced with another crisis like in 2008.

If you actually lost more money in 2022 than you’re comfortable with, you might have more risk than you should. Most of our retired clients are no longer comfortable with too much risk at this age and stage in life. 

2) How much are you paying in fees in your retirement plan?

You will want to consider tuning up your retirement plan on a regular basis with the amount of risk you’re comfortable with and fees that are as low as possible. Fees can considerably slow down the performance of your retirement plan and will potentially add up to a lot of money spent over time, so it’s important to evaluate how much in fees, published and hidden, you’re paying.

Two types of investments that might have higher fees include mutual funds and variable annuities. If you own either of these, you might want to get a second opinion to be certain your fees aren’t surprisingly high.

Also, make sure you’re not paying your financial adviser too much in fees either.

3) Help minimize your taxes!

As IRA professional Ed Slott says, your IRAs are ticking tax time bombs. Taxes might be the biggest expense you have for the rest of your life, especially if you’ve accumulated a large IRA. This is especially true because the current tax cuts expire in 2026, so we have a limited time to take advantage of today’s lower tax rates. The fact is with your IRA it’s either pay taxes now, or pay taxes later. Wouldn’t it be better to pay lower taxes overall, if possible?

If you were a farmer, would you rather pay taxes on your penny seeds, or your million-dollar wheat harvest? Clearly, most people would rather pay taxes on the pennies, not the dollars, and that’s why a Roth IRA could be a helpful strategy. This is especially important with the elimination of the stretch IRA, as I discussed recently when I was interviewed on the Today show.

If you have an IRA, these are four reasons you might want to consider doing partial Roth IRA conversions each year in conjunction with your accountant:

• Tax rates are going up in 2026, so you want to take advantage of today’s low tax rates.
• If you’re a married couple, you’re now in a joint tax bracket. When one of you passes away, the surviving spouse will be in a single tax bracket and could pay higher taxes. If the surviving spouse has a Roth IRA instead, the spouse can use that Roth IRA money to live on without having to worry about taxes, as those taxes were paid when you were joint taxpayers.
• The stretch IRA is gone! Your children will have to completely empty your IRA you leave them within 10 years of your death. An additional reason to consider converting to a Roth, as I wrote in the article Financial Advice for Millionaires: 5 Strategies for 2022, your children might have to pay higher income taxes than you, as they probably will still be working when they inherit your IRA money. Additionally, if your children live in a state that has state income taxes, they will have to pay those extra state income taxes as well! The Roth IRAs will help alleviate these issues if they arise.
• To help preserve your assets you leave your children, you might want to consider using a dynasty trust. For tax purposes, you may want to consider leaving Roth IRAs to those dynasty trusts rather than regular IRAs. This is true whether you use a trust or not — see the strategy below about dynasty trusts for reasons you might prefer to use a dynasty-trust-based estate plan.

We use a software program called Holistiplan, which will help you determine the optimal amount of partial Roth conversions you can consider doing each year. We’ll work in conjunction with your accountant to implement this plan.

4) Cut your expenses in retirement.

Here are some ways you can cut your expenses in retirement:

• Downsize your home. Perhaps it’s time to simplify your life?
• Do you need a second home? With websites such as Airbnb, you can rent a home anywhere in the world. Again, simplify.
• Do you need a second car? With Uber, you might not.
• Cancel your home phone and only use a cell phone.
• Cut your home television cable costs by looking at Internet-based alternatives.

Typically, my clients are “the millionaires next door.” You’d never know they have substantial wealth. They’ve lived below their means their entire life, which they learned from parents who went through the Great Depression, and having done that, their savings compounded over decades, allowing them to accumulate the millions they have.

5) Make sure you’re protected during retirement at the right price.

Review your long-term care, umbrella liability insurance and life insurance policies to make sure you have the right protection at the right price.

In my retirement planning books, I ask that clients consider having an inexpensive umbrella liability insurance policy to help protect themselves in case of a lawsuit. You can add an umbrella liability insurance policy onto your homeowner’s insurance or on your auto insurance policy.

If you own a life insurance policy that’s more than 10 years old and qualify health-wise, you may be able to upgrade it to a newer life insurance policy at a lower cost. People are living longer, and as a result, many modern insurance policies could be lower in cost for you.

6) Consider modernizing your estate plan with an estate planning attorney.

Most of my clients have children and grandchildren whom they love dearly. We have relationships with great estate planning attorneys who can set up a dynasty revocable trust designed to help protect your assets that you leave your children and grandchildren from potential divorces, lawsuits and creditor claims, and help ensure your assets stay in your family bloodline.

You also want to consider modernizing your health care surrogate for emergency medical decisions; durable power of attorney to take care of your finances in case you’re disabled; and a modern living will, which is your “pull the plug” wishes.

My father, who started our business in 1972, often said when it comes to estate planning, you either buy cheap and cry forever, or buy expensive and cry once. That’s true for estate planning and many things in life.

These strategies could help set you on your path to retirement. The bottom line is to help create the greatest protection possible against loss due to economic downturns. Be prepared for winter in the summer — the time to repair your roof is before the next storm.

To learn more about retirement planning and estate planning to help keep your money in your family bloodline with the attorneys we work with, come to our dinner workshops at Ruth’s Chris steakhouse or Abe & Louie’s steakhouse in Boca Raton or Fort Lauderdale, Florida, by calling us at 1-800-807-5558. For more information, visit our website www.KirsnerWealth.com.

Insurance products are offered through the insurance business Stuart Estate Planning. Kirsner Wealth Management is an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Stuart Estate Planning are not subject to Investment Advisor requirements. AEWM is not affiliated with Stuart Estate Planning.

Investing involves risk, including the potential loss of principal. Any references to guarantees or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Neither the firm nor its agents or representatives may give tax or legal advice. Kirsner Wealth Management has a strategic partnership with tax professionals & attorneys who can provide tax &/or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way. 1785172- 5/23.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If we end up seeing a recession in the U.S. later in 2023 or in 2024, it may go down as one of the most widely anticipated in recent history. Investors and markets tend to react to a recession well in advance of an official announcement.

With this uncertainty hanging over our heads, it’s common to wonder how to build a recession-proof portfolio. You should keep in mind that waiting until a recession becomes “official” would have you really late in making any constructive changes to your portfolio. So if you’re considering taking steps, don’t delay.

Begin by Taking Stock of Where You Are on Your Life Path

If you are investing money and taking on any level of risk to get a higher rate of return than cash, you likely won’t be fully immune to recessionary impacts.

But there are ways to set your portfolio up for greater resiliency heading into a recession. Before you make any changes, it’s very important for you to consider where you are at in your financial life. For example, are you regularly adding to an investment account, in what our firm calls the build and grow phase? If you’re still earning an income, and saving and investing for the future, declines in investment markets are a welcomed entry point. Consider this like a sale, because stocks are being sold at lower prices, and you can add more shares to your portfolio at a discount.

If you are being forced to sell assets during market downturns, you may want to consider having diversifiers in your portfolio to turn to so you can let other parts of the portfolio take the time to recover.

Setting Your Portfolio Up for Resiliency

First and foremost, diversify your portfolio. What happened so swiftly in mid-March with certain banks in the U.S. and abroad collapsing served as a very quick reminder of the risks of concentrating your assets in any specific industry or asset class. You should invest in a variety of asset classes such as stocks, bonds, real estate and alternatives to spread your risk over many areas. Do not rule out investments that are not publicly traded — this is an area we value in portfolio diversification.

Assess your time horizon for the money you’re investing before tough periods arise. I like to discuss goals and time horizons regularly with clients. Something you will hear consistently: If you are going to invest in assets like stocks or areas with higher risk and reward, then you really should allow these assets to have at least a three-to-five-year time horizon to stay invested. Keep this in the forefront of your mind, especially during the good periods, because behaviorally you will second-guess your decisions during the bad ones.

Making emotional decisions with your portfolio is not a good strategy. It leads to selling at the wrong time and waiting too long to get back in when turnarounds happen. On the other side of the coin, you might be thinking you have a large tolerance for risk when everything is going well, yet you discover that’s not actually the case when the markets head south.

Check in with yourself regularly and ask: What will I do if this goes down 20% in a short period of time? Can I ride it out? Be honest with yourself and/or your financial adviser and be wary of comparing yourself and your investment strategy to what you hear about others’ approaches. Unless you are intimately involved in someone’s finances, don’t assume you can afford to do what they’re doing with their portfolio.

Build systematic shock absorbers into your portfolio. This is one of those areas that definitely is not one size fits all. There are ways to systematically reduce riskier assets such as stocks and build up cash in part of your portfolio if markets go into a decline period. If you are a person who is regularly trying to build a portfolio and buy the dips, then this is not likely a good fit for you. However, if you need to live off your money and you need more protection on the downside, then this could be a fit.

Maintain cash reserves to cover your living expenses for a period of time. There is not a one-size-fits-all answer here either. If you have a stable job, regular cash flow and are not at high risk of losing this position, you can possibly get by with three to six months of cash needs in the bank and not invested.

If you have a more irregular income stream and/or have the possibility to be without work for a while, I would generally lean toward keeping 12 months or more of your projected living expenses in cash. In the current environment, at least cash is yielding some interest now, and there are a lot of safe options available to earn with interest rates of 3% to 4% — or even more, utilizing certain strategies.

I am going to be a little bold here. If you feel fear or anger when reading headlines on the financial news, pause and ask what this really means to you. There is a lot of noise day to day; rarely do people ask themselves whether they’ll remember that moment in 12 months or longer. I suspect most are on to a new worry by then. If you reacted and took action, what is your game plan going forward? I would not base any kind of portfolio restructuring on how you feel. That is a strategy that has proven to be terrible over time.

Ultimately, tying economic incidents, like a recession, to your investing strategy over short periods of time can be a recipe for frustration. The five suggestions I make above should help you “recession-proof” your portfolio right now. But they can also be applied during just about any market environment.

A critical piece of this is bringing more rational behavior to investing, rather than reacting to all the alerts happening by the second. Specifically, points two and five are worth dwelling on — they truly matter in protecting your investments and your peace of mind.

Despite what you hear daily, nothing fits perfectly into a calendar quarter or calendar years all the time. That is much too short-sighted for a person who wants to invest successfully for the long term.

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Vanguard funds are known as practical tools for the buy-and-hold-forever crowd. Their straightforward strategies, broad portfolios and generally low costs are conducive to investors who want to sit back and let the rule of compounding do the work for a decade or two.

In a pinch, the safest Vanguard funds can also be used to play a little defense.

How we chose the safest Vanguard funds

To find the safest Vanguard exchange-traded funds (ETFs) and mutual funds for a volatile market, we looked for those that represent some of the most useful defensive sectors and strategies, including those that contain the best dividend stocks or the best health care stocks.

We also targeted funds that boast Vanguard's below-average expenses. "True, some competitors can now match or even undercut Vanguard on fees for broad market exposure," writes Alec Lucas, director of manager research and active funds research for Morningstar. "But Vanguard's burgeoning advice business could help it keep or even extend that lead."

Remember that when it comes to positioning your portfolio for volatility, markets eventually stabilize. If you do jump into the safest Vanguard funds for short-term defense, pay attention and be nimble.

With that in mind, here are five of the safest Vanguard funds to own in a volatile market. When applicable, we'll let you know when these portfolios come in both ETF and mutual fund form.

Data is as of April 8. Dividend yields represent the trailing 12-month yield, a standard measure for equity funds.

• Type: Sector (Health Care)
• Assets under management: $17.7 billion
• Dividend yield: 1.4%
• Expenses: 0.09%, or $9 annually for every $10,000 invested
• Also available as: Vanguard Health Care Index Fund Admiral Shares (VHCIX, 0.09% expenses, $100,000 minimum investment)

Health care stocks are known for their defensive qualities because of the essential services they provide. If money's tight, you can put off buying a virtual reality headset or a trip to the Bahamas, but you can't exactly go off your medications and avoid the doctor.

Health care spending is projected to grow at a rate that far outpaces inflation. According to the Centers for Medicare & Medicaid Services (CMS), national health expenditures are expected to grow at an average annual rate of 5.6% through 2032.

That's why the Vanguard Health Care ETF (VHT) is one of the safest Vanguard funds to own in a volatile market. Among the best Vanguard ETFs, it's an extremely cost-efficient way to diversify, giving you access to 400 health care stocks for a mere nine basis points in annual fees.

VHT is market cap-weighted, which means the larger a company is by market capitalization, the more assets the fund will invest in its shares. Mega- and large-cap stocks have the biggest impact on performance, at nearly 70% of the fund's weight.

But you also enjoy some exposure to mid- and small-cap stocks, which allows you to benefit from explosive smaller biotech and biopharma names that can take off on events such as drug-trial results and mergers and acquisitions.

Top holdings include pharmaceutical names Eli Lilly (LLY) and AbbVie (ABBV) as well as Johnson & Johnson (JNJ).

Learn more about VHT at the Vanguard provider site.

• Type: Sector (Consumer Staples)
• Assets under management: $8.4 billion
• Dividend yield: 2.2%
• Expenses: 0.09%
• Also available as: Vanguard Consumer Staples Index Fund Admiral Shares (VCSAX, 0.09% expenses, $100,000 minimum investment)

Consumer staples is another sector that tends to be more resilient during volatile markets for the same reason as health care.

If you're in a money crunch, you'll look at a lot of different ways to cut back. You might go to the movies less. You might not go out to restaurants as much. Maybe you'll pare down your five streaming services to four.

You'll look at spending less on just about anything before you cut back on consumer staples such as toilet paper, toothpaste and basic grocery essentials.

That's why the Vanguard Consumer Staples ETF (VDC) is among the safest Vanguard funds for market uncertainty.

This ETF provides exposure to more than 100 companies that specialize in human necessities. Procter & Gamble (PG) tackles everything from facial care to tushy wipes. Mondelez International (MDLZ) sells a bevy of cheap snacks — think Chips Ahoy! and Ritz Crackers — that are mainstays in American pantries.

It also holds Walmart (WMT), Costco Wholesale (COST) and Target (TGT), which sell all of these items.

You'll also find companies such as Marlboro parent Altria (MO) and alcohol giant Constellation Brands (STZ). While you might not consider cigarettes and alcohol to be "necessities," people are just as loath to cut back on them as they are other staples.

As with many Vanguard ETFs, VDC can be had at an absolute song: Expenses are just nine basis points per year.

Learn more about VDC at the Vanguard provider site.

• Type: Dividend stock
• Assets under management: $75.4 billion
• Dividend yield: 2.4%
• Expenses: 0.04%
• Also available as: Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX, 0.08% expenses, $3,000 minimum investment)

The best dividend stocks have historically outperformed their non-dividend-paying counterparts during market uncertainty.

According to Merrill, dividend stocks can be "particularly useful when markets are volatile." For one, the private wealth management firm says, they provide investors with income, which can help meet their liquidity needs.

Additionally, "dividend-focused investing has historically demonstrated the ability to help to lower volatility and buffer losses during market drawdowns," Merrill adds.

With this in mind, investors might want to consider the Vanguard High Dividend Yield ETF (VYM), which tracks an index of high-yielding dividend stocks. On a total-return basis (price plus dividends), the S&P 500 is down 0.6% since the start of the year, while VYM has gained 6.6%.

This Vanguard fund boasts a wide portfolio of 560 or so high-yielding stocks that collectively yield 2.4% at present. (That's roughly double the S&P 500.)

It's worth noting that, at 19.4% of assets, financial stocks — not really considered safety plays — are the best-represented sector in VYM. But the traditionally defensive health care (12.9%) and consumer staples (9.4%) sectors also carry significant weight in the portfolio.

Top dividend payers in the portfolio right now include blue chip stocks such as Broadcom (AVGO), JPMorganChase (JPM) and ExxonMobil (XOM).

Learn more about VYM at the Vanguard provider site.

• Type: Minimum-volatility global stock
• Assets under management: $1.9 billion
• Dividend yield: 2.1%
• Expenses: 0.21%

Among the most popular ways to fight off a turbulent market are low-volatility (low-vol) and minimum-volatility (min-vol) ETFs.

What's the difference? Low-volatility ETFs evaluate a universe of stocks and pick out the ones that have shown the least volatility over a certain period of time, hoping to create the lowest-volatility portfolio it can.

Minimum-volatility ETFs typically try to minimize volatility within a certain benchmark while still resembling the original benchmark in some way.

For instance, an S&P 500 low-vol fund that picks the 20 lowest-volatility stocks in the index might end up holding nothing but utility stocks.

However, an S&P 500 min-vol fund might try to identify low-volatility stocks, but it might be forced to have at least some percentage invested in all 11 sectors, resulting in a portfolio that's not as volatile as the S&P 500 but possibly not as calm as a low-vol fund.

Vanguard doesn't have many options for investing in either type of strategy, but one that does its job is the Vanguard Global Minimum Volatility Fund Investor Shares (VMVFX). This actively managed fund aims to provide minimum volatility compared with the global equity market.

Like most global funds, VMVFX dedicates the bulk of its assets (56.7%) to American stocks, with the rest spread across several other countries such as the U.K., Canada and Taiwan.

From a construction standpoint, VMVFX exemplifies the minimum-volatility mindset. Its sector allocation looks somewhat similar to the category average but with a few tweaks reflecting its goal of reducing volatility.

For instance, it holds a few more percentage points of health care (13.4%) and consumer staples (10.3%) than the category averages, but a little less technology (21.5%) and consumer discretionary (8.0%).

There is a $3,000 minimum investment for this Vanguard fund.

Learn more about VMVFX at the Vanguard provider site.

• Type: Ultra-short bond
• Assets under management: $8.2 billion
• SEC yield: 4.3%*
• Expenses: 0.10%

We mentioned earlier that when the market's a mess, investors seek income. That can include dividend stocks, but it often includes bonds, too.

Bonds don't hold a candle to stocks when it comes to long-term returns, but they provide much more stability, serve a vital role in protecting your savings and can produce a decent return from their interest payments.

One of the safest bets you can make in bonds, if you're looking to protect your money in a down market, is short-term debt.

Typically, the shorter the payback term for a bond, the less uncertainty there is that debt will be paid off — a lot more can happen during the life of a 30-year bond than during the life of a one-year bond.

Enter the Vanguard Ultra-Short Bond ETF (VUSB), which holds bonds that mature in less than two years.

The Vanguard Ultra-Short Bond ETF is an ultimate example of how useful cheap index funds are. Individual bonds are extremely difficult to research, and they're not exactly easy to buy, either.

But with VUSB, you're plugged into a Vanguard-run portfolio of some 1,260 different debt issues — an instant diversified fixed-income portfolio for just 10 basis points a year.

Another reason VUSB is on this list of safest Vanguard funds? Virtually the entire portfolio boasts investment-grade ratings, which basically means there's an extremely high likelihood that these bonds will be fully repaid.

How steady is VUSB? Shares are up 0.8% for the year to date.

Learn more about VUSB at the Vanguard provider site.

* SEC yield reflects the interest earned for the most recent 30-day period after deducting fund expenses. SEC yield is a standard measure for bond funds

Related content

• The Best Vanguard Bond Funds to Buy
• Best Long-Term Investment Stocks to Buy
• What Is Stagflation and How Can Investors Prepare?

On paper, a recession is a fall in GDP for two consecutive quarters. Unfortunately, the actual GDP report lags the quarter-end by at least a month and is constantly revised as new data is evaluated, making it hard to confirm a recession before the fact.

However, that doesn’t mean there aren’t telltale signs. During a recession, markets tend to pull back, and the stock market may even fall into a bear market (when stock prices fall 20% or more from recent highs). Businesses may cut hours, lay off employees or freeze hiring to stay afloat. Also, as consumer demand decreases, companies tend to have a hard time selling their inventory. So products that were once in demand and “out of stock” may become available.

Here are five ways you can prepare for a recession:

1. Make sure your financial plan is up to date

You don’t want to be left flustered if conditions begin to deteriorate because you haven’t planned for it in advance.

Questions to ask when reviewing your investments:

• What are you investing for? A short-term goal like a house down payment, or something long-term like retirement?
• How long were you planning to invest? A year or two, or is your time horizon longer?
• What are you invested in? Are you over-concentrated in a few positions, or properly diversified?
• What will you do if the stock market drops 10%, 20% or 30%? Buy, sell, or hold?
• Will you need any of the money invested in the near term? How insulated from market volatility does your investment need to be?

2. Review your budget

Ask yourself, “How much money do I need to earn to pay my bills and cover my essential spending?” This is your basic income required, and you should ensure you can continue to produce this amount.

If you are married, plan for what your budget would look like if one of you loses your job. If your finances are looking tight, search for areas to cut back spending, bills that can be eliminated or loans refinanced.

3. Fully fund your emergency savings

As a rule of thumb, you should have three months' worth of bills or $3,000 saved for an emergency, whichever is greater. A recession is a good time to get more aggressive and save for six months’ worth of bills or $6,000, whichever is greater. Ensure emergency funds are easily accessible and not invested to avoid the potential of loss from market volatility.

4. Pay down debt

Stay on top of your debt by paying off any credit cards and high-interest rate products now when income is flowing and economic conditions are generally still favorable. You should also focus on improving your credit score in case you need to borrow in an emergency.

5. Network and earn additional income

Building your professional network may increase your chances of getting a job, which could be helpful in the rare case you are laid off during a recession or need additional income. You can also look for side gigs or think about a business you want to build now as a way to earn passive income in the future, diversifying your revenue streams.

Although the thought of a recession can be scary, it’s a normal economic event. One that we’ve experienced in 2020, 2009 and 2001 in this century alone. Training yourself to pick up on the telltale signs, along with thorough preparation, is the best way to protect yourself and stay ahead of the curve.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Mark Zandi is the chief economist of Moody’s Analytics. He spoke with Kiplinger’s Anne Kates Smith in a series of interviews March 26-27. This is an edited transcript of their conversations.

What’s your outlook for the economy? How deep a recession do you see?

It’s going to be a struggle between now and this time next year. We’re in the teeth of the downturn now. We expect gross domestic product to have fallen 8% in the first quarter and to fall close to 30% in the second quarter. I’m assuming the virus plays out by the third quarter—not gone away, but no longer closing businesses. We’ll get a double-digit pop in GDP as people go back to work. In the fourth quarter, we’ll get some growth, but the economy will be limping along. For calendar 2020, I expect U.S. GDP to be down almost 6%. Unemployment should peak in the second quarter as high as 15%, but on a monthly basis, we could get to 20%.

What shape will the recovery take?

We won’t kick into gear until they find a vaccine or a medical treatment that is effective for the virus. Until that happens, I don’t see people traveling, global trade will struggle and businesses, weighed down by uncertainty, won’t invest or hire aggressively. We’re in the soup, more or less, until we have some solution to this virus.

Is the $2.2 trillion fiscal stimulus enough?

Ultimately, it won’t be enough, but it was a very timely, positive step. It was a valiant effort and I think it will make a difference. Without it, we’d see a second-quarter decline in GDP of over 40% — a complete wipeout. Even with the economy down 30% there’s a lot of pressure on the financial system. The stimulus is designed to generate a pop in economic growth, but then it goes away. We’ll need more in coming months, possibly including more in unemployment benefits, help for the state and local governments, and more aid to smaller businesses. I suspect there will be a lot of business failures.

Will it take years to recover?

No. If we solve the virus, we’ll quickly get our groove back. There will be pent up demand, and interest rates will be low. Assuming the financial system is not taken out, we’ll see a period of good strong growth beginning in the second half of 2021 going into 2022––as long as the script for a vaccine holds true.

What did you mean about the financial system being taken out?

There will be some problems in the financial system that the Federal Reserve can’t control — in the shadow banking system — that might impair the flow of credit to some degree. The shadow system includes the overnight debt-repurchase market, corporate bonds, asset-backed securities, pension funds, insurance, derivatives, payment processors, crypto-currencies — everything outside banks and credit unions.

The shadow system is not transparent, and we don’t have much information about it. If one institution gets taken out, it becomes systemic very quickly, and the shadow system plays a key role in the economy. For example, the Federal Housing Administration mortgage market is dominated by non-banks. I expect the Fed to set up and provide a credit facility to mortgage banks. It would be cataclysmic if FHA lending got shut down, and ironic, considering the Federal Housing Administration was set up during the depression to funnel money directly to the mortgage market.

Is the Fed doing enough to keep markets functioning and support the economy?

The Fed is on DEFCON 1 — it’s all in, it has broken the emergency glass. Interest rates are at 0%, they’ve launched infinite quantitative easing to buy every kind of bond they can legally buy, lowered bank reserve requirements and set up all kinds of credit facilities––some new and some used in the financial crisis. They’re very committed and very creative. They should succeed in keeping the financial system from cracking up. The risk is that there are fault lines they might not be able to manage quickly enough.

Do you see any unintended consequences from this unprecedented monetary and fiscal stimulus? Could it trigger inflation?

Prices for certain goods in scarce supply will jump, but I don’t expect a broad-based acceleration in inflation. Demand for goods and services has been hammered, which will weigh on prices. The weak labor market will also hit wages hard, making it difficult for businesses to raise prices more aggressively.

What about the increasing debt load, for the federal government and for companies?

Government deficits and corporate debt will surge, but this is a problem for another day. Governments need to use all their resources to address the health and economic crisis. If they don’t, we will suffer an economic depression, creating fiscal problems that are much worse. One lesson we can take from this dark time is that in the good times we should work hard to reduce deficits and debt.

Will 0% interest rates be the new normal far into the future, depressing returns for savers?

Yes, I expect 0% short-term interest rates through 2022, and likely longer. After the financial crisis, the Fed didn’t begin raising rates from zero at the low end of the range until the unemployment rate was falling through 5%. That’s at least two years away.

Is there any ammunition left for further crisis, or the next crisis?

We have ammunition, but not nearly enough to feel good about it. As soon as we are on the other side of this crisis, we should work diligently to get our fiscal house in order.

Uncertainty grips Wall Street and Main Street alike, rendering fears of a larger pullback in business spending and investments. There are many contributing factors for these reasons of worry, including the U.S.-China trade war, Brexit and the "Japanification" of Europe. Additionally, the American government, corporate and consumer debt levels have reached all-time-highs.

Although economies never grow in a straight line, and investors can take comfort in the knowledge that peaks and valleys are only natural, many economists see these as warning signs for a brewing recession.

Between signs of global economic slowdown, escalations in the U.S.-China trade war, negative interest rates in Europe and Japan, unchecked national debt and the longest bull market in U.S. history, investors have plenty of reasons to worry and suspect an imminent recession at the onset of every market pullback.

Recession Sign No. 1: The Fear Factor

Numerous reports recognize that the current unstable environment is treacherous for national and global business:

• Bank of America's economists believe there is a 1 in 3 chance of a 2020 recession. It concedes its formula fails to account for unpredictable factors like the trade war.
• Yahoo! Finance surveyed 100 real estate and economic experts, and half of them predict a 2020 recession.
• CNBC reported that Google searches for the word "recession" quadrupled in August 2019.

Recession Sign No. 2: Falling Consumer Confidence

The CNBC report shows American consumers are worried, which may lead to a retrenchment in consumer confidence and spending. Considering that consumer spending accounts for 68% of the U.S. economy, consumer confidence is a key factor for investors to watch.

Yet despite recession fears and downward trends in manufacturing and corporate capital expenditures, consumer confidence has remained a bright spot as of August 2019. The consumer confidence index was close to its highest level in 19 years, with only a slight drop between July (135.8) and August (135.1).

A score above 100 means consumers feel optimistic and can be expected to spend more. When the score dips below 100, consumers are pessimistic and likely to restrict spending.

Recession Sign No. 3: A Worsening Trade War

During the summer of 2019, nothing stoked more uncertainty than the U.S./China trade war. A quick fix is unlikely because the complexities of the trade relationship create so many points of contention. Much of the hope for a deal comes from the pressure both sides feel.

China's GDP is in decline. Tariffs, as they take their increasing effect, can be expected to harm the all-important U.S. consumer confidence, which has the potential to start the snowball that leads to lower business investment, lost jobs, credit defaults and, in a circular fashion, even lower consumer confidence.

That nightmare scenario is by no means inevitable or even more likely than a moderate slowing that reverses once a deal is reached. In fact, the governments of both countries are taking actions to prevent the trade war from doing serious economic damage, such as keeping interest rates low, cutting interest rates further and exploring a cut in payroll taxes.

These measures may help in the interim, but uncertainty will remain. Much of the economic boom has depended on trade relationships, so investors should consider any threats to them carefully.

Recession Sign No. 4: The Yield Curve

An inverted yield curve is a strange phenomenon that occurs when interest rates essentially turn upside down. Yields on longer-term bonds are lower than shorter-term bonds, which is an illogical situation that often results from investor fear and uncertainty.

Fear and uncertainty were absolutely driving factors of the August inversion of the U.S. two-year and 10-year notes. An inverted yield curve often precedes a recession since it singals that investors see more risk in the short run than the long run. Historicaly, it’s the canary in the mine for lower growth and inflation ahead.

While the yield curve merits monitoring, its predictive value cannot be assessed in isolation of global trends. Central banks outside of the U.S. continue to stimulate their economies by cutting interest rates into negative territory. As a result, 10-year bonds in Germany, France and Japan trade at negative yields, in effect charging investors a storage fee for the privilidege of investing with them.

International investors seeking some return, have fueled demand for 10-year U.S. Treasury notes, putting downward pressure on the long end of the yield curve. Concurrently, the Federal Reserve until recently has shown reluctance to cut rates, keeping the short end of the yield curve boyant.

The Bottom Line: What Investors Can Do

Whatever investors do in this time of uncertainty, there is one thing they should not do, and that is panic. The uncertainty is unlikely to go away soon, but that by no means makes a recession imminent.

The reality is that the U.S. economy continues to chug along, and a trade deal has the potential to spark a rally. But there is no certainty that a deal will be had, or that some other event will not unhinge the markets. This is no time to practice passive investing.

Investors must actively stay in touch with the pulse of the market and economy. Only then can they avoid emotional buying and selling. They should expect volatility and rely on a sound financial strategy to be their best defense when markets roil. Volatility in financial markets is a case of when and not if it happens.

Securities offered through National Securities Corporation, member FINRA/SIPC. Advisory services offered through National Asset Management, an SEC registered investment adviser. Fixed Insurance Products offered through National Insurance Corporation.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

There’s little question as to what makes the most recession-resistant stocks to buy so resilient. Many of them offer products that Americans simply can’t go without, or that are much more attractive when money is tight.

What’s less certain is when investors will need these companies.

The man who predicted the dot-com crash of 2000 and the housing crisis that led to the most recent recession believes the odds of a 2020 recession are less than 50%. “Whether it’s coming next year, I can’t be sure,” Nobel Prize-winning economist Robert Shiller told the Financial News on Sept. 9.

However, a National Association for Business Economics survey found that while economists are modelling a 20% chance of recession by mid-2020, they put the odds at 69% by mid-2021. They also widely see GDP growth slowing from 2.9% in 2018 to 2.3% this year, then to just 1.8% in 2020.

Some are even more pessimistic. Also in September, Jeffrey Gundlach – CEO and founder of DoubleLine Capital LP, a Los Angeles-based investment firm with $140 billion in assets under management – said he believes there’s a 75% chance of a recession before the 2020 presidential election.

Here are 15 top recession-resistant stocks to buy if you want to get ahead of the risk. Among the things you should know about recessions: The organization in charge of actually determining whether a recession has occurred typically needs six months to do so. Investors won’t know it’s happening until it has been underway for quite some time. So if you’re looking to protect your portfolio against this risk, you’ll want to lean toward being early rather than late.

Data is as of Oct. 7. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

• Market value: $333.4 billion
• Dividend yield: 1.8%

In times of recession, companies that sell low-priced merchandise typically perform better than those with expensive products. No wonder then, that Walmart (WMT, $117.23) delivered a total return (price plus dividends) of 20% in 2008 while the S&P 500 registered a loss of 37% with dividends included.

While the nature of its business would bode well for its resilience in another recession, Walmart still must deliver the goods. That might be considerably difficult for a stock that’s trading near all-time highs, but Strategic Wealth Partners CEO Mark Tepper still has faith in the stock.

“Our favorite staple is Walmart. A huge portion of their business is groceries and people need to eat regardless of the direction of the economy,” Tepper told CNBC in early September. “And in a low-margin business like groceries, it’s all about volume, and they’re doing everything they can to boost value – rolling out delivery, curbside pickup, all that stuff is helping to boost volume. So I think there’s more upside with Walmart.”

Walmart appears poised to do well, recession or not. Its e-commerce arm, for instance, continues to gain traction. In the second quarter ended July 31, Walmart U.S. saw its ecommerce revenues increase 37%, with strong online grocery sales contributing to the big gain. In addition, its two-year stacked U.S. same-store sales grew by 7.3% in the second quarter – the best growth in more than a decade.

And it’s a fact that Walmart’s grocery business will insulate it to a certain extent during a recession. So either way, WMT stock has investors covered.

• Market value: $26.5 billion
• Dividend yield: N/A
• Dollar Tree (DLTR, $112.16), which fits in the same low-cost theme as Walmart, gained 61% in 2018. That would be an impressive return in any year, but it’s downright miraculous when compared to the broader market’s plight.

Dollar Tree was a much smaller company at that point, with just 3,591 stores and $4.6 billion in annual revenue as of its fiscal year ended Jan. 31, 2009. Today, with 15,115 stores and $23.3 billion in trailing 12-month revenue as of Aug. 3, it owns a considerably larger portion of the country’s discount stores.

There’s another thing it didn’t have back in 2008: Family Dollar stores, which DLTR acquired for $8.5 billion in July 2015. That hasn’t been a boon, however. DLTR has struggled mightily to integrate Family Dollar, which sells products between $1 and $10. Dollar Tree sells everything at a fixed $1.

Dollar Tree currently is in the process of renovating its Family Dollar stores. To date, 1,000 of the more than 8,000 stores have been completed. Dollar Tree CEO Gary Philbin told Mad Money host Jim Cramer in September that Family Dollar’s same-store sales in the last three quarters have grown 1.4%, 1.9% and 2.4%, suggesting the renovations are working.

As far as Dollar Tree’s place among recession-resistant stocks to buy, its quality is obvious. It offers goods at extremely low prices, so a recession should make its typical customer a more frequent visitor … and bring new customers into its stores.

But good times and bad, Dollar Tree seems destined to perform. “I think our customer, with unemployment (being low), has had a better opportunity to have a steady job. I find our customers are often one paycheck away from not doing so well,” Philbin told Cramer. “I think what we offer them is just a way of saving money, which is so important to them.”

• Market value: $67.4 billion
• Dividend yield: 1.7%

Discount department chain Ross Stores (ROST) notched a nearly 18% total return in 2008. Its biggest competitor, TJX Cos. (TJX, $55.73), had a more difficult time navigating the last recession, losing 27.4%. That’s better than the market, but significantly worse than its peer.

That said, TJX may have a much better chance of outperforming both during the next recession.

Like most retailers, TJX Cos. – which includes T.J. Maxx, Marshalls, HomeGoods and other brands – goes through ebbs and flows. The off-price retailer currently is experiencing a bit of a slowdown in same-store sales. Its second-quarter “comps” in the second quarter ended Aug. 3 were just 2% higher, versus a 6% gain in the year-ago quarter. But long-term, TJX has always found a way to keep growing its business.

On Sept. 25, TJX announced the launch of Marshalls.com, the banner’s new online store. It promises to provide “a constantly changing selection of the trends shoppers want right now.” Interestingly, TJX has been doing a better job than most retailers at fending off Amazon with its in-store appeal. But Marshalls.com it will have a “curated” feel to it, giving shoppers first crack at a mix of offerings not available in every store.

E-commerce for Marshalls has been on the company’s radar for some time. “Our strategy is to maximize multi-channel engagement and drive incremental sales,” CEO Ernie Herrman said in February. “A high percentage of our mix is differentiated from online versus what’s in the stores. And we find that that is the number one reason that we can get an incremental build off the business and not have cannibalization or lose visits to the store.”

As investors continue to move to defensive stocks in anticipation of a recession, UBS analysts believe that TJX’s “value-for-money offering” will allow it to continue to take market share from other retailers without the same value proposition.

• Market value: $160.9 billion
• Dividend yield: 2.4%

If there’s one thing people aren’t going to give up in a recession, it is the occasional Big Mac at McDonald’s (MCD, $211.92).

The sentiment might seem facetious, but if you look at the fast-food giant’s sales results in 2008 and 2009, you’ll see that McDonald’s didn’t suffer much from the Great Recession.

In 2009, the company’s global same-store sales grew by 3.8%, boasting growth across all operating regions. That included a 2.6% improvement in the U.S., where it generated 35% of that year’s overall revenues. A year earlier, in 2008 – which accounted for the bulk of the recession – McDonald’s American same-store sales grew 4%.

Let’s fast-forward to 2019.

Sales are gaining momentum in the U.S. as the company continues to roll out its Experience of the Future stores, which modernize and fully digitize its locations, leading to increased visits and higher average checks. U.S. same-store sales expanded by 5.7% year-over-year in the second quarter ended June 30, more than double its growth in the year-ago period.

Meanwhile, its delivery business continues to shine – McDonald’s delivers to more than one million people every day around the world – and is expected to generate $4 billion in revenues this year. Add that, as well as its low volatility, into the fold, and it’s hard to argue with analysts who recommend MCD stock for the next recession.

“If we do go into some sort of cyclical downturn, this is one of the names to be in,” Morningstar analyst R.J. Hottovy told CNBC last October. “This name generally holds up pretty well.”

• Market value: $21.4 billion
• Dividend yield: 3.6%

If a recession is impending, consumer staple Kellogg (K, $62.68) could be among the best stocks to buy. That’s because its cereal division, as well as other quick breakfast items such as Nutri-Grain bars and Eggo frozen waffles, could benefit from consumers who need to spend less on food. During the 2008 recession, then-CEO David Mackay, who retired in 2011, suggested that the entire packaged-food industry benefited from frugal customers dining at home.

But Kellogg might be an interesting play if the economy keeps kicking, too.

Are you familiar with plant-based meat alternative Incogmeato? If you’re not, that’s probably because Kellogg only announced the new product line on Sept. 4, and it hasn’t even shown up in stores. (It will be available in early 2020.)

The company’s MorningStar Farms division, which is responsible for Incogmeato, is ready to battle it out in the highly competitive world of plant-based proteins. It currently boasts America’s top-selling veggie burger, and it also sells frozen and fully prepared chicken nuggets and tenders.

Kellogg is high on the “flexitarian” lifestyle – those people who eat meat but are opting to also have plant-based alternatives on a regular basis. A 2018 study found that 31% of Americans follow a flexitarian dietary lifestyle. That’s a much bigger market than the 13% identifying with vegan, vegetarian, or paleo diets.

“As more consumers are choosing a ‘flexitarian’ lifestyle and actively reducing meat, we’re thrilled to be extending the MorningStar Farms portfolio with a delicious and satisfying meat-like experience,” Sara Young, general manager of plant-based proteins at MorningStar Farms, said in the release announcing Incogmeato.

Piper Jaffray analyst Michael Lavery suggested in August that MorningStar Farms could be worth as much as $3 billion. Further, he speculated that Kellogg could spin off the division at some point in the future, although the company’s made no indication it is considering such a move. In July, Barron’s Brett Arends wrote that MorningStar Farms could be worth between $5 billion and $10 billion in an initial public offering (IPO).

• Market value: $11.2 billion
• Dividend yield: 1.2%

Some of the best recession-resistant stocks come from boring, mundane products and services that are nonetheless necessary, no matter your financial situation.

Take Rollins (ROL, $34.22), the Atlanta-based owner of Orkin – a provider of pest and termite control services to residential and commercial customers in the U.S. and several other countries around the world.

Rollins services more than 2.4 million customers across more than 800 locations worldwide. And it has delivered 21 consecutive years of earnings growth, which includes two recessions, while also increasing its annual dividend by 12% or more for 17 consecutive years.

Interestingly, Rollins paid $62 million for Orkin in 1964. In 2018, Rollins generated $231.7 million in profits from $1.8 billion in revenues, much of it through the Orkin brand. Clearly, the acquisition was a game-changer for the Rollins family, who own more than 50% of its stock and still run the company.

Rollins still is wheeling and dealing, too. In Q2 2019, Rollins acquired California-based Clark Pest Control for $400 million, using a combination of cash and debt to finance the purchase. Clark, the eighth-largest pest management company in the U.S., also was family-owned and should be easily integrated into Rollins’ business.

Rollins increased its sales by 3% in 2008 – an indication that even the second-worst recession in American history couldn’t hold the company back. The stock lost 4%, which is excellent given how badly the market performed.

• Market value: $69.4 billion
• Dividend yield: 0.8%

H&R Block (HRB) delivered a staggering 25.8% total return in 2008. That same year, Intuit (INTU, $266.76) stock delivered a total return of -24.7%, which was better than the index but considerably worse than its competitor.

However, Intuit was a much different business in 2008.

Since then, Intuit has acquired a number of fintech companies that have made its TurboTax and QuickBooks brands much stickier with consumers and businesses.

For example, Intuit generated $3.1 billion in revenues in fiscal 2008 from six product segments, flowing down to operating income of $1.3 billion. In the fiscal year ended July 31, 2019, Intuit had just three operating segments that brought in $6.8 billion in revenues, with operating income of $1.9 billion that was up 18% from fiscal 2018.

“Given Intuit’s dominant position in the DIY space, and the growing momentum behind its TurboTax Live offering in the assisted category, we believe another year of double-digit Consumer Tax growth is well within reach,” writes Stifel analyst Brad Reback.

Intuit’s self-service software, including TurboTax, which allows Americans to e-file simple tax returns online for free, will look attractive to consumers when times are tight.

• Market value: $25.5 billion
• Dividend yield: N/A

When money gets tight, people look to save money wherever they can.

Nowhere is that truer in the automotive business. When times are good, people hire a mechanic to fix their car or truck. In a recession, they try to do the repairs themselves, even when they know they’re not very handy. It’s human nature.

That’s why it shouldn’t come as a surprise that one of the S&P 500’s best-performing stocks of the 2008-09 bear market was AutoZone (AZO, $1,060.81), the nation’s largest retailer and distributor of automotive replacement parts and accessories. While most stocks were getting pummeled, AZO gained more than 16% on the year.

Of course, AutoZone has been fine since the recession. Its annualized total return of 21.3% between March 2009 and September 2019 is well ahead of the market’s 16.3% in that time.

AutoZone isn’t in perfect shape at the moment. It reported fiscal fourth-quarter earnings in late September, with revenues and adjusted earnings per share missing analyst expectations. But Stephens analyst Daniel Imbro, who rates AZO Overweight (equivalent to Buy) seems to think the business is doing just fine.

“AZO has additional commercial initiatives that should augment same store sales into FY20, and we believe the company will continue taking market share in both the DIY and (do-it-for-me) markets,” he wrote Sept. 25.

• Market value: $29.8 billion
• Dividend yield: 1.1%
• Brown-Forman (BF.B, $62.47), the family-controlled liquor company whose brands include Jack Daniel’s Tennessee Whiskey, produced a negative total return of 11.3% in 2008, roughly a third of the loss of the S&P 500.

Brown-Forman posted adjusted earnings of 95 cents per share in 2007, which housed only one month of the Great Recession. The year after? It was 96 cents per share – an indication that while many Americans suffered greatly, they weren’t about to give up a stiff drink now and again.

Brown-Forman has always found a way to grow in even the most difficult economic environments. However, CEO Lawson Whiting, a 22-year veteran of the company that was installed Jan. 1 of this year, certainly has his work cut out for him. That’s because the company, along with the rest of the spirits business, has been seriously affected by the European Union and China’s retaliation to President Trump’s tariff and trade war.

“In a way, the American whiskey tariffs are a tariff on Brown-Forman because we have a 60% share of American whiskey in Europe. We are by far the most affected company – no one else is even close,” Whiting said in the July 2019 edition of The Spirits Business magazine.

In fiscal 2019, Brown-Forman’s revenues grew 2% on a reported basis, with tariffs lowering sales by one percentage point. That compares to an 8% increase a year earlier. However, even though a protracted trade war would continue to act as a big headwind to the company’s sales in Europe, it still expects fiscal 2020 results to be healthy. Brown-Forman is forecasting an underlying improvement in net sales of 5% to 7%, feeding underlying net income growth of 3% to 5%.

Brown-Forman might face an unusual headwind at the moment, but its moves into both Irish whiskey (Slane, 2015) and Scotch whisky (Glendronach, Benriach and Glenglassaugh, 2016) should help offset the tariff-related hit to its American whiskey business.

• Market value: $83.2 billion
• Dividend yield: 3.2%

Richard Shaw, principal and portfolio manager at investment research firm QVM Group LLC, compared 6,824 NYSE and NASDAQ stocks in 2012, looking for those special stocks that managed to survive the 2008 crash and thrived during the 2010 and 2011 corrections. He came up with just 48 stocks that met his criteria.

• Bristol-Myers Squibb (BMY, $50.88) – which lost just 6% in 2008 and gained 8.7% in 2010 and 39.4% in 2011 – was one of them.

In terms of defensive stocks, you can’t get much better than this maker of franchise drugs such as Opdivo, Yervoy and Sprycel. Bristol-Myers is a big-moated pharmaceutical stock that’s difficult to unseat. With the $74 billion acquisition of Celgene (CELG), which is expected to close by the end of 2019, BMY’s moat will become even bigger.

BMY’s cancer business will get even stronger with the addition of Celgene’s Revlimid. Secondly, as part of getting regulatory approval for its acquisition, it is selling Otezla, the company’s psoriasis treatment, to Amgen (AMGN) for $13.4 billion. Bristol-Myers plans to use the proceeds of the sale to repurchase shares, repay debt and increase its annual dividend.

Although it is expected to grow earnings by just 7% in 2019 and 4% in 2020, it trades at just 8.3 times analysts’ expectations for next year’s earnings – well below its five-year average of 20.6, making it cheaper than it has been in many years.

Add in a generous 3.2% yield, and this recession-resistant stock should be attractive to value and income investors alike.

• Market value: $22.4 billion
• Dividend yield: 1.4%
• McCormick (MKC, $168.22) is one of the world’s leading providers of spices, seasonings, and flavorings, with brands including McCormick, Club House, Lawry’s, Zatarains, Frank’s RedHot and French’s. It’s also another of those special 48 stocks that performed admirably in the 2008 recession (-14%), as well as during 2010 (+32%) and 2011 (+11%).

It makes sense. People tend to go out to eat less during recessions, opting to cook at home instead. Anyone who doesn’t want bland food will have to rely on companies such as McCormick. Its leadership position in spices and seasonings provides it with a wide moat.

The company’s flavor solutions business continues to grow thanks to Generation Z, who are 85 million strong, and the most ethnically diverse generation in U.S. history. With $500 billion in buying power, Gen Z consumers are looking for authentic flavors – something McCormick is able to provide.

Moreover, 20% of the company’s global sales come from developing markets. And that number is rising.

By shifting to more-valued added flavor products, McCormick has been able to grow top-line sales by more than 10% annually, while also expanding its margins. In 2016, it had an adjusted operating margin of 10.4%. Two years later, that number grew by 380 basis points to 14.2%.

That, as well as a focus on cost-cutting initiatives, sets McCormick nicely among the most recession-resistant stocks to buy now.

• Market value: $23.3 billion
• Dividend yield: 1.9%
• Hormel Foods (HRL, $43.70) – the consumer staples stock behind Spam, Skippy peanut butter, and Hormel meats – is one of those slow-and-steady food stocks that has delivered for shareholders over the long haul. It’s one of the 57 Dividend Aristocrats – those S&P 500 companies who’ve increased their annual dividend for at least 25 consecutive years. HRL has increased its dividend for 53 consecutive years, funding that with growing profits in 28 of the past 32 years.

You’re not going to get rich quick by owning Hormel, but patient investors will be rewarded. It has generated 13.8% average annual returns over the past five years, and 21.8% over the past 10. During 2008, Hormel’s stock lost almost 22% of its value, which is still considerably better than the market. Following the recession, Hormel has put up positive returns in nine of the past 10 years.

Like Kellogg and other large food companies, Hormel has been forced to make changes to the type of products it sells to address the consumer’s move to eating healthier. For instance, in early September, it announced that it was launching Happy Little Plants under its Cultivated Foods umbrella. The flagship product is a ground plant-based protein alternative with 20 grams of non-GMO soy protein with no preservatives, no cholesterol and just 180 calories.

“We understand consumers across a spectrum of lifestyles are adopting more flexible attitudes and behaviors when thinking about food, especially given the wide variety of products available in the marketplace,” Jim Splinter, group vice president of corporate strategy at Hormel Foods, said in a release. “We intend to focus on all the ways plants can help consumers find alternatives in their food routines.”

• Market value: $391.8 billion
• Dividend yield: 0.6%
• Visa (V, $174.90) has exploded by nearly 15-fold since its March 20, 2008, initial public offering – at the time, the largest IPO in U.S. history.

“Visa is a global card Goliath that ... owns one of the most recognized and respected brands in the world,” Morningstar analyst Michael Kon wrote in a research note in March 2008. “It is very hard to build any network, but duplicating Visa’s is almost impossible.”

Not much has changed since then. Nothing has put a dent in Visa’s business model despite rapid growth from upstart fintech competitors. In fact, Visa is embracing emerging financial technologies to maintain its leadership position.

Visa announced Sept. 30 that it was expanding its partnership with London-based European fintech Revolut – a digital banking company that offers free international money transfers, fee-free spending and even a cryptocurrency exchange. The arrangement will help Revolut expand its digital financial services offerings to 24 new markets, including the U.S., Canada, Australia and Japan.

“With Visa being accepted at nearly 54 million merchant locations across more than 200 countries, we have the scale, experience and expertise to help fintechs like Revolut go global,” Visa Chief Product Officer Jack Forestall said in a release.

That’s the beauty of Visa. Despite being late to the fintech explosion, up-and-coming businesses still want to partner with the company because of its position within the global financial services industry.

While Visa’s business no doubt would feel the pinch of a recession, as people simply spend less, the ubiquity of credit-card and mobile payments here, and its growth worldwide, will help insulate it somewhat. Its lack of exposure to actual consumer credit (Visa is a payment processor, after all, not a bank) is attractive, too. So is its extremely safe dividend, which has been growing like a weed.

• Market value: $18.8 billion
• Dividend yield: 1.2%
• Church & Dwight (CHD, $76.05) is the owner of consumer brands such as Arm & Hammer, OxiClean and Orajel, and it is an amazingly resilient stock. Since 2000, it has finished only two years – 2000 (-15.4% total return) and 2005 (-1.1%) – in negative territory. In 2008, it actually gained 4.4%.

So CHD has posted 13 consecutive years with a positive return, and with a nearly 17% gain in 2019, it looks like it’s on its way to No. 14. Indeed, while Church & Dwight certainly belongs on this list of recession-resistant stocks to buy, maybe it’s better to consider it as a stock to own in good times and bad.

Spruce Point Capital Management might disagree. The New York-based investment manager, which is short CHD, released a report in early September titled Arm Yourself to Get Hammered. The report argues the company uses aggressive accounting practices to grow its business and claims Church & Dwight shares could decline 35% to 50%.

Rightly, Church & Dwight management have said little about the allegations. It told CNBC in a response statement that “We have confidence in our long-term plan to deliver superior returns based on our ‘evergreen business model,’ and our strong second-quarter results demonstrate our continued momentum.”

A more convincing response was some mid-September insider buying. CEO Matthew Farrell acquired approximately 7,000 shares on Sept. 16 at an average price of $71.32 per share, representing a roughly 10% decline since the release of Spruce Point’s report. Barron’s categorized it as his “biggest open-market stock purchase in years.” A few other insiders used the dip to buy on the open market.

• Market value: $16.7 billion
• Dividend yield: N/A
• Expenses: 0.25%, or $25 annually on a $10,000 investment

Gold is an age-old hedge against worries such as inflation and economic unrest. A few people hold it as a backup currency for the end times … but most people invest in it because it’s an uncorrelated asset that can diversify their portfolios.

Gold bulls have been rewarded recently, with recession fears driving gold prices to levels not seen in at least five years. More of the same could touch off even more buying.

“Fundamentally there are currently enough reasons for a continuation of the rally,” Florian Grummes, Midas Touch Consulting gold market analyst, told Kitco on Sept. 27. “Indeed, in this context, even a veritable gold rush in the markets is possible in the next three to four months.”

You could buy physical gold – though that would require also having somewhere to safely store the gold, insuring it, then finding someone to buy it when you’re done. Or you could just buy shares in one of several gold ETFs that represent physical bullion held elsewhere.

The iShares Gold Trust (IAU, $14.28) is the second-largest gold ETF at $16.7 billion in assets under management. The fund holds more than 11 million ounces of gold in trust for its unitholders. And better still, it is 15 basis points (a basis point is one one-hundredth of a percentage point) cheaper than its biggest competitor, SPDR Gold Shares (GLD). All this makes IAU an ideal way to play the yellow metal if you’re just looking for protection during a short-lived economic downturn.

Just remember: Most advisers recommend up to a 5% stake in gold, but not much more.

Dividend stocks are a well-worn prescription for what ails an investor’s upset stomach. Are a cascade of troubling headlines and fears of Wall Street volatility making you nauseous? A regular stream of cash distributions can help smooth out your returns and restore your sanity.

But investors also are increasingly targeting a more direct solution to volatility: low-volatility funds. These products are designed to piece together a basket of stocks whose movements aren’t as exaggerated as the rest of the market, and they’re gaining in popularity. The iShares Edge MSCI Min Vol USA ETF (USMV), for instance, had enjoyed nearly $6 billion in net inflows through 2019’s midway point. Invesco S&P 500 Low Volatility ETF (SPLV), which is roughly a third of the size of USMV, had brought in $2 billion.

Fortunately, dividends and low volatility aren’t an either/or proposition. You can get both, and DIVCON can help us discover these more stable dividend stocks.

The DIVCON system from exchange-traded fund provider Reality Shares examines the payout health of all dividend stocks among Wall Street’s 1,200 largest companies. It does that by poring into metrics including profit growth, free cash flow (how much cash companies have left over after they meet all their obligations) and even the Altman Z-score, which helps assess a company’s likelihood of a bond default or bankruptcy. The resulting rating system (a 1-5 scale in which DIVCON 5 indicates the healthiest of payouts and DIVCON 1 indicates dividends at the most risk) provides a measure of a dividend’s sustainability and chance of future growth.

Here are seven dividend stocks for a little peace of mind. All seven stocks not only boast strong DIVCON 4 ratings, but have exhibited lower volatility and total-return outperformance (that’s price plus dividends) versus the S&P 500 over the past year.

Price, market value and yield data is as of Sept. 16. DIVCON scores and measurement data such as earnings growth, levered free cash flow (LFCF)-to-dividend ratio and Altman Z-score are as of Sept. 1. Stocks listed in order of DIVCON score. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. You can view other scores at Reality Shares’ DIVCON site.

• Market value: $33.6 billion
• Dividend yield: 1.5%
• DIVCON score: 55.50
• Yum! Brands (YUM, $110.54) is the name behind Pizza Hut, Taco Bell and KFC. And while you might think of them as decidedly American names, they have wide international appeal. KFC, for instance, boasts more than 23,000 restaurants across over 135 countries, and Pizza Hut has more than 18,000 locations in more than a hundred countries.

Those figures include its Chinese operations, which it spun off as Yum China (YUMC) in November 2016. But the rest of its operations have been doing just fine. YUM shares have beat the S&P 500 Index 94%-50% on a total-return basis since the spinoff. They’re also up 27% over the past year, versus 5% for the index, and in a mostly orderly fashion.

Yes, YUM’s dividend is modest – at 1.5%, it actually yields less than the S&P 500’s 1.9%. But DIVCON has a high opinion of the dividend’s health, as implied by its 55.50 score. (Any score between 55.25 and 64.00 earns a DIVCON 4 rating, which indicates a stock is “likely to increase their dividends in the next 12 months.”)

Yum! Brands’ levered free cash flow is 3.3 times what it pays out in dividends which means it has ample room to raise its payout. Same goes for its low earnings payout ratio of 37% – that’s the percentage of the company’s profits that go toward paying the dividend.

Also useful is a 3.2x repurchases-to-dividends ratio, which means the company spends roughly three times as much money on buying back its stock as it spends on its cash distribution. Think of that as a safety net – if Yum! Brands does find itself in a tight financial situation, it can pull back on repurchasing stock to make sure it can at least keep funding, if not growing, its regular dividend.

• Market value: $38.9 billion
• Dividend yield: 2.7%
• DIVCON score: 56.00

Investors seeking out stability often hunt down utility stocks.

The business is a natural fit for slow but steady returns. The highly regulated utility industry doesn’t allow for much growth, as rate increases need government approval and thus tend to be small. But utility companies also have a captive audience with little to no competition, for a product – electricity, gas or water – that is essential to everyday life. Thus, they tend to have reliable revenues and profits, the latter of which they use to pay juicy dividends to entice shareholders to stick around.

• Sempra Energy (SRE, $141.75) serves roughly 40 million electric and natural gas consumers via subsidiaries such as Southern California Gas Company, San Diego Gas & Electric Company, and Sempra South American Utilities – an electric company with nearly 7 million customers between Chile and Peru. It also has energy-infrastructure arms that develop, build and operate natural gas, liquefied natural gas, solar and other power facilities.

Sempra Energy’s dividend-growth track record only extends back to 2011, but it has been aggressive in that time, juicing its payout by 148%. That expansion is supported by levered FCF that’s 2.5 times what it pays out in dividends.

Utility-sector dividend stocks typically aren’t a great source of price growth, but they’ve become a popular holding amid all of 2019’s questions marks. The Utilities Select Sector SPDR Fund (XLU), which holds all of the S&P 500’s utility stocks, has delivered a total return of 21% over the past 52 weeks – quadruple the index. Sempra has been near the front of the pack, gaining 25% in that time.

• Market value: $27.2 billion
• Dividend yield: 1.9%
• DIVCON score: 58.25

Waste management companies also deserve a look if you want dependable dividend stocks to buy and hold for the long haul. Good times or bad, as long as you’re able to afford your home, you don’t want to let trash pile up in front of it. It’s not just unsightly; it’s a health hazard.

• Republic Services (RSG, $84.89) serves more than 14 million customers across the country, with operations spanning “349 collection operations, 207 transfer stations, 190 active landfills, 91 recycling centers, 7 treatment, recovery and disposal facilities, 11 saltwater disposal wells, and 75 landfill gas and renewable energy projects across 41 states and Puerto Rico” as of the most recent look.

In other words, Republic Services is more than just residential trash collection. It also makes money from recycling, landfills, even energy generation.

RSG has had a solid past year, producing 16% in total returns to easily outstrip the index. That has been buoyed a little by its market-average dividend, but don’t let the modest yield fool you. Thanks to dividend growth, existing shareholders are sitting on much plumper yields thanks to 10 consecutive years of payout hikes. (Not to mention, market-beating returns over the past decade also have suppressed the yield.)

DIVCON has identified plenty of reasons to believe that payout will keep growing. Not only is Republic Services generating levered FCF that’s 2.6 times what the company needs to support its dividend, but it keeps growing that cash, at roughly 20% annually over the past three years. Its annualized volatility – a measurement of its price movement – of 14.1% over the past three years is lower than the S&P 500’s 16.7%, too, according to Bloomberg and Reality Shares research.

• Market value: $47.5 billion
• Dividend yield: 1.8%
• DIVCON score: 60.00

Second verse, same idea as the first.

• Waste Management (WM, $111.90), North America’s largest waste management company, serves more than 20 million residential, commercial, industrial and municipal customers across the U.S.

Like Republic Services, the recession-proof nature of its business makes Waste Management a company you can hold on to for ages. Also like Republic Services, WM is more than collection – indeed, that business accounts for only a little more than half of its revenues. The company also offers recycling, transfer and landfill services, among others.

Waste Management is a serial dividend raiser that has boosted its payout for 16 consecutive years. Yet its earnings payout ratio is under 50%, which means WM has the resources for continued increases. Same goes for levered free cash flow, which is more than five times what the firm needs to fulfill its current obligation.

It also sports lower annualized volatility than the S&P 500 and has significantly outperformed the index over the past year with roughly 26% returns to the index’s 5%.

• Market value: $157.5 billion
• Dividend yield: 2.2%
• DIVCON score: 60.75
• McDonald’s (MCD, $207.40) has been one of the most reliable dividend stocks on the market for decades, improving its dole on an annual basis for 42 consecutive years. That puts it among the ranks of the Dividend Aristocrats – dividend growth stocks that have delivered at least a quarter-century of uninterrupted payout hikes.

No wonder: McDonald’s has a resilient business that has survived numerous economic downturns. MCD even managed to grow its profits during the Great Recession – earnings per share improved by 26% year-over-year in 2008, and 8% in 2009.

And as its 401% total returns over the past decade would indicate … it can provide plenty of upside during bull markets, too. (The S&P 500 is up 242% in that same time frame.)

Unlike many longtime dividend growers, whose pace tends to slow after a few decades, MCD has delivered the goods in recent years. In 2018, it increased its dividend by nearly 15%; that was roughly twice the 7.4% raise it gave investors in 2017.

McDonald’s payout ratio of 60% is only a little elevated, leaving space for decent future hikes going forward. Levered FCF is more than twice what it needs, also implying some breathing room. Noteworthy, too, is a Bloomberg dividend health score of 24, compared to 15 for all dividend payers among Wall Street’s 1,200 largest stocks. Bloomberg dividend health scores range from -100 to 100, with negative scores indicating an unhealthy dividend with low potential for future payout increases.

• Market value: $15.1 billion
• Dividend yield: 3.0%
• DIVCON score: 61.00
• Evergy (EVRG, $64.14) is a Kansas-based electric utility that services 1.6 million customers in Kansas and Missouri through its Kansas City Power & Light Company and Westar Energy subsidiaries. It’s not an everyday name in the utility sector, but it still has a few traits worth crowing about.

The company has consistently increased dividend over the past 15 years, albeit under various operating names – Evergy itself is the new corporate name following the 2018 merger of Westar and Great Plains Energy.

“The debate is starting to evolve (favorably) around what the rate base growth / EPS growth looks like post ’21 (after the financial benefits of the merger from synergies and buybacks are in the rear view mirror),” writes Evercore ISI analyst Greg Gordon, who has a Buy rating on shares.

Dividend growth likely won’t be red-hot in the future, but a 77% earnings payout ratio means there’s at least marginal room for hikes going forward. It does have a high 2.7 repurchases-to-dividends ratio, so EVRG can always cut down on buybacks should it need a backstop. And again, annualized volatility is lower than the market, at 15.7% versus the S&P 500’s 16.7%.

• Market value: $13.0 billion
• Dividend yield: 0.6%
• DIVCON score: 61.75

Property casualty insurance specialist W. R. Berkley (WRB, $70.90) has been a standout in its area of the market. WRB’s 36% total return over the past 52 weeks not only beats the S&P 500 – it’s several times better than the iShares U.S. Insurance ETF’s (IAK) 9% return.

Berkley operates in two segments – Insurance, and Reinsurance & Monoline Excess – across 53 companies. It operates primarily in the United States, but also does business in the rest of North America, Europe, South America, Australia, Asia and South Africa. That geographic diversification helps stabilize the company’s operational results.

The thing to note about WRB is that it has an unusual dividend policy. While it does offer a small quarterly cash dividend that has been growing for years, more recently, it also has distributed large special cash dividends to augment those payouts. For instance, in 2017, its quarterly dividend was 9.33 cents per share, but it also paid two 33.33-cent special dividends. Last year, it delivered 10 cents per share quarterly, but also offered up three 33.33-cent special payouts.

That makes gauging Berkley’s dividend health a little more difficult. But based on its dividends from the first half of 2019, WRB may pay out a total of $1.43 per share this year. That would be only half of analysts’ projections for the company’s profits for 2019. It’s also well within Berkley’s levered free cash flow means as well.

The warning signs are getting stronger. And financial markets are growing nervous. Risks to the economic expansion are rising. But we still don’t think a recession is near.

It’s natural to worry about the economy. Bond yields are down — a sign that investors are concerned about the prospects for GDP growth. Yields on long-term bonds have slipped below those on short-term debt — often a sign of recession ahead.

Commodity prices are softening — again, a signal that future economic activity will be weak.

Manufacturing is contracting in the U.S. and across the world as the trade war continues.

Still, there are reasons for some optimism. Most of them hinge on the U.S. consumer. Despite talk of trade wars and manufacturing slumps and possible recession in Europe — all real problems — U.S. consumers continue to shop and spend freely. Unemployment is near a 50-year low. Wages are up. Home values and 401(k) balances are quite high.

Shoppers will have to carry the load for now because weak business investment shows no sign of perking up anytime soon. Odds are, they’ll be able to. Some readings on consumer sentiment have declined lately, and a few categories of spending are starting to tail off. But for the most part, folks are spending, even on discretionary things like boats.

None of this means that all is well with the economy. Growth is slowing after coming in strong last year. There are plenty of problems overseas: Brexit. Weakness across Europe. A sharp slowdown in China. Flagging global trade.

The best-case scenario: GDP gains of 2.3% this year and 1.8% next year — far short of recession, but no boom, either. For some industries, such as farming and manufacturing, business conditions will continue to feel akin to a recession.

Growth could also slow more sharply, to 1% or even less next year if consumers get spooked by worrisome economic headlines. Manufacturing makes up only 11% of the overall economy, but if job losses there start to mount and cause the unemployment rate to inch up, other workers could get nervous. That in turn would ding consumer spending, which accounts for 68% of GDP.

Whether the economy slows modestly or sharply, a few things seem clear:

• Interest rates will stay quite low, especially after the Federal Reserve implements additional rate cuts to stave off potential damage from the trade war.
• Prices of industrial metals and other commodities will remain muted, too.
• The global economy will stay shaky. And the trade situation will worsen before it gets better. Both the U.S. and China are clearly digging in for a long fight.

The stock market took a gut punch recently as a number of on-again, off-again headwinds started to blow at the same time. Investors quickly turned tail, seeking out more protective positions. Unsurprisingly, this trend led to an influx of inflows into some of the best defensive exchange-traded funds (ETFs).

The Federal Reserve knocked Wall Street off-balance with a recent quarter-point drop in its benchmark Fed funds rate. Yes, it was the first such cut since the Great Recession. But some investors were hoping for a deeper reduction, and Fed Chairman Jerome Powell’s subsequent press conference kept experts guessing about whether future rate cuts were any more or less likely.

The U.S.-China trade war escalated next. At the start of August, President Donald Trump threatened to slap a 10% tariff on another $300 billion in Chinese imports effective Sept. 1, prompting Beijing to threaten retaliation. So far, China has announced it will suspend imports of U.S. agricultural products and let its currency, the yuan, tumble to an 11-year-low. The latter move is expected to agitate Trump, who has accused Beijing of currency manipulation in the past.

Standard & Poor’s 500-stock index dropped quickly, losing almost 4% between the July 30 close (the day before the Fed announcement) and the Aug. 5 market open. Some investors are going to cash – but others are seeking out areas of the market that might rise as the market falls, or places to collect dividends while waiting out the volatility.

Here, we examine 11 of the best ETFs to buy if you’re looking for portfolio protection. This relatively small cluster of funds covers a lot of ground, including high-dividend sectors, low-volatility ETFs, gold, bonds and even a simple, direct market hedge.

Data is as of Aug. 4. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.

• Type: Sector
• Market value: $10.1 billion
• Dividend yield: 3.1%
• Expenses: 0.13%, or $13 annually on a $10,000 investment

Whenever you read about the markets having a rough day, look at how different sectors performed. Often, you’ll see heavy losses in certain aggressive, high-growth sectors (think technology or consumer discretionary/services). But other sectors – especially those that traditionally offer high yields – may experience lighter losses, sometimes even gains on those days, because investors flock to the protection their businesses and dividend payments offer.

Utility stocks – companies that provide electricity, gas and water service, among others – are one such sector. There’s little growth in these firms. They’re highly regulated, so they can’t just jack their prices significantly higher overnight, and because they’re regional in nature, they can’t rapidly heap on new customers.

But they provide necessities that people must use no matter how bad the economy gets, and as a result, they have extremely reliable revenue streams that translate into predictable profits. And those profits often are returned to shareholders in the form of above-average dividends. The combination of these two factors makes utility stocks attractive when the rest of the market quivers.

The Utilities Select Sector SPDR Fund (XLU, $60.15) provides access to a tight cluster of the 28 utility companies in the S&P 500. Because the fund is weighted by market value (the biggest firms make up the biggest portions of the portfolio), it is very heavily invested in a few stocks. Largest holding NextEra Energy (NEE), for instance, accounts for more than 12% of the ETF’s assets, and the top five holdings alone account for roughly 40%. That means significant moves in just one or two of these stocks can have an outsize effect on XLU’s performance.

The upside? Utility stocks as a whole tend to be more stable than the broader market anyway. And they certainly are more income-friendly – XLU’s current 3.1% yield easily trounces the 1.8% you’ll get by investing in S&P 500 ETFs such as the SPDR S&P 500 ETF (SPY).

Learn more about XLU at the SPDR provider site.

• Type: Sector
• Market value: $12.3 billion
• Dividend yield: 2.7%
• Expenses: 0.13%

Just like you need utilities such as gas to heat your home and water to drink and stay clean, you also need a few goods to get you through the day – food and basic hygiene products among them.

That’s what consumer staples are: the staples of everyday life. But while some are what you’d think, others aren’t. Bread, milk, toilet paper, toothbrushes are obvious basics, though consumer staples also tend to include things such as tobacco and alcohol – not needs, per se, but they’re consumed like it. Thus, like utilities, consumer staples tend to have somewhat more predictable revenues than other sectors, and also pay out decent dividends.

The Consumer Staples Select Sector SPDR Fund (XLP, $59.23) invests in the 30-plus consumer staples stocks of the S&P 500 – a who’s who of the household brands you’ve grown up with and know. Top holding Procter & Gamble (PG, 16.2% of assets) is responsible for Bounty paper towels, Charmin toilet paper and Dawn dish soap. Coca Cola (KO) and PepsiCo (PEP) – the latter of which also boasts Frito-Lay, a massive snacks division – combine to make up another 20% of assets.

And you must buy those products somewhere, which explains the inclusion of companies such as Walmart (WMT) and Costco (COST).

The Consumer Staples SPDR has long been among the best ETFs to buy, from a sector standpoint, in market downturns. It proved its mettle during the bear market of 2007-09, when it delivered a total return (which includes price and dividends) of -28.5%, which was only half as bad as the S&P 500’s 55.2% loss. Or consider 2015, when the S&P 500 returned just 1.3% versus 7% for the XLP. The ETF also outperformed during the fourth-quarter slump in 2018.

You can partly thank its consistently above-average yield, which currently sits at 2.7%.

Learn more about XLP at the SPDR provider site.

• Type: Sector
• Market value: $2.3 billion
• Dividend yield: 2.5%
• Expenses: 0.34%

The last sector we’ll look at here involves real estate investment trusts (REITs). Congress created this corporate structure almost 60 years ago to encourage property investment among mom ‘n’ pop investors – the type of people who couldn’t afford to just buy an office building or two with couch change.

REITs own and sometimes operate properties of all sorts: the aforementioned offices, sure, but also apartment buildings, malls, self-storage units, warehouses, even driving ranges. And they were built with income in mind. These companies must pay out 90% of their taxable income as dividends to shareholders – a quid pro quo for being exempt from federal taxes.

• iShares Cohen & Steers REIT ETF (ICF, $115.17) tracks an index built by Cohen & Steers, which calls itself the world’s first investment manager dedicated to real estate securities.” The result is a portfolio of 30 larger-sized REITs that “are dominant in their respective property sectors.” American Tower (AMT, 8.7%), for instance, is a top provider of telecommunications infrastructure, which it leases out to the likes of Verizon (VZ) and AT&T (T). Prologis (PLD, 8.2%) owns 786 million square feet of logistics-focused real estate (such as warehouses) and counts Amazon.com (AMZN), FedEx (FDX) and the U.S. Postal Service among its customers.

REITs – much like utilities – also feature another mutual benefit: Their businesses tend to be mostly concentrated within America’s borders, which insulates them somewhat (though not entirely) from trade friction.

One final note about ICF: Its yield of 2.5% is smaller than many other REIT ETFs. However, its capital gains are typically so consistently strong that even once its inferior dividend is included, it outperforms most rivals.

Learn more about ICF at the iShares provider site.

• Type: Low volatility
• Market value: $30.7 billion
• Dividend yield: 1.8%
• Expenses: 0.15%

Low-volatility ETFs are considered among the best ETFs for environments like the current one because they’re designed to keep you exposed to stock-market upside while reducing risk. Just know what to expect: They typically underperform during bull moves and outperform during downturns.

The iShares Edge MSCI Min Vol USA ETF (USMV, $62.59) is the largest low-vol ETF on the market, and one of two volatility-suppressing options in the Kiplinger ETF 20 list of high-quality, low-cost funds. USMV targets stocks with “lower volatility characteristics relative to the broader U.S. equity market.”

Here’s how the sausage is made: USMV looks at the top 85% (by market cap) of U.S. stocks that have lower volatility compared to the rest of the market. It then uses a multi-factor risk model to weight the stocks. The portfolio is refined further by an “optimization tool” that looks at the projected riskiness of securities within the index.

This portfolio can fluctuate a lot over time. For instance, in late 2018, USMV was nearly 20% invested in tech stocks and 15.4% invested in health care. Today, IT is 16.6% and health care 10.9%. Also, don’t mistake “minimum volatility” for “lack of growth.” The ETF’s top holdings include Visa (V) and McDonald’s (MCD), both of which have sprinted past the broader market and hit all-time highs within recent weeks.

Learn more about USMV at the iShares provider site.

• Type: Low volatility
• Market value: $702.3 million
• Dividend yield: 3.5%
• Expenses: 0.27%

The Legg Mason Low Volatility High Dividend ETF (LVHD, $32.10) provides an ideal mixture of the low-volatility factor and high dividend yield.

Essentially, it’s a 1-2 punch of portfolio protection.

Low volatility swings both ways. Sometimes, being more volatile than the market can mean you’re generating more upside, so reducing volatility can limit gains. But if you can reduce volatility via stocks that deliver substantial income, you can make up some of the price difference.

LVHD accomplishes this by scanning a universe of 3,000 stocks that screens for companies that pay “relatively high sustainable dividend yields,” then scoring them based on price and earnings volatility. Every time the fund rebalances, a stock can account for a maximum of 2.5% of assets, and no sector can be larger than 25% (except REITs, which can’t exceed 15%). Just note that’s at rebalancing – as stocks rise and fall in between adjustments, those percentages can rise and fall, too.

Legg Mason’s ETF typically holds between 50 and 100 stocks. Right now, it has 79 holdings that are most concentrated in utilities (25.7%), followed by REITs (16.0%) and consumer staples (13.9%) – a blend that shouldn’t surprise you if you’ve been reading closely so far. Top 10 holdings include P&G, telecom REIT Crown Castle (CCI) and utility American Electric Power (AEP).

Learn more about LVHD at the Legg Mason provider site.

• Type: Low volatility
• Market value: $2.0 billion
• Yield: 2.7%
• Expense ratio: 0.25%

Small-cap stocks rarely are recommended as a way to hedge against an uncertain market. Sure, they have enormous growth potential, but they’re also high on risk – and when investors are scared, they tend to ditch risk.

The Invesco S&P SmallCap Low Volatility ETF (XSLV, $47.92) lets you have your cake and eat it too.

XSLV invests in the 120 least volatile stocks with the S&P SmallCap 600 Index. The portfolio is compiled not by market value, but by low volatility scores. It also reconstitutes more frequently than some other funds – quarterly, rather than semi-annually, so it’s better able to weed out companies that might have succumbed to a higher level of volatility.

Per Kiplinger’s Nellie Huang, who recently analyzed the fund as part of its inclusion in the Kip ETF 20: “Invesco S&P SmallCap Low Volatility is designed to smooth out the ride. So far, so good: Since this ETF launched in early 2013, it has outpaced two small-company stock benchmarks – the Russell 2000 and the S&P SmallCap 600 – on an annualized basis, with less volatility.”

XSLV is lopsided from a sector standpoint, however, with a whopping 44% of its portfolio invested in financials and almost another quarter of the fund in real estate. But these concentrations, especially in REITs – including top holdings Apollo Commercial Real Estate Finance (ARI) and Redwood Trust (RWT) – results in a yield of 2.7% that’s significantly fatter than the 1.6% generated by the Russell 2000 small-cap index.

Small-cap stocks also can provide some insulation from international troubles, given that often, most if not all their revenues are generated domestically.

Learn more about XSLV at the Invesco provider site.

• Type: Commodity (Gold)
• Market value: $566.0 million
• Dividend yield: N/A
• Expenses: 0.1749%

Gold is a popular flight-to-safety play that can get a lift from several sources. Part of it is just a worst-case-scenario fear: If global economic structures come crashing down and paper money means nothing, humans still will assign some worth to the shiny yellow element that once was a currency, regardless of its limited practical use compared to other metals.

Of course, at that point, you’re probably not thinking about your IRA.

But gold also is an uncorrelated asset that doesn’t move perfectly with or against the stock market. It’s often considered a hedge against inflation. It tends to go up when central banks unleash easy-money policies. Because gold itself is priced in dollars, weakness in the U.S. dollar can make it worth more. So sometimes, it pays to make shorter-term bets on the metal.

If you don’t want to go through the hassle and cost of having gold bars or coins delivered, finding somewhere to store them, insuring them, then having to find a buyer and a way to unload them when you want to exit your “position,” consider one of the many ETFs that trade based on the worth of actual gold stored in vaults.

Each GraniteShares Gold Trust (BAR, $128.83) unit represents 1/100th of an ounce of gold. And with a 0.1749% expense ratio, it’s the second-cheapest ETF that’s backed by physical gold. First is Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL), which in late 2018 undercut GraniteShares at a flat 0.17% – yet another salvo in what has been an aggressive fee war in the space.

But BAR has other incentives, including a low spread that’s attractive to traders, and an investment team that’s easier to access than those at larger providers.

Learn more about BAR at the GraniteShares provider site.

• Type: Gold stocks
• Market value: $11.3 billion
• Dividend yield: 0.4%
• Expenses: 0.52%

Gold mining stocks are a mix of commodity and equity – they’re publicly traded companies that have revenues and earnings, but their fates are largely dictated by the motion of the yellow metal.

You see, gold miners have a calculated cost of extracting every ounce of gold out of the earth. Every dollar above that is profit in their pockets. Thus, the same pressures that push gold higher and pull it lower will have a similar effect on gold mining stocks.

The VanEck Vectors Gold Miners ETF (GDX, $27.77) is among the best ETFs for this purpose. It’s the largest gold mining ETF, at more than $11 billion in assets, and it’s pretty straightforward. The fund holds more than 40 stocks that engage in the actual extraction and selling of gold. (VanEck has a sister fund, GDXJ, that invests in the “junior” gold miners that hunt for new deposits.)

But why gold miners instead of gold itself?

Gold stocks sometimes act in a more exaggerated manager – that is, when gold goes up, gold miners tend to gain by even more. For example, gold itself has had a phenomenal 2019, with the aforementioned BAR returning 12.3% year-to-date. The GDX, however, is up almost 32%, surging when gold climbs and slumping on even slight weakness in the metal.

Learn more about GDX at the VanEck provider site.

• Type: Bond
• Market value: $16.8 billion
• SEC yield: 1.8%*
• Expenses: 0.15%

The iShares 1-3 Year Treasury Bond ETF (SHY, $84.68) is, to be blunt, boring. It’s a basic index fund that currently invests in a basket of more than 80 U.S. Treasury bonds with an average effective maturity (the amount of time until a bond’s principal is paid in full) of just less than two years.

These bonds are a safe bet, given that two of the three major credit providers give American debt the highest possible rating. The short maturity helps, too, because it tamps down on the risk of interest rates rising quickly, thus making SHY’s current holdings less attractive.

Safe bets typically don’t pay much, of course, but these aren’t typical times. SHY’s current yield of just under 1.8% is only a few basis points (one one-hundredth of a percent) less than the riskier iShares 7-10 Year Treasury Bond ETF (IEF), whose weighted average maturity is more than four times longer.

SHY rarely moves much. Over the past five years, the fund has traded in a range of about 3% from its highs to its lows. So in good times, the S&P 500 usually crushes short-term bonds. But the prospect of getting a 1.8% yield without worrying much about hemorrhaging capital losses sounds pretty good versus staying fully invested in equities during a correction or bear market.

Learn more about SHY at the iShares provider site.

* SEC yield reflects the interest earned for the most recent 30-day period after deducting fund expenses. SEC yield is a standard measure for bond funds.

• Type: Low-volatility bond
• Market value: $62.3 million
• SEC yield: 4.1%**
• Expenses: 0.40%

The IQ S&P High Yield Low Volatility Bond ETF (HYLV, $23.66) blends a few of the themes we’ve discussed here. You’re avoiding exposure to the stock market via bonds, you’re leaning on high income to lift returns and you’re seeking out low volatility to minimize losses.

The HYLV tries to find a middle ground where you can enjoy the high yield of below-investment-grade (“junk”) bonds while trying to mitigate their relatively high risk. The underlying index selects bonds using a calculation that factors in the bond’s duration (a measure of its sensitivity to interest rates), the bond’s spread (the difference between its yield and a similar-maturity U.S. Treasury bond’s yield) and the spread of the broader universe of bonds that the fund is selecting from.

The result shouldn’t surprise anyone: Eighty-three percent of HYLV’s debt portfolio is in the highest-quality junk tier (BB), with about 26% total in the absolute highest non-investment-worthy grade, BB+. The rest is in B-rated debt, as of the ETF’s most recent fact sheet – none is in CCC or lower.

You’re bringing in less income (4.1%) than what you’ll get from junk mainstays such as the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG), both of which yield more than 5%. But HYLV’s movements tend to be less drastic, giving you more peace of mind.

Learn more about HYLV at the New York Life provider site.

** SEC yield data for HYLV is as of June 30. Morningstar data for SEC yield was not available at time of writing.

• Type: Inverse stock
• Market value: $1.9 billion
• Dividend yield: N/A
• Expenses: 0.89%

While all the following ETFs are certainly among the best ETFs to own if you’re looking for protection, none are inherently as crash-proof as the ProShares Short S&P500 ETF (SH, $26.71).

In fact, the best-case scenario for SH is a market crash.

The ProShares Short S&P500 ETF is a complex machine of swaps and other derivatives (financial instruments that reflect the value of underlying assets). But what it provides investors is simple: the inverse daily return (minus fees) of the S&P 500 Index. In short, if the S&P 500 loses 1%, the SH should gain 1%. Reality bears this out: Look at any chart of the ProShares Short S&P500 ETF, and you’ll see a virtual mirror image of the S&P 500.

SH is best used as a simple market hedge. If you’re scared of a market correction or worse, you could abandon all your stocks – but you’d rack up a ton of trading fees, not to mention potentially lose out on high yields-on-cost of established dividend positions. Or, you could stay mostly long but allocate a small percent of your portfolio to SH. That way, if the rest of your stocks go down, chances are SH is at least countering some of those losses, and you’re also not absorbing all those trading fees.

The risk is easy to see: If the market goes up, SH will muffle some of your gains.

Be warned: More aggressive “leveraged” inverse ETFs provide double or even triple this kind of exposure, be it on the S&P 500 or even sectors and industries. But you also risk double or triple the losses – far too much risk for your typical buy-and-hold, retirement-minded investor. A small hedging position in SH, however, is manageable and won’t crack your portfolio if the bulls do in fact win out.

Learn more about SH at the ProShares provider site.

Market watchers broke into a collective sweat recently when the yield on 10-year Treasuries sank below the 3-month T-bill yield. When yields on short-term debt exceed those on longer-term bonds, the yield curve—a representation of interest rates on bonds of varying maturities—is said to be inverted. A little perspiration is understandable: An inverted yield curve has preceded each of the past seven recessions, dating back to the mid 1960s.

An inversion is considered a recession indicator because although short-term rates are driven by current Federal Reserve policy, longer-term rates reflect bond investors’ expectations for inflation and future economic growth. When investors believe that the economy will weaken, they tend to pile into the safe haven of longer-term Treasuries, locking in higher rates while they can. In doing so, they bid up the price of long-maturity bonds, driving down yields (bond prices and yields move in opposite directions). A yield curve inversion is an extreme, and rare, no-confidence vote.

As with any economic bellwether, the yield curve isn’t foolproof. Although all recessions since the ’60s have followed inversions, not all inversions have led to recessions. And there is little predictability as to when a recession will hit or how long it will last. Since 1968, the time between the inversion and eventual recession has ranged from five to 16 months.

Moreover, March’s in­version wasn’t severe (a difference of only a few hundredths of a percentage point) or long-lasting (it has since flipped back). Should the long end dip more than 0.5 percentage point below the short end, it would be cause for greater concern, says LPL senior market strategist Ryan Detrick.

Whether the recent inversion is a blip or a harbinger of recession remains to be seen. Regardless, investors should consider it a sign that things are closer to the end than the beginning of the economic cycle, says Sam Stovall, chief investment strategist at research firm CFRA. “By July, it will have been the longest economic expansion in history. Things don’t last forever, right?” he says.

Vanguard, with more than $5 trillion in global assets under management, is the world’s largest mutual fund provider – and for good reason.

Vanguard funds pioneered index investing and, since its founding in the 1970s by the late Jack Bogle, have emphasized low costs. Organized like a mutual insurance company, Vanguard’s funds are owned by fund shareholders and run “at-cost.” There’s no need to turn a profit to satisfy outside investors.

Any time I’m tasked with covering Vanguard funds, I’m a happy guy. Very few Vanguard funds haven’t done right by investors, but Vanguard is especially good for those in retirement. Retirees, after all, don’t want to take outsize risks in their investing, and Vanguard’s managers aren’t encouraged to take big gambles. Low costs remove a lot of the pressure on managers to take extra risk in the hopes of squeezing out a little more profit.

Here are my five best Vanguard funds for retirees. This list heavily emphasizes active management (but I do think highly of some Vanguard index funds). Several of my picks also are recommended by Dan Wiener, editor of the The Independent Adviser for Vanguard Investors newsletter.

Says Wiener: “Find a good manager at Vanguard, and you’ll find a fund that will outperform its benchmark and comparable Vanguard index funds.”

Data is as of April 17. Yields represent the trailing 12-month yield, which is a standard measure for equity funds.

• Market value: $772.7 billion
• Yield: 1.9%
• Expenses: 0.04%
• Vanguard Total Stock Market Index Admiral (VTSAX, $72.06) is the only index fund on this list, and that’s because it’s both one of the best indexed Vanguard funds and a great fit for retirees. It even boasts a long-term performance edge against Vanguard 500 Index Fund Admiral (VFIAX). Over the past decade, VTSAX’s annual average performance has topped the Standard & Poor’s 500-stock index tracker by 10 basis points (a basis point is one one-hundredth of a percent).

The S&P 500 and VFIAX invest in a roughly 90%-10% mix of large caps and mid-caps. Total Stock Market covers much more of the stock market, with its 3,600-plus holdings invested across large caps (76.2%), mid-caps (17.4%) and smaller companies (6.4%). That said, larger companies still command the largest weights in both fund, so their top holdings are virtually identical, including the likes of Microsoft (MSFT), Apple (AAPL) and Amazon.com (AMZN).

VTSAX has an affordable minimum initial investment of $3,000. The expense ratio is a mere 0.04% annually, or just $4 for every $10,000 invested. Very little portfolio turnover helps keep costs low, too – Total Stock Market trades a tiny 3% of its assets, on average, every year.

Note: This fund also is available as an exchange-traded fund under the symbol VTI.

• Market value: $35.6 billion
• Yield: 1.5%
• Expenses: 0.32%

Take two of the world’s best money managers, then cut expenses to the bone, and you have a first-class foreign stock fund in Vanguard International Growth Admiral (VWILX).

Baillie Gifford runs 60% of the fund; Schroders manages the rest. The fund has had a remarkable three-year run through April 17. It returned an annualized 15.2% over that stretch – an amazing 6.6 percentage points better per year than the MSCI All-Country World Ex U.S. Index. The credit for that streak goes largely to three decisions made by the two firms:

• Overweighting emerging markets, which outpaced developed foreign developed-market stocks
• Buying growth stocks despite their lofty valuations
• Putting more than 10% of assets into U.S. stocks such as Amazon.com (AMZN).

Putting more than 10% of assets into U.S. stocks such as Amazon.com. Top holdings include Tencent (TCEHY), Alibaba (BABA) and Baidu (BIDU) – tech stocks known as part of the “BAITs,” which are like the Chinese equivalent of America’s “FANGs.” In all, 48% of assets are currently in consumer cyclical and technology stocks.

Be careful. VWILX is a superb fund, but don’t expect the recent outperformance to continue. Indeed, I’d be shocked if the fund didn’t go through some periods of below-market performance given how aggressively it’s positioned. The fund is 30% more volatile than the MSCI index, thanks in part to its high-priced tech stocks.

Buy this fund in relatively small doses, perhaps pairing it with a value-oriented foreign fund, such as Oakmark International (OAKIX). When VWILX does fall, hold on tight.

Note: VWILX requires a $50,000 minimum initial investment. VWIGX is the symbol for the investor class of this fund, which charges 0.45% in annual expenses but requires a mere $3,000 minimum investment.

• Market value: $46.5 billion
• Yield: 1.2%
• Expenses: 0.38%

Health-care stocks led the S&P 500’s 11 sectors in 2018 but have stumbled of late. It is the only sector in the index that has delivered a loss so far in 2019.

Threats of tighter regulation of health care, particularly of prescription drug prices, have weighed heavily on the sector. But it’s difficult to see any big changes coming from Washington given the opposition to most regulation by Republicans.

That makes this an ideal time to invest in Vanguard Health Care Investor (VGHCX, $183.01), one of the best Vanguard funds under the “sector and specialty” category. Demand for better medical treatments continues to grow as more Americans enter old age. In fact, analysts forecast that health-care stocks will report the second-highest earnings growth among the S&P sectors for the first quarter.

VGHCX is a large-cap fund with a preference for pharmaceuticals (47% of assets) over biotechnology (16%). Its size prevents it from venturing much into small caps. But the fund has always been run with a conservative, large-cap tilt; top holdings include Big Pharma outfits such as AstraZeneca (AZN) and Bristol-Myers Squibb (BMY). About 25% of the fund is in foreign stocks.

Lead manager Jean Hynes graduated from Wellesley College in 1991 and shortly thereafter went to work at Wellington Management, which runs the fund for Vanguard. She rose through the ranks, becoming co-manager in 2008 and manager in 2012. And she’s extremely patient. Turnover averages about 10% to 15% annually, and many stocks have been in the fund for a decade or more.

Long-term returns have been solid. Over the past 15 years, the fund has returned an annualized 10.6% – an average of two percentage points per year ahead of the S&P 500.

• Market value: $59.2 billion
• SEC Yield: 2.9%*
• Expenses: 0.10%

The bond market is paying very little extra, if anything, to investors who stretch for yield – either by investing in long-duration bond funds or low-credit-quality bonds. And with bond yields so puny across the board, Vanguard’s low expense ratios are a huge plus.

• Vanguard Short-Term Investment-Grade Admiral (VFSUX, $10.57) pays a yield of 2.9% on a high-quality portfolio dominated by corporate bonds. However, the fund also has a 25% weighting in asset-backed securities and commercial mortgages, as well as about 10% in super-safe Treasuries.

The Vanguard fund is a low-risk option that pays a meaningful higher return than the 10-year Treasury bond, which yields a smidgen over 2.5%. Only 19% of the fund is invested in BBB-rated bonds, which, during an economic downturn, could fall sharply.

Don’t let turnover at the top of this fund steer you away. Longtime lead manager Greg Nassour left the fund in April. But Vanguard’s fixed-income resources are broad and deep with some 60 managers, analysts and traders. No single departure should make much difference. The fund is managed relatively tightly around an internal Vanguard benchmark.

In a high-quality fund like this one, view the yield (2.9%) as the reward for owning the fund and the duration (2.5 years) as the risk. Duration tells you how much the fund will drop in price if interest rates rise by one percentage point. In recent years, it has been tough to find a fund where the yield is higher than the duration.

Note: VFSUX requires a hefty $50,000 minimum initial investment. VFSTX is the symbol for the investor class of this fund, and while it charges double the price for the same portfolio, it requires a mere $3,000 minimum investment. VCSH is the symbol for an exchange-traded index fund that invests almost exclusively in corporate bonds and has 46% of assets in BBBs, and charges just 0.07% in expenses. I’ve recommended VCSH previously, but VFSUX yields just seven one-hundredths of a percentage point less while offering substantially less risk. It’s worth it if you can afford the minimum investment.

* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.

• Market value: $27.4 billion
• SEC Yield: 1.8%
• Expenses: 0.09%

The municipal bond market is just about as stingy as the taxable bond market. There’s little to be gained by investing in longer-term munis or low-quality tax-exempt bonds. The makes Vanguard Limited-Term Tax-Exempt Admiral (VMLUX, $10.95) a good choice.

VMLUX holds more than 5,200 municipal bonds, yields 1.8% and has a duration of 2.4 years. The fund’s average credit quality is double AA. It holds only about 10% of assets in bonds rated below single-A.

Don’t look for much risk-taking here, and don’t expect fat returns. Bonds, after all, are primarily a defensive investment, designed to cushion your portfolio when stocks crater. Anything you earn in yield or price appreciation is icing on the cake.

Note: VMLUX requires a $50,000 minimum initial investment. VMLTX is the symbol for the investor class of this fund, which charges 0.17% in annual expenses but requires a mere $3,000 minimum investment.

Steve Goldberg is an investment adviser in the Washington, D.C., area.

Trade wars, government shutdowns, Brexit. About the only thing market watchers can predict with any certainty about 2019 is that we are in for more surprises, and that means high volatility in the new year. For the average investor, this is a terrifying state of affairs.

Making matters worse, speculations of a recession in 2019 has investors up at night. Many think that, after more than nine years, the bull market has been played out. The two 10% corrections seen in 2018 indicate this thinking is becoming more widespread. Some take the inversion of the yield curve during the first week of December as confirmation that a recession is coming.

An inverted yield curve occurs when investor uncertainty pushes the yields on long-term treasuries below short-term treasury yields. Though a yield curve inversion doesn't mean a recession is imminent, investors consider it a reliable leading indicator of trouble ahead.

Whether or not a recession materializes, investors must expect high volatility through 2019. Now is the time to rebalance your portfolio. The goal is to minimize exposure to the downturns while setting yourself up to profit when volatility works to your advantage.

Strategies for a volatile 2019

Investors have enjoyed fat profits in growth stocks over the past decade. These volatile investments outperform more stable stocks in bull markets, but they also go south very fast when trouble starts. Amazon (AMZN), for example, has relentlessly grown and became like a money machine for investors. When the market turned south last autumn, Amazon tanked. Investors who failed to take profits earlier in the year had a reason for regret.

The environment of 2019 will require a different outlook than when owning the FAANG stocks (which stands for Facebook, Amazon, Apple, Netflix and Google’s parent, Alphabet) was a sure way to beat the market. In this new environment, value stocks will be the ones that outpace the S&P 500. Low-volatility instruments are now primed to increase in value as investors rebalance their portfolios. Value stocks and low-volatility instruments may serve as a hedge for investors to consider if they expect more volatile investments to tank.

Seek professional advice

Financial advisers understand the products that are designed to perform well during volatile markets. A qualified investment adviser can help to provide access to products that are suitable for your specific risk tolerance.

Annuities and bull spreads are good examples, as they contain hedging components. In bad times, their smaller returns look a lot better than the crash of the highfliers.

It's not all doom and gloom

It's easy to lose perspective when high volatility continually shocks the markets. Though the S&P 500 has enjoyed a 333% gain since the 2009 start of the bull market, its gain is still below the dot-com boom's 417% gain.

Jeff Saut, the chief investment strategist at Raymond James predicts another 10 years of bull market gains, though he fully expects a number of short-term pullbacks. "That's usually how bottoms are formed," he said in an interview on CNBC. He expects the market to bottom and then surge to new all-time highs during earnings season.

The bottom line

The year 2019 is unlikely to sail along smoothly. There is just too much uncertainty for a steady bull market. But, as Saut notes, there has been no fundamental change in the economy. As a result, the bull market can continue in 2019, though it is likely to be volatile.

Any opinions are those of Glen D. Smith and not necessarily those of RJFS or Raymond James. All opinions are as of this date and are subject to change without notice. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance may not be indicative of future results.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative ofthe U.S. stock market.

Raymond James Financial Services Inc., its affiliates, officers, directors or branch offices may in the normalcourse of business have a position in any securities mentioned in this report. This information is notintended as a solicitation or an offer to buy or sell any security referred to herein.

Keep in mind that individuals cannot invest directly in any index, and index performance does not includetransaction costs or other fees, which will affect actual investment performance. Individual investor's resultswill vary. Future investment performance cannot be guaranteed, investment yields will fluctuate withmarket conditions.

This is not a recommendation to purchase or sell the stocks of the companies mentioned.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Most state budgets are in better shape now than they were before the last recession, thanks to steady growth in employment and the resulting rise in tax revenue. Many states had been socking away cash in rainy-day funds, and about half of all states had enough on hand to tide them over in a typical downturn, such as the 2001 tech bust.

But this is no typical downturn: Indeed, a brutal recession is already upon us, and many states will struggle. The most vulnerable states have little savings, or they stand to see revenues fall steeply because they depend heavily on either income taxes or levies on energy production to fund their budgets.

These 10 states will have to either raise taxes or cut spending by more than 4% -- maybe much more. Is your state on the list? Take a look.

Reserve, revenue and budget data are from the National Association of State Budget Officers. Recession impact on state revenues calculated by Moody’s Analytics.

• Go to Louisiana’s Full State Tax Profile

The Bayou State depends heavily on oil and gas revenues. With oil prices well below $30 a barrel, it will be hit harder than most states as this recession in particular causes energy prices to fall due to lower demand.

The state’s reserves are only 4% of the state’s general fund, well short of the nearly 26% cushion that’s needed for this deep recession.

• Go to Illinois’ Full State Tax Profile

The Prairie State’s reserves are tiny at 1.6%. A severe pension funding shortfall, a high level of debt, and perennial political budget gridlock are three of the challenges Illinois faces in trying to build its reserves. The recession will add greatly to these burdens.

• Go to Oklahoma’s Full State Tax Profile

The Sooner State also depends heavily on oil and gas revenues, with mining accounting for nearly a quarter of the state's economy. Yet, because of the oil price bust, only 26 drilling rigs are still operating in the state, down from more than 100 less than a year ago. States with economies that are heavily dependent on commodities need to have hefty fiscal reserves to carry them through boom-bust cycles, but Oklahoma's are not enough.

• Go to New Jersey’s Full State Tax Profile

In the Garden State, reserves are only 3% of the state’s general fund, and there are obstacles to increasing them: Public pensions are severely underfunded, and New Jersey pays the 4th-highest debt service ($4 billion per year), after California, New York and Illinois. The recession will add greatly to these burdens.

• Go to Kentucky’s Full State Tax Profile

The Bluegrass State is vulnerable because its reserve balance is low -- just 3% of the state’s general fund. Kentucky’s state employees pension fund is only 16% funded, the lowest funding level of any large public pension in the country. The shortfalls were severe even before the recession.

At first glance, it might seem the Sunshine State is doing okay with 8% reserves. However, Florida’s economy is more vulnerable to the national recession than most. The state’s economy depends heavily on tourism, which is likely not coming back for a while, and on housing construction.

The Granite State is proud that it has no income tax or general state sales tax. But that makes it hard to build reserves because the state has to cobble together revenue from multiple sources.

Corporate income tax accounts for a third of the state’s revenue; a quarter comes from taxes on restaurant meals, room and car rentals and telecom services; and 10% from the tobacco tax. Tax revenue from these sources will be hit hard in this recession.

• Go to Kansas’s Full State Tax Profile
• The Sunflower State will feel the recession hit a little harder than other states because 16% of its economy is dependent on manufacturing -- particularly, aviation, one of the industries hardest-hit by the coronavirus. Kansas has five large aircraft manufacturers. Spirit Aero Systems, headquartered in Wichita, makes fuselages for Boeing's 737 Max, which had been put on hold even before the virus hit.

• Go to Pennsylvania’s Full State Tax Profile

Reserve balances are very modest at 1.5% of spending in the Keystone State, the lowest of any state. Public pensions are severely underfunded, which will make it tougher to allocate money to the state’s reserves. Making matters worse, Medicaid spending here is among the highest in the country, both on a per-person basis and as a percentage of total state government expenditures (36%). The recession will add greatly to these burdens.

• Arkansas has had a long history of not keeping fiscal reserves. The state began to build a reserve fund in 2016, but the fund is capped at around 3% of the budget. Once again, Arkansas will have to turn to other means to meet increased demands.

Generating safe, regular income and preserving capital are two primary objectives in retirement. The best retirement stocks to buy, then – whether you’re buying in 2019 or any other year – must be quality dividend payers that can help meet both of those goals in the long-term.

Unlike many fixed-income investments, numerous dividend stocks offer relatively high yields, grow their payouts each year and appreciate in price over time as their businesses generate more profits and become more valuable.

Not all dividends are safe, however. From General Electric (GE) and Owens & Minor (OMI) to L Brands (LB) and Buckeye Partners LP (BPL), several high-profile dividend-payers slashed their payouts in 2018, sending their stock prices tumbling. So the dividend stocks you depend on must be chosen with care.

These are the 19 best retirement stocks to buy for 2019. Research firm Simply Safe Dividends developed a Dividend Safety Score system that has helped investors avoid more than 98% of dividend cuts, including each of those companies listed above. The 19 stocks on this list have solid Dividend Safety Scores and generous yields near 4% or higher, making them appealing retirement stocks for income. Importantly, they also have strong potential to maintain and grow their dividends in all manner of economic and market environments.

Data is as of Dec. 16, 2018. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Companies are listed in alphabetical order.

• Market value: $10.4 billion
• Distribution yield: 5.0%*
• Distribution growth streak: 10 years
• Brookfield Infrastructure Partners LP (BIP, $37.50) is a master limited partnership (MLP) that owns a diverse array of long-life assets, including electrical transmission lines, toll roads, rail lines, midstream infrastructure and wireless towers. And these difficult-to-replicate assets collectively generate very predictable cash flow. In fact, 95% of the firm’s adjusted EBITDA is generated by regulated or long-term contracts.

As a result, Brookfield Infrastructure Partners has been able to predictably increase its distribution every year since going public in 2008. Going forward, management continues targeting a conservative payout of 60% to 70% of funds from operations and expects to generate 5% to 9% annual distribution growth.

This MLP sports an investment-grade credit rating, more than $2 billion in liquidity and numerous opportunities for growth as countries around the globe continue building, expanding and upgrading their infrastructure. All this should keep the partnership’s payout on solid ground.

It’s also worth noting the partnership structures its activities to avoid generating unrelated business taxable income. Therefore, unlike most limited partnerships that can have more complicated taxes, Brookfield’s units (shares of ownership in an MLP) are suitable for owning in retirement accounts.

As a Canadian company, Brookfield Infrastructure Partners will withhold 15% of its distribution to U.S. investors. But due to a tax treaty with Canada, U.S. investors can deduct this amount dollar-for-dollar as part of the foreign withholding tax credit.

* Distribution yields are calculated by annualizing the most recent distribution and dividing by the share price. Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time.

• Market value: $47.5 billion
• Dividend yield: 3.9%
• Dividend growth streak: 4 years
• Crown Castle International (CCI, $114.55), which has more than 40,000 telecom towers and over 65,000 miles of fiber supporting its small cell network, is the largest provider of wireless infrastructure in America. It also is a holding in Bill Gates’ dividend portfolio.

The real estate investment trust (REIT) makes money by leasing out its towers and small cell nodes to wireless service providers such as AT&T (T) and Sprint (S). These carriers then deploy their equipment on the towers to power their wireless services used by consumers and businesses.

Crown Castle’s business model is appealing to conservative investors in part because it is so predictable. Most of the firm’s revenue is recurring and under long-term contracts with embedded growth from escalators.

Cisco Systems (CSCO) expects mobile data usage to more than quadruple between 2016 and 2021, so carrier network investment seems very likely to continue growing as well. As this plays out, Crown Castle’s towers and small cell networks should enjoy ever-higher utilization rates, supporting the firm’s outlook for profitable growth.

Besides its low-risk business model, CCI is one of the best retirement stocks due to its conservative management. The company maintains an investment-grade balance sheet and has an adjusted funds from operations (FFO, an important measure of REIT profitability) payout ratio just below 80%, which is very healthy.

Crown Castle has grown its dividend each since converting to a REIT in 2014, and management expects 7% to 8% annual dividend growth to continue over the long-term. For retired investors seeking a blend of income and growth, Crown Castle is a stock to consider.

• Market value: $64.7 billion
• Dividend yield: 4.1%
• Dividend growth streak: 14 years

Thanks to their predictable earnings, generous dividend payments, and defensive business models, regulated utilities are a cornerstone of many retirement portfolios. They also account for many of the best recession-proof stocks highlighted by Simply Safe Dividends.

• Duke Energy (DUK, $90.75) is no exception. The regulated utility serves 7.6 million electric customers and 1.6 million gas customers spread across the American Midwest and Southeast. Importantly, the areas Duke Energy operates in are favorable from both regulatory and economic standpoints.

“Duke’s regulatory environment stands out among its peers and is supported by better-than-average economic fundamentals in its key regions,” writes Morningstar senior equity analyst Andrew Bischof, CFA, CPA. “These factors contribute to the premium returns Duke has earned and have led to a constructive working relationship with its regulators, the most critical component of a regulated utility’s moat.”

Thanks to these qualities, Duke Energy can profitably grow its operations with little risk. Management is in the middle of executing a $37 billion growth capital plan between 2018 and 2022 that is expected to generate 4% to 6% annual earnings expansion.

If successful, Duke Energy’s dividend should grow at a similar rate and should remain on solid ground thanks to an expected 70% to 75% payout ratio and solid investment-grade credit rating. The utility has paid dividends for 92 consecutive years, and that track record shows no signs of stopping anytime soon.

• Market value: $49.1 billion
• Distribution yield: 6.6%
• Distribution growth streak: 20 years

MLPs have had a rough couple of years. A handful of factors – including crashing oil prices, regulatory pressure and tax headwinds – have not only pressured unit prices, but also forced distribution cuts and major restructurings.

• Enterprise Products Partners LP (EPD, $22.51) has not only held its ground during this tumultuous time, but the firm has also continued its 20-year distribution growth streak.

Enterprise is one of the largest midstream energy companies with around 50,000 miles of pipelines and has long been conservatively managed. For example, the firm eliminated its incentive distribution rights in 2002, has one of the highest credit ratings (BBB+) in the midstream energy sector and has maintained an excellent distribution coverage ratio of 1.6x through the first nine months of 2018.

Importantly, Enterprise Products Partners also is transitioning to a traditional, more conservative financial model. Rather than depend on fickle investor sentiment by issuing new units to raise growth capital, the firm plans to self-fund the equity portion of its capital investments beginning in 2019. This will be made possible by retaining more cash flow and running the business with lower target leverage.

Overall, Enterprise Products Partners appears to be evolving into an even more conservative business. For income investors who are willing to accept some of the complexities that come with investing in MLPs, EPD is one of the more reliable bets.

• Market value: $320.0 billion
• Dividend yield: 4.3%
• Dividend growth streak: 36 years
• Exxon Mobil (XOM, $75.58) is among the most popular among investors living off dividends in retirement, and for good reason.

Exxon is a fully integrated energy major, which means it operates globally along the entire hydrocarbon value chain. Argus analyst Bill Selesky writes that as a result, the giant energy producer, refiner and chemical business benefits from its diverse asset base and continues offering a sustainable dividend, despite the volatile oil price environment.

Allen Good, CFA, an analyst at Morningstar, similarly believes that Exxon is the highest-quality integrated firm, as evidenced by its superior returns made possible from the integration of low-cost assets and its low cost of capital (AA+ credit rating from S&P).

Simply put, XOM is among the most resilient and conservative businesses in the energy sector, which has helped it pay dividends for more than a century while increasing its payout for 36 consecutive years.

While many integrated oil firms are pulling back on growth in today’s volatile energy environment, Exxon’s management plans to invest approximately $200 billion between 2018 and 2025 to potentially more than double its operating cash flow. Even if oil prices average $40 per barrel, cash flow still is expected to rise 50% from these investments.

Management’s plans to ramp up capital expenditures are ambitious, but Exxon deserves the benefit of the doubt due to its excellent capital allocation track record and financial conservatism. The company’s dividend should remain safe, and its growth potential could improve if everything goes well.

• Market value: $4.0 billion
• Dividend yield: 3.8%
• Dividend growth streak: 16 years
• Flowers Foods (FLO, $19.04), which was founded in 1919, is a dominant player in the baked goods industry, with products spanning fresh breads, buns, snack cakes and rolls. Some of the company’s core brands include Nature’s Own (No. 1 load bread brand), Wonder Bread (98% consumer awareness), and Dave’s Killer Bread (No. 1 organic bread).

The fresh bakery market is very large and mature. As people continue eating in all manner of economic environments, it is also a recession-resistant industry. In fact, Flowers sales dipped just 2.6% during the financial crisis, and its stock lost just 1% while the Standard & Poor’s 500-stock lost 57% between 2007 and 2009.

FLO also continued raising its dividend during this time – something it has done for 16 consecutive years. While Flowers will never be a fast-growing business, it should remain a reliable cash cow for years to come. With an investment-grade credit rating and a payout ratio below 80%, management is running the business in a manner that should ensure safe dividends as well.

• Market value: $5.6 billion
• Dividend yield: 4.5%
• Dividend growth streak: 5 years
• Healthcare Trust of America (HTA, $27.30) is one of the younger real estate investment trusts in the market. It has only been in business since 2006, and it went public just a few years ago, in 2012. However, HTA still is the largest dedicated owner and operator of medical office buildings in the country.

Roughly two-thirds of the firm’s properties are located on or adjacent to the campuses of major health-care systems. As a result of this convenience and the high volume of patients coming through these areas, Healthcare Trust’s portfolio enjoys strong demand from medical practices.

Once a physician group is established in a particular territory with a steady flow of clients, they are reluctant to relocate. For this reason, medical office buildings have a high tenant retention rate in excess of 80% on average. Physician rent coverage ratios are also strong, exceeding 8x on average and reducing the risk profile of Healthcare Trust of America’s rental income stream.

Besides focusing on the more attractive and predictable areas of healthcare, management has done a nice job diversifying the business. Specifically, no market accounts for more than 13% of the company’s square footage, and no tenant accounts for more than 5% of leased assets.

Besides being defensive in nature, the company’s cash flow should also continue growing in the coming years. U.S. healthcare expenditures are forecast to rise 5.5% due largely to an aging population, fueling higher demand for medical office buildings.

HTA boasts an investment-grade balance sheet and a reasonable adjusted FFO payout ratio just below 90%. Thus, Healthcare Trust’s dividend should remain stable for the foreseeable future.

• Market value: $40.7 billion
• Dividend yield: 3.4%
• Dividend growth streak: 46 years
• Kimberly-Clark (KMB, $117.42) manufactures a variety of tissue and hygiene products under well-known brands such as Huggies, Kleenex, Kotex and Scott. A key to the company’s long-term success – which includes 46 consecutive years of dividend increases – is its longevity.

With roots tracing back to 1872, Kimberly-Clark has had more than 140 years to build distribution relationships, develop innovative products and pour money into marketing its products.

While these markets are extremely competitive, Morningstar sector director Erin Lash, CFA, believes that Kimberly-Clark derives a “narrow moat from its entrenched relationships with retailers and the resources it maintains to invest behind its brand mix in terms of both product innovation and marketing.”

Lash also says Kimberly-Clark spends a whopping $1 billion annually, or 5% of sales, on these categories.

Cutting costs is another core competency in this mature sector. Management seeks to take out at least $1.5 billion in supply-chain costs between 2018 and 2021, helping the company keep its bottom line growing. Combined with the fact that approximately 20% of the firm’s revenue comes from developing and emerging markets, Kimberly-Clark should have no trouble continuing its impressive dividend growth streak.

• Market value: $4.7 billion
• Dividend yield: 4.2%
• Dividend growth streak: 47 years

Despite being a lesser-known business, Leggett & Platt (LEG, $36.16) has delivered higher dividends for a remarkable 47 consecutive years.

The company’s success is spread across a number of engineered components such as mattress springs, armrests, steel wire and seat frames. These products are used in many different end markets, including bedding, flooring, furniture, automotive and consumer products. However, no business accounts for more than 20% of total sales – that’s strong diversity in the revenue stream.

Leggett & Platt has developed a reputation for quality over the 100-plus years it has been in business, helping it attain many long-term customer relationships along the way. By focusing on various niche markets where the pace of change is slow and it can lead on cost and innovation, the firm has developed a number of nice cash cows.

Looking ahead, management seeks to grow revenue by 6% to 9% annually and targets a dividend payout ratio between 50% and 60% of earnings, providing a reasonable margin of safety. While this can be a more cyclical business, Leggett & Platt’s dividend should remain a solid bet for retirement portfolios.

• Market value: $13.2 billion
• Distribution yield: 6.7%
• Distribution growth streak: 16 years
• Magellan Midstream Partners LP (MMP, $58.03) is another MLP that transports, stores and distributes petroleum products. The partnership’s profits are spread across refined products (54% of operating margin through the first nine months of 2018), crude oil (38%) and marine storage (8%).

Magellan essentially connects refineries to various end markets via the longest refined petroleum products pipeline system in the U.S., which includes 9,700 miles of pipelines, 53 terminals and numerous storage facilities.

Importantly, approximately 85% of the firm’s operating margin is comprised of fee-based, low-risk activities that are insensitive to commodity price fluctuations. As a result of its stable cash flow, the partnership has managed to pay higher distributions for 16 consecutive years.

Magellan’s impressive track record has also been made possible by its conservative management team. The partnership enjoys a BBB+ credit rating, making it one of the highest-rated MLPs, and it has minimal dependence on equity markets to grow. In fact, Magellan has only issued equity once in the past decade.

Magellan’s distribution safety also is supported by the firm’s desire to maintain a conservative 1.2x coverage ratio. As U.S. energy production continues growing and more infrastructure is needed, Magellan seems well-positioned to meet management’s target of growing the distribution by 5% to 8% per year for 2019 and 2020.

• Market value: $3.3 billion
• Dividend yield: 5.0%
• Dividend growth streak: 9 years
• National Health Investors (NHI, $79.31) is a healthcare REIT in which senior housing accounts for about two thirds of revenue, with skilled nursing and medical office buildings accounting for the remainder. In total, the firm owns 230 properties that are run by 34 operating partners located across 33 states.

In theory, senior housing is an attractive industry. Healthcare spending is growing faster than the broader economy as America’s population continues aging, and people need a place to live. However, tenants tend to have lower coverage ratios, and skilled nursing service providers often derive a meaningful amount of their revenue from government-funded reimbursement programs such as Medicare.

Fortunately, National Health Investors is managed very conservatively. The firm’s focus on working with higher-quality tenants has helped the business grow its cash flow faster than peers, for example.

Additionally, National Health Investors maintains a conservative balance sheet with relatively low leverage, and management runs the business with a reasonable payout ratio below 80%.

While National Health’s four largest tenants do account for an uncomfortably high 61% of revenue, the REIT has taken a number of steps to mitigate this risk. As a result, NHI seems likely to continue rewarding investors with steadily rising dividends in the years ahead.

• Market value: $8.1 billion
• Dividend yield: 4.0%
• Dividend growth streak: 29 years
• National Retail Properties (NNN, $50.65), founded in 1984, owns more than 2,800 properties leased to more than 400 tenants operating in 37 industries. As a triple-net-lease REIT, its tenants sign long-term contracts (average remaining lease term of 11.4 years) and are on the hook for property maintenance, insurance and taxes, reducing National Retail’s risk.

Risk is further reduced by management’s focus on diversification. The firm’s largest industry exposure is convenience stores, which account for 18.5% of rent, followed by full service restaurants (11.8%), limited-service restaurants (7.8%) and automotive service stores (7.6%).

Unlike certain parts of brick-and-mortar retail that are under pressure, National Retail’s business remains very strong. Its occupancy rate stands at 98.7%, and as CFRA equity analyst Chris Kuiper wrote, the firm’s portfolio appears resistant to e-commerce:

“We think NNN is more insulated from retailer woes compared to peers as most of NNN’s tenants are either restaurants or retailers focused on necessity-based shopping such as convenience stores, auto parts/service centers and banks.”

National Retail has increased its dividend 29 consecutive years and should have no trouble continuing its streak for the foreseeable future. Besides the company’s solid business model, National Retail also boasts an investment-grade credit rating and maintains a conservative payout ratio near 70%.

• Market value: $49.2 billion
• Dividend yield: 4.8%
• Dividend growth streak: 16 years
• Occidental Petroleum (OXY, $65.10) also known as Oxy, is an integrated energy giant with operations spread across oil and gas exploration and production, chemical manufacturing and midstream services.

While the energy sector is not known for its stable dividends, Oxy has paid uninterrupted dividends for more than a quarter of a century, including 16 consecutive years of dividend growth.

Following the oil price crash in recent years, Oxy has doubled down on its efforts to take costs out of its business and shed non-core assets to remain in good financial health. For example, Morningstar senior equity analyst Dave Meats, CFA, writes that management now believes the firm can sustain cash flow-neutral production growth of 5% to 8% per year with West Texas Intermediate crude averaging just $50/barrel (while continuing to increase the dividend).”

Even at $40-per-barrel oil prices, management believes the company can pay the dividend and maintain production. With a low breakeven cost, growing production, an “A” credit rating and a balanced cash flow stream thanks to its integrated operations, Oxy is well-positioned to continue paying (and growing) its dividend.

Conservative investors just need to be aware that the stock’s price is sensitive to the price of oil, so a stronger stomach is required to hold Oxy for the long-term.

• Market value: $24.8 billion
• Dividend yield: 5.7%
• Dividend growth streak: 16 years
• Oneok (OKE, $60.19) owns roughly 38,000 miles of natural gas liquids and natural gas pipelines, providing midstream services to energy producers, processors and end users. The company reaches some of the largest and most important shale formation in the country, including the Permian basin and Bakken shale of North Dakota.

Essentially, Oneok helps connect American energy supply with worldwide demand. As low-cost domestic energy production rises across the basins where it operates, Oneok’s infrastructure becomes even more important, and the company should be able to continue adding to its $6 billion backlog of organic growth projects.

Despite its ties to the energy industry, commodity prices only directly affect 15% of the firm’s earnings, which is down from more than 30% in 2013. Approximately 85% of Oneok’s profits are tied to fixed rate long-term contracts, providing very predictable cash flows.

Combined with the firm’s investment-grade balance sheet and distributable cash flow payout ratio near 75%, Oneok’s dividend is on firm ground and even has the potential to expand as the company executes on its growth projects.

In fact, management targets 9% to 11% annual dividend growth through 2021 and expects to maintain annual dividend overage of at least 1.2 times. Even better, since Oneok is a corporation rather than an MLP, investors can own the stock without worrying about tax complexities or unique organizational risks.

• Market value: $35.5 billion
• Dividend yield: 3.9%
• Dividend growth streak: 0 years

Although Public Storage’s (PSA, $203.47) dividend has remained frozen since late 2016, the self-storage REIT still boasts a track record of paying dividends without interruption for more than a quarter-century.

With more than 2,400 self-storage facilities in the U.S., Public Storage is bigger than its next three largest competitors combined. Such scale allows the company to maximize operational efficiency and squeeze more out of its marketing budget since most of its locations are concentrated in dense metropolitan centers.

The storage industry is an appealing area for retirement portfolios to invest because of its defensive nature. While there are arguably few enduring competitive advantages in this space since new supply can always be built, the overall economics are still attractive.,

For example, in the third quarter of 2018, Public Storage reported a 94% occupancy rate. Once the firm has a customer, it can begin raising the rent over time. As Morningstar financial services equity research director Michael Wong, CFA, CPA, points out, the “average customer receiving a rent increase letter for 8%-10% will rarely find it beneficial to research a new facility, rent a moving truck, and spend a day relocating to a different facility to save $10-$15 per month.”

Combined with the relatively low maintenance costs of storage facilities and the recession-resistant nature of demand, Public Storage is an enduring cash cow. The company’s “A” credit rating and reasonable payout ratio near 80% should ensure that its dividend remains safe in the years ahead, regardless of how industry supply and demand trend.

• Market value: $19.6 billion
• Dividend yield: 4.0%
• Dividend growth streak: 25 years
• Realty Income (O, $66.34) is one of the best monthly dividend stocks in the market, according to Simply Safe Dividends. Not only has the retail-focused REIT paid uninterrupted dividends for more than 49 years, but it also boasts a track record of 84 consecutive quarterly dividend increases.

As Morningstar equity analyst Kevin Brown observes, long-term leases and a focus on durable tenants have helped fuel Realty’s impressive track record:

“Over 90% of rental revenue is composed of tenants with non-discretionary, service-oriented, or low-price components to their businesses. This exposure, combined with traditionally long leases of approximately 15 years on average, provides the company with a steady and reliable stream of cash flows.”

In total, Realty owns more than 5,600 commercial properties that are leased to 260 tenants operating in 48 industries. No tenant is greater than 7% of rent; Walgreens Boots Alliance (WBA) is the largest at 6.4%.

This diversification, along with the REIT’s A- credit rating from S&P and adjusted FFO payout ratio near 80% all support the safety of its dividend going forward. While growth will never light up the world, Realty Income is one of the most reliable dividend-paying stocks for retired investors.

• Market value: $20.9 billion
• Dividend yield: 4.7%
• Dividend growth streak: 14 years
• Telus (TU, $34.84) is one of the largest telecom companies in Canada. In 2017, wireless operations accounted for 65% of total EBITDA, with wireline activities representing the remainder. In total, the company has 9.1 million wireless subscribers, 1.8 million internet subscribers, 1.3 million residential network access lines and 1.1 million TV customers.

Outside of cable TV, which is under pressure from cord-cutting, telecom services are generally inelastic. In fact, during the financial crisis, Telus’ revenue dipped just 1%, according to data from Simply Safe Dividends.

The mature state of the industry, along with its capital intensity, also makes it very difficult for new rivals to enter the market.

Matthew Dolgin, CFA, an equity analyst at Morningstar, writes that Telus is one of just three big national competitors in wireless. He believes “these three firms have solid moats that protect them from any current or future competition.” Combined, Telus, Rogers Communications (RCI) and BCE Inc. (BCE) are estimated to share 90% of the total market.

For these reasons, Telus seems likely to remain a solid cash generator and a reliable dividend payer. Management targets a conservative payout ratio between 65% and 75%, as well as an annual dividend growth rate between 7% and 10% through 2019.

Given the excellent cash flow and overall strong financial health, Telus seems likely to continue delivering for retired income investors.

• Market value: $235.9 billion
• Dividend yield: 4.2%
• Dividend growth streak: 12 years

While AT&T has acquired media and entertainment assets, Verizon (VZ, $57.08) has stuck to its core competency: wireless networks, which contribute nearly all of its profits today.

With more than 116 million connections and coverage of 98% of the U.S. population, Verizon is the largest wireless service provider in America. The firm has spent more than $125 billion since 2000 to meet growing demand for wireless data and prep its network for 5G.

Thanks to these investments, Verizon consistently scores at the top of RootMetrics’s report ranking wireless carriers in reliability, data and call performance for 10 straight reports in a row.

Given Verizon’s massive subscriber base, the slow-growing nature of the industry, and the costs required to maintain a nationwide network, it is next to impossible for smaller upstarts to try and entry the industry.

Verizon therefore generates very predictable earnings and moderate bottom-line growth, supported by management’s plans to take $10 billion of costs out of the business by 2021.

VZ has an investment-grade credit rating and earnings payout ratio near 50% – factors that are factors are very supportive of Verizon’s dividend safety.

• Market value: $11.4 billion
• Dividend yield: 5.8%
• Dividend growth streak: 19 years

In business for more than four decades, W.P. Carey (WPC, $70.58) owns a portfolio of more than 1,100 properties leased to more than 300 industrial, warehouse, office and retail tenants.

The diversified REIT’s cash flow is very stable thanks to its diversification (top 10 tenants represent 24% of rent), long-term leases (average length remaining of 10.5 years), focus on acquiring assets essential to a tenant’s operations (occupancy above 96% since 2007) and contractual rent increases (99% of leases have them).

These factors, along with its investment-grade credit ratings from Moody’s and S&P, have helped W.P. Carey raise its dividend every year since going public in 1998. With a payout ratio near 75% in 2018 and management continuing their disciplined approach to running and growing the business, WPC seems like a solid bet for retirement income going forward.

In fact, Simply Safe Dividends even lists the firm as one of the best high-yield stocks.

Brian Bollinger was long CCI, DUK, KMB, NNN, PSA, VZ, WPC and XOM as of this writing.

Let’s say you have some cash you want to invest for the long term. You know how important it is to get that money in the market so it can grow and earn compound returns — but when do you invest it?

The answer lies in this fact: It’s about time in the market, not market timing.

This is true even if you’re in your 40s or 50s right now and feel like you need to start carefully minding your investments for retirement. Keep in mind that if you’re 40-something right now, you likely have over 40 years’ worth of life to enjoy and fund — so the cash you could put in the market now certainly counts as “long term.”

A lot of people are afraid of accidentally buying in at the height of the market, though. They say, “We should hold off until the market dips — because it’s going to dip. It’s the longest bull market we’ve ever seen; it’s been going up for so long. People are even talking about recessions in 2019 … so we should just wait.”

This thought process could lead to huge, costly mistakes if it causes you to sit on the sidelines with your money and wait to invest.

The Market Will Go Down, But ...

The problem is not necessarily with your logic. Thinking, “The market keeps going up and up, and it’s going to crash eventually,” is a reasonable, intelligent, well-informed thing to consider. Because yes, the market will dip. It will go down, and at some point we likely will see a correction (if not a full-blown bear market).

The problem, or the mistake you could be making, is the fact that you keep your cash on the sidelines as you try to get the timing of that dip correct. That’s a huge opportunity cost. No one — not you, not me, not the financial media, not your co-worker with the next hot stock pick — is ever going to know when the next market correction will happen.

There’s no telling what the market is going to do tomorrow, and anyone who pretends they know is speculating (or guessing) at best… and lying at worst. Sure, we can know that it will happen at some point. But there’s no way for anyone to tell if that correction will happen tomorrow or in two years. And if that dip does take two years to get here, you miss out on two years of potential gains.

Even worse, two years from now, you’re still going to be saying the same thing: “Well, it’s going to go down at some point. So I’ll just wait.” But what if the dip is five years away? That’s not just hyperbolic. People were talking about the “fact” that the market was on the verge of a crash in 2016. It’s now 2018 and it hasn’t happened yet.

That’s the point. We know it will happen, but we have no clue when.

Investing Systematically for Time in the Market, Not Market Timing, Is the Way to Success

I understand: You might be afraid to make a mistake by putting your available cash into the market at a peak. And you’ve heard over and over again that you’re not supposed to buy high. “Be fearful when others are greedy,” right? Well, kind of.

It’s not that you should completely disregard what’s going on with stocks and other securities at what seems like a stock market high. The answer to “when do I invest my cash” is not, “Oh just throw your money in the market. It’ll be fine.”

But that doesn’t mean you shouldn’t systematically invest your money if your goal is long-term growth. Systematically investing means not trying to time when you invest your money. As should be clear at this point, timing the market is a pointless activity, since no one knows what the market is going to do tomorrow. There’s no way to tell if it will keep going up or if you’ll wake up in the morning to realize today is the day it’s all tanking.

If you want to systematically invest, that means you quite literally create a system first — then use it to invest strategically and rationally (rather than emotionally).

What Happens If You Always Invest at the Worst Times, When the Market Is Highest

Not convinced? Then we can look at the example of The World’s Worst Market Timer to show you how it’s more about time in the market than timing the market.

CFA and author Ben Carlson introduced us to Bob, a guy with such poor timing that from 1972 to 2007 he only invested in the market in the months before major market crashes:

• Bob invested $6,000 in 1972 right before the market fell almost 50% in 1973.
• He kept saving $4,000 per year as the market bounced back and finally felt confident enough to invest his $46,000 in savings in 1987, when stocks crashed again and lost 34%.
• Bob’s bad timing continued. This time he saved $6,000 per year and then invested the resulting $68,000 right at the end of 1999 just in time to see the market lose almost half its value again.
• Finally, he ramped up his savings to $8,000 per year. And, of course, he funneled $64,000 in cash into his investments in 2007 and saw the Great Recession deliver a 52% loss.

Bob is probably your worst nightmare come to life — at least, you might think that just by reading the description above. But the thing about Bob is that while his timing was absolutely atrocious, he never sold any of his positions from 1972 to 2007. He put all his cash in at the worst times, but once he was in the market he stayed put.

So, what happened to Bob’s wealth? Was it obliterated? Hardly. From 1972 to 2007, Bob invested a total $184,000. And what did he end up with in 2013? $1.1 million. Not bad for the World’s Worst Market Timer.

What you should take away from this example is the fact that even with the worst possible market timing, you can still come out in pretty good shape if you’re a long-term investor who doesn’t jump in and out of the market. It’s about time in the market not market timing!

There are so many decisions you need to make when trying to time the market, and you have an entire lifetime to invest. You can’t possibly time the market and get it right every single time because, again, no one has any idea what the market is going to do in the short term.

Don’t Wait to Invest

So, what’s the bottom line? Sitting on the sidelines can be more costly than investing at the worst possible time in the market — so you really have no excuse for sitting there with your cash saying, “I’m going to wait until the market dips.”

Especially when you consider what happens if you had just been “dollar cost averaging” this whole time. Dollar cost averaging is often the solution to “systematic” investing that you can use to stay on the right track. This is when you buy a fixed dollar amount of a specific investment on a regular schedule. You choose the dollar amount, the investment, and the schedule before you take any action — and those decisions should be based on your overall investment strategy.

Dollar cost averaging is essentially what most people do with their 401(k): They contribute a fixed amount into the fund on a regular basis (paydays). But you can use the process with other investment vehicles, like your IRAs or brokerage accounts.

Brian Preston and Bo Hanson, hosts of The Money Guy Show, took the example of Bob the World’s Worst Market Timer and looked at it from a new perspective. Brian first continued to look at Bob’s situation from 2013 to 2018 to show the full cycle to date, which illustrates even picking “the worst times to invest” leaves you in a pretty good position. (Spoiler alert: Bob is still a pretty wealthy guy, even with his terrible timing.)

But then Brian took the scenario that Ben Carlson created and asked: What if Bob dollar cost averaged the entire time, between 1972 and 2007? He wouldn’t have had $1.1 million. He would have had over $4 million in his portfolio in 2018.

This removes the decision fatigue that comes with trying to decide when you should invest to avoid the “worst” times to put cash in the market (at market highs). Dollar cost averaging also eliminates a lot of opportunity for human error — and especially the opportunity to let your cognitive biases get in the way of rational investment behavior.

This gives you that systematic process to use over time to ensure you’re regularly contributing money to your investments — and not stockpiling cash that you end up sitting on for years because you’re not sure of the “best” time to invest.

In most cases, the best time to invest for the long term is now — and to continue doing it, regularly and methodically, without letting current events or concerns over market timing spook you off your strategic course.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The Great Recession of 2007-09 turned retirement dreams into nightmares. Stocks plunged as the government took over Fannie Mae and Freddie Mac, Lehman Brothers went bankrupt, and the Reserve Primary Fund suffered losses, shattering investor confidence in safe-haven money-market funds. For many, it was the most hair-raising moment in a crisis that ultimately wiped out $3.4 trillion in retirement savings.

The pain didn’t stop with the market slide. The financial crisis also meant plummeting home values, stagnating wages, a loss of job security and the start of a long era of rock-bottom interest rates that proved devastating for savers.

Many retirees and near-retirees felt the effects of the financial crisis for many years to come. Fifty percent of working-age households were at risk of being unable to maintain their standard of living in retirement in 2016, up from 44% in 2007, according to the Center for Retirement Research at Boston College.

For the older workers and retirees who survived it, the crash is much more than a historical event. It’s a reminder of all their retirement-planning strengths and weaknesses. We talked to preretirees and retirees in 2018 about the lessons they learned from the Great Recession. Today, we're sharing them again to help you navigate current and future market turmoil.

The long-term impact on retirement portfolios depended in part on investors’ reactions to the crash. In 2018, when he talked with Kiplinger's Retirement Report, Jeffrey Smith was still living with the consequences of his portfolio moves a decade earlier. During the financial crisis, Smith’s IRA dropped 75%, as individual stock holdings, such as the troubled insurer American International Group, got crushed.

Even more devastating, Smith missed the market rebound that began in March 2009. He tried various trading strategies to recover his losses, but nothing worked. Then in 2012, he shifted into cash—where he stayed until 2017. “I lost confidence in my broker and lost confidence in myself,” Smith recalled to us. “So there was no recovery.”

That moved the goalposts for his retirement. “After the crash, it was apparent to me I could not retire at 60, which had been my goal,” said Smith, who also conceded he and his wife “are not going to be able to live in a big house and travel the world.”

Paul Franceus saw the financial crisis as the best thing that ever happened to him financially. But it didn’t start out well at all. In October 2007, he invested the $150,000 proceeds from the sale of his Baltimore home—right at the stock market’s peak. That money “went through the whole bloodbath,” Franceus told us. But he kept his cool. “I figured it would come back at some point,” he said. “I ignored the news and ignored the 60 Minutes stories of people crying about losing their retirement and kept putting money into my investments the whole time.”

• The steady-eddie approach allowed Franceus to pick up stocks at bargain prices near the market’s lows, putting the software engineer from San Francisco on track to retire early, and squelching his fear of market crashes. “I feel like I have enough now that I can afford the volatility,” he said.

Bill Ahlstrom, who retired from his accounting career in 2015, favored defensive, dividend-paying stocks such as food and pharmaceutical companies. Those types of holdings served him well during the financial crisis, when his portfolio lost only about 25%, while Standard & Poor’s 500-stock index dropped 57% from its 2007 peak to its 2009 low.

“You can’t wait until you retire to get defensive” with your investments, Ahlstrom told us. “You have to do it in advance.”

Ahlstrom has remained “a little nervous” about market crashes, but told us his investment income is sufficient to cover his living expenses. “As long as I can live off the dividends,” he said, “market fluctuations don’t affect me.”

G.W. Potter retired in 1995, with a strategy of keeping 18 to 24 months’ worth of spending money in the bank. That became a portfolio-saver during the market downturn, because he didn’t need to sell any of his beaten-down investments to cover his living expenses. Instead, he pulled money from his cash hoard to pay the bills.

“My mantra is simple,” Potter, a former chemistry teacher in Georgia, told us. “Avoid at all costs selling low.”

When Smith, the telecom worker who lost most of his IRA in the crash, finally reinvested -- in “very aggressive stocks,” he said -- he asked his wife to help keep watch over the portfolio. He gave her full access to the IRA account, he told us, with instructions to “sell it instantly” if she saw a stock she didn't like.

The economy is humming along nicely. 2018 is on track for the best GDP growth since 2015. The unemployment rate is at its lowest level since 2000. Both business and consumer confidence are strong. But how long can the good times continue?

A few years out, the danger will increase. Think 2020 or 2021. Looking that far ahead is always hard, of course. But there are sound reasons for thinking the next recession could rear its head sometime early in the next decade. Here’s how that could unfold:

1) Today’s tight job market threatens to hike inflation a few years down the line. With labor so scarce, pay is perking up — good for workers, of course, and also good for consumer spending. But big wage gains can spur higher prices of everything else.

2) Rising inflation will put the Federal Reserve in a bind. The Fed already plans to keep raising its interest rate — two more quarter-point hikes this year and three in 2019. But that’s assuming inflation behaves. As rising wages start to push prices higher, central bankers will be under increasing pressure to jack up interest rates faster. The Fed may find itself lifting interest rates at a bad time.

3) The benefits to the economy of last year’s tax overhaul and the two-year spending increase that Congress passed earlier this year will have largely run their course by 2020. In other words, there will be less oomph for the economy coming from Washington. The odds of passing new, economy-boosting legislation in an election year are low.

Tighter money and less spending by Uncle Sam are a recipe for recession. The Fed can reverse course and slash interest rates if it sees lending drying up and business suffering from weaker sales. But by that point, it may be too late.

Stocks would likely start sliding several months before the downturn — the historical pattern of market declines that go hand in hand with recessions.

The good news: The next recession should be fairly mild, not wrenching, like the Great Recession, with its toxic mix of financial crisis and housing crash. Fortunately, such economic wrecking balls come along only once in a great while.

A sea change has been quietly reshaping portfolios in recent years. Investors have been fleeing actively managed funds and flocking to index funds. In 2017 (through November), investors pulled $191 billion from actively managed U.S. stock funds and poured $198 billion into indexed U.S. stock funds, according to Morningstar, the investment research firm. Investors have, on net, withdrawn money from active U.S. stock funds and invested in U.S. stock index funds in every year since 2007. Those investors have likely been chasing strong relative performance among index funds. Not a single category of actively managed funds has managed to beat comparable index funds over the past 10 years through June 2017, according to Morningstar.

But the tide could be turning. Active management staged an impressive comeback in 2017. In the 12 months through June (the most recent period for which data is available), eight out of the 12 actively managed fund categories that Morningstar tracks beat peer index funds. That marked a massive turnaround, given that only one out of the 12 categories of active funds beat similar passive funds in 2016.

Stock pickers get their groove back. Stock correlations—the degree to which individual stocks tend to move together—have been plummeting since 2016. And although most sectors gained in 2017, there was an unusually wide gap in returns between the sectors that performed the best and those that fared worst. That makes for a fertile environment for stock pickers, who can more easily beat an index when fewer stocks and sectors move in lockstep with it.

Of course, a dyed-in-the-wool index investor might not fret about missing out on a slight performance advantage. That, after all, is the basic trade-off of indexing: You forgo any chance of beating the market in exchange for the promise of matching the market, minus fees.

But index investors might feel differently if they knew that they could be staring down larger losses than their active-fund counterparts during the next bear market. Fidelity found that active funds that invest in large U.S. companies beat their benchmarks by half a percentage point, on average, during a period roughly coinciding with the 2007–09 bear market. Some active funds trounced the indexes. For example, the bargain-seeking AMG Yacktman fund (symbol YACKX) beat Standard & Poor’s 500-stock index by nearly nine percentage points over the course of the bear market. “By definition, index funds guarantee that you will suffer 100% of the next bear market’s decline,” says Jim Stack, president of InvesTech Research.

Active funds may shine in down markets in part because managers can keep more cash on hand than do index funds. But it’s also likely, if difficult to prove, that managers’ judgment calls deserve credit. Typically, parts of the market turn frothy in the late stages of a bull run (think of the housing and financial sectors before the 2007–09 downturn, or internet stocks before the 2000–02 bust). Active managers might identify excesses and trim the troublesome sectors before stocks turn south.

By contrast, because most indexes weight components by market capitalization (stock price multiplied by shares outstanding), they impose no checks on ballooning, overvalued stocks and sectors, which account for an ever-increasing portion of the index as those assets keep rising. That leaves investors in funds that mirror the index exposed in a falling market, when those overvalued stocks and sectors usually lose the most. Investors worried about holding outsize stakes in pricey assets might note the 11% weighting of FAANG stocks (Facebook, Amazon, Apple, Netflix and Google parent Alphabet) in the S&P 500, or the overall 24% weighting of technology stocks in the index.

Not only might index funds lose more in a bear market, they may also drive investors to make worse decisions when stocks fall. Dalbar, a research and consulting company, tracks what it calls “investor returns.” Unlike traditional return measures, investor returns represent what you actually see on your statement because they take into account buy and sell decisions. You can invest in a top-performing fund, for instance, but if you buy high and sell low, your investor returns won’t measure up to the fund’s return. Dalbar found that investor returns in active funds beat investor returns in index funds by the widest margins during falling markets.

That means investors may do a better job of buying low—and avoiding selling low—in active funds. If an active manager is able to curb fund losses during a bear market, investors may feel more comfortable holding on. And if investors are better able to hold on, then a manager need not sell holdings at fire-sale prices to meet redemptions. That, in turn, boosts performance. “Investor behavior tends to be at its worst when the market is down,” says Cory Clark, director at Dalbar. “That is when something more than just tracking an index can soften the blow.”

Despite the potential advantages of active funds in bear markets, many investors believe that index funds are categorically less risky than actively managed funds. More than half of investors say index funds add more stability to portfolios than actively managed funds, according to Fidelity. “Investors equate index investing with safety,” says Stack. Those investors could be in for a nasty surprise when the long-running bull market eventually falters. Considering historical bear-market losses, Stack says, “When this party does end, investors could be facing a potential 40% loss if they remain fully invested in a blue-chip index fund.”

Index wisely. This is not to say that investors should bail out of index funds. They offer valuable benefits—chiefly lower costs and instant diversification within a given investment category. Just as with any style of management, index funds have strengths and weaknesses, and investors should keep those in mind when deciding how to use indexing in their portfolios.

Index funds that invest in large U.S. companies have a winning long-term track record. But with $2.2 trillion of passive assets already pegged to the S&P 500, investors wary of market distortions should consider broader-based choices, such as Vanguard Total Stock Market (VTSMX) or its exchange-traded cousin (VTI), which is a member of the Kiplinger ETF 20, a list of our recommended exchange-traded funds. Fidelity Total Market (FSTMX) is another good choice. These funds are market-capitalization weighted, meaning investors bear the risk of loading up on the priciest stocks in a soaring market. So consider offsetting them with a proven value-oriented fund, such as Dodge & Cox Stock (DODGX), whose contrarian managers attempt to steer clear of manias. The fund is a member of the Kiplinger 25, a list of our favorite actively managed no-load funds.

Equally weighted index funds, in which each holding accounts for the same portion of the fund, may also better avoid bubbles. The trade-offs with these can be higher costs and greater turnover. One targeted fund that we think is a good buy is Guggenheim S&P 500 Equal Weight Health Care (RYH), an ETF 20 member.

The Vanguard and Fidelity total market funds both include modest exposure to midsize and small companies. Fine-tune your allocation to such companies by adding one or more active funds, such as Kip 25 member T. Rowe Price Small-Cap Value (PRSVX). Consider a similar approach for international stocks: Pick one broad-based index fund as your core holding—say, Vanguard Total International Stock (VGTSX) or the ETF equivalent (VXUS), which is in the Kip ETF 20—and then use actively managed funds to highlight geographic areas or promising investment styles. With bonds, consider sticking mainly to active funds in the current market, in which rising rates and other challenges call for flexibility and nimbleness.

The stock market’s gains may have you dancing a jig. But they may also have you breaking into a sweat. To ease your anxiety, you might consider adding a small dose of alternative investments—things that zig when the stock market zags—to your portfolio, even if it means giving up some potential returns. “As exciting as the stock market is today,” says Dayna Kleinman, of financial services firm Robert W. Baird & Co., “you should prepare your portfolio for a market shift by adding an investment that doesn’t move in lock step with the market.”

The results can be eye-opening. Consider the performance of one type of alternative investment, market-neutral funds, during the financial crisis a decade ago. These funds try to achieve zero market risk by employing an array of strategies with a number of different assets. While Standard & Poor’s 500-stock index lost a cumu­lative 55.3%, including dividends, from October 9, 2007, through March 9, 2009, market-neutral funds dipped just 1.8%, on average. Other alternatives pull in the opposite direction of the overall bond market.

The category sounds exotic, but alternatives, once the province of ultra-rich or professional investors, have become more mainstream thanks to the launch of hundreds of mutual funds and exchange-traded funds. These days, many experts say alternatives should be a part of your total asset allocation. “Alternatives smooth the ride of your overall port­folio” so you’re less likely to sell at the wrong time, says Matt Osborne, of Altegris, a money management firm. “That’s the goal of diversification.”

Some advisers are recommending that clients boost their exposure to alternatives now in order to guard against the risks of a stock market that’s reaching a top and a bond market that’s coping with rising interest rates (bond prices fall when rates go up). Wells Fargo Investment Institute, the research and strategy arm of the giant bank, recommends a 23% allotment to various alternative investments for moderate-risk investors, for example, up from 16% two years ago. At Altfest Personal Wealth Management, in New York, 15% of client assets are invested in alternatives, up from 10% last year.

How they work. The diverse array of alternative investments share one common trait: They don’t behave as stocks or bonds do. The expansive category includes securities that aren’t traditional stocks or bonds, as well as strat­egies that might include stocks or bonds but eschew a conventional buy-and-hold approach. Commodities and currencies fit in here, as do funds that use options to hedge the stock market.

Alternatives are a tough sell. The strategies can be complex, and alternative funds charge 1.57% in annual fees, on average—more than the 1.11% expense ratio for the average actively managed large-company stock fund. Alternative funds have short track records, so most haven’t been tested in a bear market.

But the biggest hurdle for alternatives is that investors tend to misunderstand their role as portfolio diversifiers. Contrary to popular belief, most alter­native strategies aren’t designed to beat the broad indexes. They’re supposed to cushion market dips or supply ballast in rocky markets, giving you greater peace of mind. “It’s like a seat belt. You put it on, but you hope you won’t need it,” says Baird’s Kleinman.

Consider the performance of two hypothetical portfolios. For the 20-year period through December 2016, a traditional portfolio with 60% invested in the S&P 500 and 40% in Bloomberg Barclays U.S. Aggregate Bond index returned an annualized 7.1%, according to Baird’s calculations. But a portfolio with 50% in stocks, 40% in bonds and 10% in indexes that included various alternative strategies returned 7.4%, with fewer ups and downs. The largest loss in the stock-and-bond portfolio over that stretch was 33.1%, compared with a 27.3% loss for the portfolio with a 10% allocation to alternatives.

Choose the right strategies. The key to alternative investing is to focus on strategies that mitigate your market concerns. For investors willing to give alternatives a shot, Morningstar alternatives analyst Tayfun Icten suggests a trio of strategies that together should offer a balanced approach to reducing stock market risk and volatility. With this trio, says Icten, you’ll give up some stock market gains, but you’ll make up for it if things head south.Start small. Divide 5% of your overall portfolio among the three types of investments listed below (in order of increasing risk), with a goal of inching up to a 10% allocation as your comfort level with alternatives increases (returns are as of December 8, unless otherwise noted).

Market-neutral funds. If your goal is to invest in an asset that doesn’t move in sync with the S&P 500, consider a market-neutral fund, such as a merger-arbitrage fund. The funds invest in stocks of already announced takeover and merger targets, hoping to capture the last bit of appreciation before a deal is finalized. Although merger-arbitrage funds invest in stocks, returns are driven by completed deals, not by corporate earnings. The funds tend to hold up well in stock market downturns. And as rates rise, returns for these funds should follow suit. Merger-arbitrage strategies have historically returned three to five percentage points more per year than the yield of Treasury bills (about 1.5% currently). Our favorites include IQ Merger Arbitrage ETF (symbol MNA), which tracks a proprietary index, and Arbitrage Fund R (ARBFX).

Options-based funds. You don’t have to sell stocks to make your portfolio sturdier. Options-based funds allow you to maintain your stock exposure—or even put new money in the market—with some degree of safety. JPMorgan Hedged Equity A (JHQAX) has a lower risk profile than a typical balanced fund of 60% in stocks and 40% in bonds, and a better three-year track record, too.

A portion of the fund holds 200 large-company stocks to approximate the S&P 500. To protect your portfolio from market sell-offs, the other portion uses options—calls, which give you the right to buy a stock at a stated price by a certain date, and puts, which let you sell at a specific price by a certain date. The fund typically charges a sales fee, but you can buy it for no transaction fee (that is, no load) at Fidelity, Schwab and TD Ameritrade. Since Hedged Equity launched in 2013, it has returned 7.6% annualized, which lags the S&P 500, but the fund was 40% less volatile than the index.

Long-short stock funds. These funds bet on some stocks and against others with the goal of delivering respectable returns with low volatility. The funds have been 15% to 25% less volatile than an S&P 500-stock index fund over the past decade. The trade-off: You won’t beat the market, but you likely won’t lag far behind. Since Jonas Svallin became lead manager of Schwab Hedged Equity (SWHEX) in August 2012, the fund has returned 8.9% annualized. That trails the 15.3% gain in the S&P 500 over the same period. But the fund was also 25% less volatile than the index. The managers use a proprietary stock-rating system to buy and hold the top-rated U.S. stocks and sell short (a bet that prices will fall) the bottom-rated stocks. A recent top stock held in a long position was Citigroup, the financial services firm. A top short: Tri Pointe Group, a regional homebuilder based in California.

Since the presidential election, the stock market has been like a long, lovely summer day. The sky is blue, there’s barely a breeze—and everything is coming up roses. Indeed, Standard & Poor’s 500-stock index has gone more than 100 trading days without falling more than 1% on any one day—surpassing the last such streak, which occurred in 1995.

But the bull market is now more than eight years old, making it the longest-lived bull except for the one that lasted from October 11, 1990 to March 24, 2000. Since March 9, 2009, the S&P 500 has soared 317% (including dividends)—the third-biggest gain of any bull market in history.

Bull markets don’t die of old age. But stock valuations are rich compared with historical measures. Stock prices are in the top 10% of valuations based on their ratios of price to earnings, to cash flow and to book value (assets minus liabilities), according to the Leuthold Group, an investment research firm. The S&P is trading at a P/E of 20, based on earnings for the past 12 months. Markets can remain overvalued for a long time, but the more overvalued they are, the steeper the losses in the next bear market tend to be. “P/Es don’t tell you much about near-term risk, but they do tell you about the extent of the ensuing downturn,” says Doug Ramsey, Leuthold’s chief investment officer.

On average, bear markets have occurred about every five years, and it has taken roughly 2½ years for investors who bought at the market’s peak to recover their losses. But, for whatever reason, recent bear (and bull) markets have been more severe and protracted than previous ones. The S&P plunged 55.3% in the 2007-09 bear market, and the index fell 47.4% in the 2000-02 bear market. Those were some of the worst declines since the Great Depression.

What’s more, virtually every bear market has seen losses of more than half of the gains in the previous bull market. From current levels, that could take the S&P 500 down to about 1527, roughly a 36% drop. A similar drop would put the Dow at about 13,731, down 34%. Ouch! (The S&P 500 and the Dow closed at 2,378 and 20,915, respectively, on March 17.)

I don’t expect a bear market right now, nor does Ramsey. Readings of consumer and business confidence are high and rising, suggesting that the economy expansion is intact and could even strengthen. Nor does inflation seem a danger.

But that doesn’t mean we’re not due for a breather. Since World War II, the market has experienced 20 corrections — defined as declines of 10% to 20% — that didn’t become bear markets. Only about one-third of corrections morph into full-blown bear markets.

Funds for Surviving a Bear Market

Whatever’s in store, this late into a bull market is unquestionably a good time to start investing more cautiously. Here are my favorite funds for surviving the next bear market. Expect them to lag a bit during bull markets but lose less than the market overall in corrections and bears. All are run by proven managers who have produced solid returns over the long term.

Parnassus Core Equity Investor (symbol PRBLX) makes the strongest argument I’ve seen that socially conscious investing can be done superbly. The fund only invests in companies it regards as environmentally friendly and socially responsible, with ethical, shareholder-friendly management. Comanagers Todd Ahlsten and Benjamin Allen look for high-quality stocks, most of them dividend-payers, that have wide or increasing competitive advantages over rivals. Over the past 10 years, the fund returned an annualized 9.9%—an average of two percentage points per year better than the S&P 500. Yet the fund was 11% less volatile than the S&P over that stretch. It held up better than most stock funds in the 2007-09 meltdown, losing only 40.9%. (All returns in this article are through March 17, unless otherwise indicated.)

American Funds American Mutual Fund F-1 (AMFFX) is one of the lowest-risk stock funds from the American Funds family, which specializes in relatively low-risk funds. The firm’s funds, primarily sold through advisers, are now available without a sales charge on several online brokerage platforms, including Fidelity and Schwab. Nothing fancy about what the fund’s six managers do: They look for attractively valued industry leaders that pay steady or rising dividends, and they hold stocks an average of more than five years. Over the past 10 years, the fund returned an annualized 7.3%--an average of 0.6 percentage point less per year than the S&P. But the fund was 17% less volatile than the S&P over that time. In the 2007-09 bear market, the fund lost 48.3%.

AMG Yacktman Fund (YACKX) lost its founding manager, Donald Yacktman—who launched the fund in 1992—to semi-retirement. But Yacktman is staying on as an adviser. His son Stephen and Jason Subotky have done the heavy lifting on the fund for years now as comanagers. The fund has a taste for defensive stocks. Companies that make everyday consumer necessities and health care firms account for more than 40% of assets invested in stocks. This fund is built for bear markets. It has lagged the S&P for five straight calendar years and is behind again this year—not surprising given that 20% of its assets are in cash. But over the past 10 years, it returned an annualized 10.4%—an average of 2.5 percentage points better than the index.

FPA Crescent (FPACX) is designed for investors who want to earn solid returns but are most concerned with preserving their capital. Indeed, it hasn’t beaten the S&P in any calendar year since 2011. Yet over the past 10 years, it returned an annualized 7.3%—an average of just one-half percentage point per year less than the S&P. Moreover, the fund was 28% less volatile than the S&P over that period. Currently, Crescent has over 40% of its assets in bonds and cash. Lead manager Steven Romick and two comanagers are patient value investors. For example, after energy prices cratered in 2014 and 2015, the managers tapped some of their cash to buy high-yielding bonds of energy and basic-materials companies. My one quibble: The expense ratio of 1.07% is too high for a fund with a hefty $17.4 billion in assets.

Steve Goldberg is an investment adviser in the Washington, D.C., area.

Stock investors pummeled by a double-dip downturn since last May are beginning to wonder if the market is trying to tell them something—specifically, whether it is telegraphing an imminent recession. The stock market is a legitimate warning sign. After all, it's a baro­meter of the expectations for the future of corporate America. And indeed, stock market peaks have historically preceded economic downturns by seven to eight months, on average, although the range is much wider.

But as a prognosticator, the market’s record is spotty at best. Stocks have flashed 11 warning signals for the past six recessions, according to global economist Ethan Harris, at Bank of America Merrill Lynch. The market gauges Harris watches recently pointed to a 50% chance of recession—as they did in 2011, when no downturn materialized.

It seems clear, however, that expectations for robust growth are fading. At the end of 2014, Harris was predicting 3% growth in U.S. gross domestic product this year. Last November he lowered his forecast to 2.5%, and now he sees just 2.1% growth, with a 25% chance of recession within the next 12 months (see Kiplinger's GDP forecast).

There's plenty to worry about. The most recent Purchasing Managers' Index (PMI) showed that manufacturing activity contracted for the fourth straight month. Strength in the dollar is hurting exporters and multinational companies. The most recent employment report showed disappointing payroll growth. And a slowdown in China is sparking worries about a global recession.

But context matters. Manufacturing is just 12% of GDP, and the PMI reading is still above overall recession levels. The dollar’s rise is moderating, and exports, too, play a minor role in GDP. Consumer spending and housing (both healthy) account for roughly 80% of the U.S. economy. The unemployment rate is below 5%. And developments outside the U.S. rarely cause recession here, as the recent eurozone debt crisis shows.

Nor are the usual culprits that typically trigger a recession present in a big way. Rising oil prices? Finding a floor is more the problem these days. Is a market bubble bursting or an industry sector collapsing? Stocks are selling roughly in line with long-term average prices in relation to earnings, and the scale of energy-sector troubles is nothing compared with the financial and housing collapse of a few years ago. Are soaring interest rates choking off growth? Hardly. This time around, a dramatic drop in 10-year Treasury bond yields, to 1.8% in early February, is an ominous sign that investors are worried about the economy.

If anything, the Federal Reserve's extremely accommodative policies, including ultra-low rates, have distorted the view when it comes to spotting the next recession. Moreover, some experts wonder if the Fed has the firepower left to fight one. Investment strategist Jim Paulsen, at Wells Capital Management, would like to see the Fed hike rates more aggressively. "Treating the economy as if it is unhealthy isn't helping anymore," says Paulsen. "Those policies are hurting confidence more than they’re helping fundamentals."

A full-fledged bear market would be another blow to confidence. "If we hit a decline of 25% to 30%, we’ll have a recession," says Leuthold Group chief investment officer Doug Ramsey. Sometimes, he notes, stocks not only lead a recession, they help cause it, too.