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How Badly Will a Recession Impact Your Portfolio?

By: Bob DiMeo, Managing Partner

As we head toward the end of what has been a strong year, I imagine you could feel a bit anxious about how the next recession will affect your investments. Global growth has waned for some time and now many U.S. economic metrics are mixed. Kick in negative interest rates along with widespread geopolitical uncertainty and it becomes perfectly logical for investors to anticipate a recession. But, is it logical to conclude that a recession will ravage your investment portfolio? History suggests otherwise.

Through popular media headlines and my own conversations with other investment professionals, worry surrounding an upcoming recession is evident (yes, we’re in the longest expansion in U.S. history though a recession will occur at some point). Much like I develop a fear (often unwarranted) of pain before a routine visit to the dentist, investors may be overly concerned with the pain their portfolios might experience from a recession.

First the facts:¹

• There have been five recessions since 1980 (average length of contraction is 11 months)

• The S&P 500 declined less than four percent, on average, one year out from the economic peak and was up more than seven percent after two years

• A balanced portfolio including bonds fared even better on average

Most investors are surprised by how well stocks held up

Total Returns – average of previous five recessions

And balanced portfolios actually performed well

Total Returns – average of previous five recessions

Everyone knows a recession will ensue at some point but I sensed a growing concern among investors that was perhaps unwarranted. When my talented research colleagues produced the numbers it confirmed my impression – the fear of loss outweighs what investors historically experienced.

Here are three prudent practices that you and all investors can embrace to help navigate the inevitable recession.

1. Ensure you have a keen grasp on the current return and risk profile of your portfolio… and that a direct link between your overall objectives and your allocation exists. Click here for more

2. Use knowledge to temper your emotions. A recession will occur; knowing how stocks and bonds have historically behaved is information you can use to your benefit.

3. Seek assistance. While our investment consultants set strategy with most clients during the early part of each year (and that strategy tends to have good “shelf life”), circumstances can change and objectives may evolve. If in doubt, reach out to be certain you fully grasp the characteristics of your portfolio. And visit our Research & Insights

As you’ve heard many times, history does not repeat itself, but it often rhymes. Hopefully these insights will help you better navigate the next economic downturn, whenever that transpires. Best wishes to you and yours this holiday season and as always, please feel free to contact me or any of the professionals at DiMeo Schneider & Associates, L.L.C. for assistance.

¹Sources: National Bureau of Economic Research (U.S. Business Cycle Expansions and Contractions). Total returns used for S&P 500 and Barclays Aggregate.

This report is intended for the exclusive use of clients or prospective clients of DiMeo Schneider & Associates, L.L.C. Content is privileged and confidential. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources which are believed though not guaranteed to be accurate.Information has been obtained from a variety of sources believed to be reliable though not independently verified. Past performance does not indicate future performance. This paper does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice.

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