What’s up Profit Zone Gang!

This edition will be all about showing you exactly how to make your portfolio recession proof. In other words, how NOT to lose money.

Making money in the stock market is important, but if you’re a long term investor it’s not always about how much you can make but more so how much you can keep.

The wealthiest investors didn’t hit a bunch of homeruns. Instead, they held recession proof businesses that grew over time. You never want to be in a position where you’re taking 1 step forward and 2 steps back. So in this edition of The Profit Zone, we’re going to be covering all the steps you need to make your portfolio bulletproof.

What is a Reccession?

A recession is a period of time where consumer confidence in the stock market is low, unemployment rises, disposable incomes fall and businesses experience decreased sales and production as a result.

The Keys to Recession Proofing Your Portfolio

First off, it’s important to understand that nobody has the ability to time the market. So when you hear things like “a recession is coming so take your money out of the stock market” most of the time it’s not true.

It may be true that a recession is in fact coming. After all, with expected inflation on the rise because of the pandemic, I wouldn’t be surprised if we see one within the decade. But trying to time a recession will do more harm than good. So just don’t even try to do it.

Naturally during a recession (or if one is “coming”) investors will lose confidence in the market and shift their portfolio’s allocation around. Some will move their money into government grade bonds, some will buy treasury bills or GIC’s, some will pull their money out completely and may buy up physical assets.

The thing to remember is that it’s okay to keep your money in the stock market. After all, some of the best companies will be trading at massive discounts allowing you to lower your average cost. Who doesn’t like a stock market sale?

A Dividend Investors Dream

Being a dividend investor during (or right before) a recession is the ultimate hack. While growth and value investors are running for the fences, you can sit back and relax while your investments continue to generate cash flow.

Getting paid to be in the stock market is a cheat code everyone should take advantage of. The best reccession-proof investments are quality companies in mature industries that have been raising dividends for years. Have a look at the Dividend Aristocrats list for examples of these types of companies.

All of them were able to continue raising dividends during the last recession from 2007-2009. These are the types of companies you want to hold and perhaps allocate the majority of your portfolio to if you’re scared of losing money during a recession.

Stock Picking for a Recession

Some things to look out for when stock picking for a recession proof portfolio:

• Small amounts of debt

• Healthy growing cash flows

• Significant free cash flow

• Quick ratio (A companies ability to pay off it’s short term obligations)

• Products that people need regardless of their income levels (think food, beverages, alcohol, tobacco, healthcare, hygiene products and daily materials we can’t live without like toilet paper, tissues, soap etc.)

These are the companies that will fair well during a recessionary period. If you’re looking at industries that need massive amounts of capital for research and development, long term investment and don’t have much brand awareness then you’re looking in the wrong place.

Your Age Matters

Believe it or not, how old you are has a large effect on the allocation of your recession-proof portflolio. Those who are younger naturally have a longer time horizon meaning they have more of a chance of recovering from a large drop in the value of their portfolios due to a recession. If you’re older or nearing retirement, your investments may be what you plan on living off of so it’s important to invest accordingly.

The Emergency Fund

Every recession proof portfolio has an emergency fund. Period. No questions asked. Since it’s common for unemployment to rise during a reccessionary period because businesses have less money for wages, it’s possible that you get laid off. An emergency fund acts as a safety net to pay for any unexpected expenses without having to dip into your investments. It’s incredibly important to have AT LEAST 6 months worth of expenses in your emergency fund. Some will say more, some will say less. But I believe 6 months is more than enough time to either find a new job and generate some income, or even start a side businesses that can help you in the mean time.

5 Recession Proof Stocks That Should Be In Every Investors Portfolio

1) Procter and Gamble - the maker of all household necessities (shampoo, laundry detergent, diapers, toothpaste)

2) PepsiCo - almost every household in North America buys a PepsiCo product on a weekly basis

3) 3M - they make everything from tape to office supplies to electrical wiring to automotive parts to medical supplies (always needed regardless of income levels)

4) Walmart - a one stop shop for basically everything you need to survive at low prices. There’s a reason why it’s the worlds largest retailer.

5) Lowe’s/Home Depot - when disposable incomes are low and people can’t afford to hire independent contractors but still need to do home renovations or fix things around the house, where do they go? These two companies flourished during the pandemic and would during a recession as well.

Final Remarks

Remember, recession proofing your portfolio is about owning quality businesses that create products people need and use every single day. Just take a second and look around you. What products can you not live without? What do you use every morning? What do you eat or drink with every meal? What vitamins do you take? What do you use to wipe after you take a shit?

Identify the products that would change your life if you didn’t have them and invest in those companies. Because chances are if you can’t live without them, millions of others can’t either.

Those are your recession proof stocks.

And that’s how you keep growing your wealth.

See you in the next one!

- Alex (The Dividend Dominator)

P.S.

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