If things were to go down south fast, do you know how to prepare for a recession? Most people instinctively think about job security, trimming expenses, or beefing up their emergency fund—and those are all smart moves. Clocking a few extra hours and padding your savings account never hurts. But there’s another crucial piece of the puzzle that often gets overlooked: your investment portfolio.
Is it built to withstand a storm? Or will it crumble when the market shakes?
Consumer Confidence Index at 12 year low pointing to a recession
Uncertainty—it’s the word dominating financial headlines. Consumers aren’t sure whether to spend. Companies are holding back on hiring. And if there’s one thing investors despise, it’s uncertainty. Just look at the market’s reaction to President Trump’s tariff announcement: a swift 5% drop in the SPY 📈 that signaled the start of what many feared would be a prolonged trade war. Even bellwether stocks like META 📈, NVDA 📈, and AMZN 📈 took a hit, plunging nearly 10% in a single day.
On 25 March, one leading economic indicator, the Consumer Board’s Expectations Index dropped 9.6 points to 65.2, the lowest level in 12 years and well below the threshold of 80 that usually signals a recession ahead.
The impact of a recession on your investment portfolio
During a recession corporate earnings tend to fall, leading to a downward adjustment in asset prices. As often, the stock market has taken a headstart. It is known to anticipate recession starting to fall well below the actual recession hits. Accordingly, the S&P 500 is down 8.5% year-to-date and 11.5% from its recent high. Depending on how deep the recession is, your investment portfolio stands to take a hit from lower prices across stocks, bonds and commodities.
On average, the S&P 500 Index dropped by 36% from peak to trough when the US went through a recession.
How to prepare your investment portfolio for a recession
During a recession, corporate earnings typically decline, triggering a drop in asset prices. As usual, the stock market is already ahead of the curve—it tends to fall well before a recession officially begins. Case in point: the S&P 500 is down 8.5% year-to-date and 11.5% from its recent high. If the downturn deepens, your portfolio could face broader losses across stocks, bonds, and commodities. If you take the average peak to trough drop as a reference, we have another 27.5% drop to go.
Not sure how to prepare for a recession? Here are 5 ways to weather proof your investment portfolio.
1. Don’t panic
As John Maynard Keynes (supposedly) put it: “When the facts change, I change my mind.” And in today’s investing landscape, the facts have clearly changed. Consumer confidence is at a 12-year low, a trade war is weighing on business investment, and inflation is set to rise thanks to new tariffs. Now is the time to take a hard, honest look at your portfolio.
But don’t panic—panic leads to poor decisions. Stay calm, stay pragmatic, and approach your options with a clear head. Hopefully, the ideas in this post will help you do just that.
2. Increase your fixed income investments
If you’re looking for a safe haven, fixed income investments—like bonds—might be a solid option for you. And no, you don’t need to sift through individual bonds. Large, broad bond ETFs like SJNK 📈 and JBBB 📈 offer exposure to hundreds or even thousands of bonds in a single investment. While you wait out the storm, you’ll still earn a very respectable yield—both currently offer around 7.5% after fees.
3. Protect your investment portfolio for as little as 1% per annum
Hedging your portfolio is a smart way to protect against downside—and it’s no longer just for the pros. Today, everyday investors have access to simple, cost-effective tools that offer protection with a single trade. Take the ProShares Short S&P 500 (SH 📈), for example: this inverse ETF moves roughly -1x the S&P 500’s daily return, allowing you to offset losses during a downturn. You can hedge a $100,000 portfolio for around 1–1.1% for a year—an affordable layer of defense in volatile markets.
4. Derisk your portfolio
When a recession is looming, de-risking your investment portfolio becomes essential to preserve capital and reduce volatility.
Not sure how risky your portfolio is? Check your portfolio beta on your dashboard. During volatile markets, you should make sure that your portfolio beta is not too excessive, i.e. well above 1%. For example, if your portfolio beta is 1.5, you can expect your portfolio value to exacerbate market losses by a factor of 1.5.
5. Pay close attention to portfolio quality
When the economy turns south, the quality of your portfolio matters more than ever. While some losses may be unavoidable, high-quality stocks can help cushion the blow. So what makes a stock high quality? First, financial strength—avoid companies with heavy debt, as refinancing becomes tougher during a recession and can even lead to bankruptcy. Second, look for profitability and strong market positions, which help maintain pricing power.
Want a quick way to assess your portfolio’s quality? Check the average Ziggma Stock Score.
Don’t get caught off guard. Know how to prepare for a recession
Recessions are an inevitable part of the economic cycle, but they don’t have to derail your financial goals. By taking proactive steps—like adjusting your asset allocation, focusing on quality, and exploring hedging strategies—you can protect your portfolio and even uncover new opportunities. Staying calm, informed, and disciplined is key. Preparation today can make all the difference tomorrow.