Some experts say a recession is coming. Heres how to prepare your portfolio

KEY POINTS

The S&P 500 on Thursday capped its worst six-month start to a year since 1970.

Some 68% of chief financial officers expect a recession to occur during the first half of 2023, according to a CNBC survey.

Experts suggest diversifying your portfolio, including bonds despite falling prices, and adding to cash reserves.

Months of stock market volatility, surging inflation and rising interest rates have left many investors wondering if a recession is coming.

The stock market tumbled again on Thursday, with the S&P 500 capping its worst six-month start to a year since 1970. In all, it’s down more than 20% year to date. The Dow Jones Industrial Average and Nasdaq Composite are also down significantly since the beginning of 2022, dropping more than 15% and nearly 30%, respectively.

Meanwhile, consumer feelings about the economy have plummeted, according to the University of Michigan’s closely-watched Survey of Consumers, measuring a 14.4% decline in June and a record low for the report.

Some 68% of chief financial officers expect a recession to occur during the first half of 2023, according to CNBC’s CFO survey. However, expert forecasts vary about the possibility of an economic downturn.

We all understand that markets go through cycles and recession is part of the cycle that we may be facing,” said certified financial planner Elliot Herman, partner at PRW Wealth Management in Quincy, Massachusetts.

However, since no one can predict if and when a downturn will occur, Herman pushes for clients to be proactive and make sure their portfolio is ready.

Diversification is critical when preparing for a possible economic recession, said Anthony Watson, a CFP and founder and president of Thrive Retirement Specialists in Dearborn, Michigan.

You can reduce company-specific risk by opting for funds rather than individual stocks because you’re less likely to feel a company going bankrupt within an exchange-traded fund of 4,000 others, he said.

He suggests checking your mix of growth stocks, which are generally expected to provide above-average returns, and value stocks, typically trading for less than the asset is worth.

“Value stocks tend to outperform growth stocks going into a recession,” Watson explained.

International exposure is also important, and many investors default to 100% domestic assets for stock allocations, he added. While the U.S. Federal Reserve is aggressively fighting inflation, strategies from other central banks may trigger other growth trajectories.