The Good News About Recessions for Investors
Yes, an official recession is possible, but based on previous recessions, there could be reasons for investors to smile. With that in mind, here are three ways to position your portfolio now – and one major mistake not to make.


Are we going into a recession? This question has been in the news and on the minds of investors for months, and the recent announcement that GDP has decreased for the second straight quarter makes the question even more pressing.
A recession implies trouble for investors. Many believe that once a recession is announced, the stock market will drop sharply – and so changes will be needed to their portfolios to weather the storm. But history indicates a different scenario. Instead of dropping further when a recession is officially announced, the market often moves up.
That is because, in part, recessions are often declared several months after they have started. The National Bureau of Economic Research, a private, non-partisan organization, makes this call after analyzing many economic data points that take time to collect. This information includes, but is not limited to GDP growth.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Why Now May Not Be the Time to Be Defensive
But research by CI Brightworth in Atlanta shows that once an official recession is announced, much, if not all of the market’s downturn has already taken place. So, getting more defensive after a recession is announced may be the worst thing an investor can do.
In three of the last six recessions since 1980, the stock market hit a bottom before the recession was officially recognized. Even more important for investors, after those six recessions, the market quickly moved up five times – ranging from 10.3% to 34.5% only one year following the recession announcement. Strong gains continued for three and five years after a recession was declared – in three cases, the gains topped 100%.
So, what does this mean for investors? The data show that taking defensive actions when a recession is announced has worked poorly in five of the six last recessions. A defensive action ranges from reducing exposure to stocks all the way to the “big mistake” of shifting the entire portfolio to cash.
So, what is an investor to do? Here are three recommendations:
Stop Trying to Time the Market
Trying to get into and out of the stock market is a fool’s errand and one of the biggest wealth destroying actions an investor can take. The market is forward looking and moves prior to the underlying economy. If you’re trying to move into and out of the market based on what’s happening in the economy, you are more likely to do the wrong thing at the wrong time and harm – not improve – your returns.
Stay Disciplined
If you are investing new money, either through your 401(k) plan, individual retirement accounts (IRA) or other plans, continue to follow your long-term investment strategy. You should be excited about the opportunity to buy more stocks when they are “on sale.” If it feels painful to add money to a falling market, consider automating your contributions and investments so you can reap the benefits of lower valuations without contemplating the market’s every move.
Add Stocks to Your Portfolio When They are Down
Use the downturn to rebalance your portfolio by selling assets that have performed the best and buying the assets hardest hit by the market’s tumble. For example, this could mean selling investments in some commodities and real estate while picking up high-quality stocks that have lost a significant amount of money this year. Rebalancing your portfolio is one of the most effective ways to ensure you follow the classic adage of buying low and selling high.
No one knows when the next recession will arrive or how the market will respond when it does. However, by following these key steps, investors can be prepared for any further volatility while also helping to favorably position themselves on the other side.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Nick Fazio is an Investment Analyst at CI Brightworth in Atlanta. He provides quantitative and qualitative analysis of current and new investments, communicates the firm’s investment philosophy and outlook with advisers and clients, and conducts investment research on behalf of the CI Brightworth Investment Committee. He also serves as an analyst on CI Brightworth’s US Large Cap stock strategy. Nick holds a B.S. in Business Administration from the Georgia Institute of Technology and is a Certified Public Accountant.
-
Is the GOP Secretly Planning a Tax Increase on the Rich?
Tax Reform As high-stakes tax reform talks resume on Capitol Hill, questions are swirling about what Republicans and President Trump will do.
By Kelley R. Taylor
-
Can the 'Guardrails Approach' Protect Your Retirement Investments?
This investing method helps retirees avoid running out of money, even in a highly volatile market.
By Simon Constable
-
Social Security Is Taxable, But There Are Workarounds
If you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
By Todd Talbot, CFP®, NSSA, CTS™
-
Serious Medical Diagnosis? Four Financial Steps to Take
A serious medical diagnosis calls for updates of your financial, health care and estate plans as well as open conversations with those who'll fulfill your wishes.
By Thomas C. West, CLU®, ChFC®, AIF®
-
To Stay on Track for Retirement, Consider Doing This
Writing down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
By Matt Green, Investment Adviser Representative
-
How to Make Changing Interest Rates Work for Your Retirement
Higher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
By Phil Cooper
-
Within Five Years of Retirement? Five Things to Do Now
If you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
By Evan T. Beach, CFP®, AWMA®
-
The Home Stretch: Seven Essential Steps for Pre-Retirees
The decade before retirement is the home stretch in the race to quit work — but there are crucial financial decisions to make before you reach the finish line.
By Mike Dullaghan, AIF®
-
Three Options for Retirees With Concentrated Stock Positions
If a significant chunk of your portfolio is tied up in a single stock, you'll need to make sure it won't disrupt your retirement and legacy goals. Here's how.
By Evan T. Beach, CFP®, AWMA®
-
Four Reasons It May Be Time to Shop for New Insurance
You may be unhappy with your insurance for any number of reasons, so once you've decided to shop, what is appropriate (or inappropriate) timing?
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS