Changing portfolio to beat looming specter of recession is a

Changing portfolio to beat ‘looming specter of recession’ is a mistake, says consultant

  • According to a recent CNBC poll, about two-thirds of Americans believe the country is on the verge of, or already in, a recession.
  • However, experts say it is a mistake to constantly adjust your portfolio to reflect the latest economic news.

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The threat of a recession has weighed heavily on many investors amid higher interest rates, banking turmoil and layoffs. Still, according to financial advisors, you should try to avoid reactive investment moves.

Public pessimism about the economy recently hit a new high, according to a recent CNBC poll. About two-thirds of Americans believe the country is on the verge of, or already in, a recession.

Even if you want to protect your wealth from a possible economic downturn, advisors say it’s important to stick to a plan based on risk tolerance and goals.

“Trying to constantly rebalance your portfolio to beat a looming recession boogeyman or other crisis of the day is a mistake,” said certified financial planner Amy Hubble, principal investment advisor at Radix Financial in Oklahoma City.

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“Equities are leading indicators and represent future expectations, and GDP readings are lagging indicators,” she said. “So when we have the data that proves a recession, markets are looking beyond that.”

Hubble recommends focusing on the things you can control: for example, save more than you spend, invest regularly, stay diversified, avoid high fees, and strive for tax efficiency.

While economic indicators like the so-called inverted yield curve — when shorter-dated government bonds are yielding higher than the long-term variant — can be a signal of a possible recession, experts say people often tend to spot patterns or interpret them when they don’t exist.

Charles Sachs, CFP and chief investment officer at Kaufman Rossin Wealth in Miami, said there are many running jokes about “how bad economists are at forecasting recessions” because it’s impossible to know when future events will occur.

“Don’t let the noise sway you,” he said, emphasizing the importance of “a long-term, strategic focus” in asset allocation.

“People are falling into gamification of investing,” but there’s a reason investors like Warren Buffett aren’t doing it, he said. “They buy good companies at good prices and invest for the long term.”

While assets like high-quality bonds have a history of doing well during recessions, it’s difficult for investors to “outperform the market,” said Elliot Herman, CFP and partner at PRW Wealth Management in Quincy, Massachusetts.

“The market is future-oriented,” he said. “As such, it has never been more important to maintain a well-diversified portfolio, whether you want to participate when prices are rising or protect yourself when prices are trending down.”