When it comes to investors and recessions, the two don’t mix. They hate each other. They’re like oil and vinegar. They don’t gel. At all. But recessions are part-and-parcel of investing.

You know what they say, you’ve gotta be able to take the good – with the bad. But we don’t like facing up to the bad. 

We become like ostriches, conveniently burying out heads in the sand. But a recession is coming. That’s if it isn’t here already! Since data is always behind what has actually happened, we’ll only know after we were in a recession that we were actually in one to begin with! (Psst: read here how to bullet-proof your finance so survive a layoff).

Though read here all about this richcession which is catching us all by surprise! The real question is if it’ll turn into something worse. A lot worse.

Recession is the inflation’s ugly antidote

Not only is a recession long overdue but if we want to turn down the inflation heat then a recession is the pill we gotta swallow.

Reducing demand (more like choking it) will help to lower inflation since the supply bit of the inflation equation is tricky to affect but this slump in demand which makes up ~70% of our GDP will cause a recession. GDP will contract, with it shedding jobs, wealth and all the rest of it. 

So now you see how a recession is kinda unavoidable unless bankers let inflation rip (which they won’t let happen) and if you know this then you won’t be taken by surprise by what happens next.

If you’re prepared, and if you make sure your portfolio is prepared, you’ll feel loads better about your future and overall prospects. There’s honestly nothing worse than walking blindly into the unknown. But nothing gets us more than a financial horror show but read here why you should never fall for the thrill – it can cost you your future.

Don’t bury your head in the sand 

It’s comforting to think the best-case scenario will end up coming true. That inflation will subside and all will go back to where it once, including interest rates which are causing a lot of pain for a lot of people.

But you can’t bet on your future like that.

Sure, there’s definitely a probability that it’s already happening – look at the price of copper, wheat, energy and other raw materials and see how they’ve fallen in recent weeks but there’s an equally good chance that the nasty will happen – inflation peaking since we’re entering a recession. Or worse, like it was in the 70s, with multiple waves of inflation. Like a nasty rollercoaster.

Inflation is still stupidly high by historical standards and we’re also moving into a low-growth environment along with a higher rate one.

But we could have something else, something really nasty where the oil shortage and all kinds of other shortages only get worse and inflation remains sticky for a lot longer than anyone can have imagined. 

But luckily there are some things you can do to protect – and arm – your portfolio for what’s to come aka a recession! Read here what to invest in to give your portfolio a real bounce – and save it from inflation.

#1 Don’t ignore it – invest for it! 

Inflation is here and it’s real and like I said before, no one (not even clever economists) knows where it’s heading next. Oh, and they couldn’t even predict the high inflation to begin with.

This makes predicting loads trickier and instead of wasting our time, efforts and money trying to figure out where inflation is going, why don’t you just invest for it? You know what they say, if you can’t beat em, join em!

I believe a portfolio should have a bit of everything. Some growth stuff (how much is up to you!), some inflation stuff, some stable stuff, some boring stuff and some small stuff. Lotsa stuff to go around.

But don’t neglect the inflation bit. It’s more important for your portfolio, now more than ever. 

Investing for a world of higher inflation (and interest rates) will mean turning to things that are scarce in nature and very much needed (it’s your energy, mining ect) and in companies that can pass on higher costs easily; luxury goods’ companies are a good example of this. Read here why they’ll never stop making money since they sell us the one thing they know we all want (and will pay top dollar for!)

Looking at hedging your portfolio from inflation, real estate is a great option and if like me you don’t have pots of money lying around to spend on a buy-to-let in this overheated but now slowing market, you can invest via REITs.

These are real estate companies listed on the stock market and they manage properties this can be commercial, industrial, residential ect.

REITs pay ~90% of their rent to you – their shareholders – in dividends. This means you can avoid the hassle of managing (more like baby-sitting!) tenants.

#2 Invest in stuff we all need no matter what 

Warning: these are boring companies that won’t exactly treble your portfolio overnight but they’ll act as a cushion against losses and even start to shine (if they haven’t already).

They’re sturdy and reliant and for that reason, these boring buddies deserve a place in your portfolio – especially now when the world is upside down and no one knows what’s what.

A little bit of boring sounds quite comforting to me! 

So what companies am I talking about? It’s your gas, water, electricity, telecoms, waste management and so on. Whether we’re in a recession or a booming economy, we all need access to Wi-Fi and we all need our bins taken care of. Period. Yup, these guys are unglamorous and not your hyper-growth stuff but trust me, they’re worth a look into.

Psst: Some of these companies also offer good dividends (as do the companies mentioned in #1) – another hedge against inflation.

If inflation is 8% but you’re also earning 8% in dividends from stocks/funds you invest in then that at least protects your purchasing power.

While dividends aren’t your growth areas, they’re certainly your inflation ones.

#3 Don’t let markets scare you off 

With recessions comes falling stock market returns. We’ve already witnessed a recent bear market, which btw wiped out ~$3trn from pensioners alone!

But don’t let markets paralyse you into action or worse – the kind of action that’s called panic-selling. That would literally be a disaster.

The best investors use downturns to their advantage. In the end, successful investing is basically how well you can cope with times like these!

Pay attention to what the successful ones are doing and see how you can implement some of that.

I took my inspiration from Stephen Shwarzman (co-founder and CEO of Blackstone) in his book ‘what it takes’. He explains how they used market conditions to their advantage, particularly in ’08.

When the US real estate market had literally come to its knees that’s when Shwarzman’s Blackstone snapped up as much residential property as they could get their hands on.

Schwarzman reminds the reader to use every opportunity – especially the bad ones – to your advantage. Don’t let any go to waste.

Recessions and bear markets aren’t easy. Nor are they remotely fun. But they are inevitable and they all happen at some time or other. 

But if you can think in decades not days and turn up that greed of yours (only when others are fearful of course) it can get you far.

And I mean real far.

Stay safe out there!

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.