Will Your Portfolio Survive the Apocalypse?


Obviously, I don't mean a literal apocalypse (the stock market certainly won't matter then), but rather investors who prepare for the absolute worst-case in the stock market that's more aligned with how bad things got about 10 years ago during the great recession.

I was inspired by this piece from Investopedia (CLICK HERE) which discusses the elements necessary to create an "apocalypse portfolio." While I'm not going to suggest any specific stocks (though I will mention some companies by name), it will definitely help to take a look at areas of financial safety when it comes to investing in stocks.

Are you ready? Hope so!

Safety Picks

Generally, these are stocks that require a great deal of stability, independent of what the market is doing. Oil exploration, refining and marketing are all vital activities, so is the preservation of precious metals like copper, silver and gold, as well as telecom companies (because people will still need cellphones and cell service). A good portfolio would therefore have companies like Chevron (CVX), Newmont Mining Corp. (NEM), and Verizon (VZ). These are great if things get REALLY bad.

Defensive Picks

In order to be on the defense before a recession, investors are generally advised to rotate out of richly valued technology shares into more defensive energy and utility stocks that offer attractive dividend yields (naturally). U.S. Treasury Bonds are another alternative for safety-oriented investors, even though the yields are at multi-year lows, but there is no risk for loss of principal. However, if you didn't want to own individual stocks, ETFs or ETNs in sectors like energy, gold, telecommunications, silver, mining, and consumer staples are also a great way to get capital gains with a little more risk.

What to Short

Other than the obvious answer, which would be to just "sell everything," there is a process to determining what to sell. Firstly, anything that is a luxury, in particular a luxury to those in the upper-middle to middle-middle classes in the US because they will be so concerned with preserving their retirement money they simply cannot afford luxury goods and dining out. Secondly, financials and (some) technology stocks. Banks will be less likely and less able to lend, plus new investors are not likely to come about to open accounts in a recession, so brokerage stocks would likely fare the worst of the financials. Technology (non-necessities) would also suffer, namely companies like Google or semiconductors like Nvidia.

Preparing for a Bear Market and or Recession

You may want to think about some preparations. Why? Well, despite what President Trump says about the stock market, recall that earlier piece we wrote about what happens when different political parties are elected into the White House. Consider that we have been in an economic upturn for 99 consecutive months. This is the third longest rise since 1902! To make matters worse, that rally was largely sustained by the Federal Reserve and it isn't likely that this will last much longer.

What are the keys to detecting a drop? Well, there are quite a few key indicators out there, but here are the biggest ones: auto and retail sales, and corporate earnings. It all makes sense...so keep your eyes peeled.

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