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6 Ways to Recession-Proof Your Portfolio

The stock market is constantly moving- going through cycles of ups and downs, many investors fear that their hard-earned savings and accrued interest will be wiped out during a downturn. While we know that no one can “time the market” there are a few things you can do to position yourself to weather the storm. 

What is a recession?

A recession is defined as a fall in GDP (gross domestic product) for two consecutive quarters. Typically, this is a time when consumer spending and economic activity rapidly decline and we start to see the effect of that which includes: stock market downturns, rising unemployment, and housing market decline. 

A recession usually lasts for at least six months but can be longer, a more severe version of a recession is referred to as a “depression,” which we have not seen since the 1930’s (The Great Depression). 

This can be worrisome for many individuals as there is so much uncertainty surrounding you and your family’s future. A recession is a natural part of the economic cycle and a recession can even present opportunities as well- think career changes and business re-structuring. 

Are we currently in a recession?

According to the official definition of a recession (two-quarters of GDP decline), we are technically experiencing a recession, as of July 28, 2022 when the reports were released. 

Although we are experiencing a recession, this time it looks a bit different. After the pandemic started in 2020 and lockdowns began across the world, the economy shrunk faster than we have seen since The Great Depression. This can be chalked up to being stuck at home and consumers tightening their wallets during uncertain times. Following this, the Fed dropped interest rates significantly to quickly heal the economy. Since 2020 we have been unemployment rates dropping, housing markets at an all-time high, and stock markets recovering.

Now in 2022, we are experiencing record levels of inflation, which caused the Feds to spike interest rates 4 times this year so far. Experts expected this to trigger a recession, but it was considered necessary to curb inflation. 

How to prepare for a recession?

There are a few ways you can prepare and “recession-proof” your portfolio. As always, we recommend speaking with a trusted financial professional before you make any decisions regarding your finances.

1. Prepare For The Worst (But Hope For the Best)

While heading towards a recession it is best to remain optimistic, but also make sure all your ducks are in a row. 

Before you begin worrying about retirement savings, make sure you have an emergency fund (approximately 3-6 months’ worth of expenses) in a liquid account in case of emergency. This will ensure that if things take a turn for the worst, you can cover an unexpected expense and not dip into any other savings. It is also a good idea to attempt to pay down debts and not acquire new debt during this time.

According to AARP, “Keep in mind that by the time the NBER has officially declared a recession has started, it’s probably near the end. After all, economic data usually lags, particularly GDP. The average recession lasts about 10 months, and the NBER typically needs about nine months to collect all the data it needs to declare that a recession has started.” So, don’t drive yourself crazy worrying about the economy when we may have seen the worst of it already.

2. Diversify or Re-Allocate Your Holdings

At Artesys, we always try to educate our clients on the importance of diversification in your portfolio. This is the best way to avoid excessive risk and can help keep your portfolio stable during a bear market. You can diversify in multiple different ways- 

If you are invested in only stocks, you can diversify by looking at different industries, company sizes, different ratios, etc. This can also mean splitting your portfolio between cash, stocks, bonds, real estate, and so on. We recommend talking with a trusted financial advisor.

Another option is to reallocate your current holdings. This can include converting more of your portfolio to a safer option such as bonds or different holdings (moving from tech stocks to consumer staples or utilities- which tend to fare better during recessions). 

 3. Continue Contributions

The last thing you want to do during a recession or bear market is to make any emotionally charged decisions on your portfolio(s). Emotional investing can be detrimental to your overall retirement. Try to avoid checking your balances too often and it is not suggested to sell when stocks are down (buy low sell high is the golden rule). 

Another tip is to continue your retirement contributions even during a recession (if you are able to do so). This can be a great time for young investors to contribute more and reap the benefits of time in the market.

 4. Get Creative

If you are concerned about the potential of a market downturn affecting your retirement, there are other products that can help supplement your retirement income. One option for this is with deferred annuities, which can provide a set amount per year in retirement. The concept is- you purchase the policy from the insurance or annuity provider for either a set amount or make payments. And when you retire, you receive a set amount per year in annuities. 

An attractive benefit to deferred annuities is that taxes are not owed until the time of withdrawal and are then taxed as regular income. A downside to this method is that the money is not liquid and can be subject to taxes, early withdrawal penalty (from the IRS), and even a surrender charge (from the annuity provider) if you choose to withdraw before age 59 ½ . This method is best used as a long-term investment and in addition to a retirement account, such as IRA or 401k. 

Some other ways to get creative in your investment journey are to consider other avenues, such as Health Savings Accounts (HSA), or even Real Estate to supplement retirement. There are many different ways to invest and build your nest egg while staying diversified. 

5. Hold off on Withdrawals

If you are close to retirement age (within 1-5 years), you may consider holding off on withdrawing from your retirement account and holding off on social security withdrawals. Even though this may slightly delay the retirement you’re dreaming of, you will be in a better position when the market recovers. By withdrawing during the downturn, you are locking in those losses and can lose quite a bit of principal balance. By delaying social security withdrawals, you will be eligible for a larger monthly payment when you decide to officially retire.

6. Defensive Approach

When it comes to personal investment style, everyone is unique. A good financial professional will listen to a client’s individual goals, and what level of risk they are comfortable with in their portfolio. Another factor that should be considered is age and when you plan to retire. Someone who has 30 years will have more room for risk than someone with 5 years. 

Artesys always begins by having participants complete a questionnaire to determine an appropriate amount of risk. For your offensive investors, we actively manage portfolios with a “buy and hold” strategy focused on maximizing returns whenever possible. When it comes to more conservative investors, we employ a tactically managed defensive strategy to “buy and sell,” protecting what investors already have.


– Don’t panic! The economy goes through cycles and what goes down will eventually come back up.

– Keep an emergency fund of 3-6 months available and try to pay down any debts (avoid taking on new debt).

– Ensure your portfolio is diversified and consider re-allocation- always talk to a financial professional beforehand.

– Consider taking a defensive approach when you are nearing retirement age to protect your assets.

– Get creative when it comes to investing, and continue to invest (even during a recession).



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