Recession Proof Investing: 4 Tips for Investing During Market Volatility

Peter, good to see you. Welcome back, everyone.

Timely conversation today, Peter. We are talking recession-proof investing, four strategies for navigating market volatility. We've been hearing a lot of scary headlines about the markets recently.

What's going on? Well, I mean, we're seeing more volatility. Really, the last 15 years has been a fantastic run in the market and sort of a perfect storm of forces coming together here. You know, we saw some blips in the radar with COVID. 2018 wasn't a fantastic year.

At least it didn't end great. In 2022, they were rising, raising interest rates all year to combat inflation, and that ended up being a pretty terrible year. But overall, the trend for the last 15 years has been pretty good. And at some point in time, the market has to have a natural cooldown. Now, you couple that with the fact that we have a new president, new agenda, and all of the agenda items that he's talked about. While in theory, too many seem like they're pro-business, pro-economy, and pro-America long term, a lot of them I feel and have felt and have said that they are going to cause some short-term pain. The tariffs and evening the trade field, you know, that's going to cause prices to go up, at least temporarily, because America is not equipped to produce the goods that we're now charging more for that are coming from overseas. And likewise, if we've got a labor force that is less expensive that we are exporting, that's going to cause some supply side pressures as well. So, you know, if these agenda items that the Trump administration has talked about are long term pro-America, okay, but they are still going to cause some growing pains short term, regardless of whether or not they do in fact work long term. So, I just think, you know, we've got these tariff discussions, we've got this fantastic ride over the last five years of the magnificent seven that has really taken the entire stock market up, up like it has seen, but that has been weighted and concentrated in just a few handful of companies. And as those companies now have these additional pressures and begin to cool off, you know, are the rest of the companies in the stock market going to kind of balance those things out? Or is the weight of those specific companies so great that if they suffer, so does the whole market? And I think it's actually more of that latter, unfortunately. All right, then. So let's talk through some strategies that I think people have been hearing about.

Of course, the first is kind of a question. Cash is king. Usually it's considered during recessions that cash, we should have a greater portion of our portfolio allocated to cash.

Are you recommending that advice to clients right now? If you had the foresight and the crystal ball and vision to have cash before a downturn, then yeah, you're feeling like you were pretty smart. Investing is a long term time horizon kind of approach. We need to look out over the next five to 10 years or more when we are investing, not what's happened over the last five to 10 days.

Right. And I just think that people get reactionary, unfortunately, when we see volatility rather than having that long term plan in place that says this is the money that I know and understand is going to be volatile. But as long as I stick to the plan, not only has the market always come back, it has always surpassed previous highs. So don't panic and don't move to cash in the midst of a downturn. And you've mentioned the word recession a couple of times. And so did President Trump. He recently stated that he could not rule out the possibility or the potential of a recession, which led to even further kind of scare downturn in the market.

I'm not sure that he's got the power to to to to rule that out anyway. I mean, the market's going to kind of do what the market kind of does. And the market's emotional and reactive enough. We need to be the the the stabilizing within our kind of personal financial picture is that the market is going to whipsaw. It reacts to news of the day, especially with a controversial president in power here and controversial agenda items.

It is whipsawing based off of the talk or the discussion or the news or the agenda of the day. We need to be the ones who are steady as we go, long term vision and realize that the market is going to see its way through temporary volatility. So cash cash is fantastic if you held it before a downturn, but you don't move to it in the midst of losses and lock in those losses and then prevent yourself from recovering. Right. Well, at least we get to talk through it, because I do think a lot of people are wondering if they should be putting all their money in their mattress right now. All right. So next, though, I do want to talk through defensive stocks.

These are generally considered recession proof. We are, of course, talking about health care, utilities, food, because we still get sick. We still need to eat.

What do you think? We'll keep the lights on. Still, I want to defend the country. You know, those those sectors are generally considered more stable. But a rising tide or a falling tide is going to move all boats, as they say. Right. And when things are going up, generally, you know, everybody benefits from that across all sectors. Now, this has been a little different recently because of the the rapid growth of the Magnificent Seven.

Right. These tech heavy companies, these A.I. companies, these innovators that have just grown to meteoric levels and size. Is sector rotation going to come back and bring back more of the consumer staples and the utilities and the health care and the defense? You know, more than likely those are more steady and all weather kind of sectors of the economy. But it's not that they don't react or that they react opposite of the market. It is that they react less.

Right. They are more predictable and steady as we go. So they may still rise and fall with the tide, so to speak, but probably a little less of the volatility or the movement than some of these high flying high risers that are the Magnificent Seven and these tech heavy kind of companies. And what do you think about dividend stocks and other fixed income investments like bonds? I love dividend stocks. Now, just kind of background, a dividend stock is paying out profits.

Right. So when I buy a share of a company, I am part owner of that company and I hope the value of the company rises. But as an owner of the company, I am also entitled to some of the profits along the way. Those get paid out in the form of dividends.

It's a fantastic component to a portfolio. The problem is that even fantastic companies aren't always profitable. And so during the Great Recession, during Covid, during 2022, there were plenty of fantastic companies that were not profitable during those periods and reduced or eliminated their dividends. So while dividends are a fantastic additional component of growth and over time you add the dividends back into the returns of the index and you significantly improve the total returns. But don't rely on those dividends, those profits of companies always being there and always being paid out. And the problem is when the market turns down and companies aren't profitable and they cut or eliminate their dividends.

Now, not only do you not have the income that you were relying on, but you also don't have the capital to go out and recreate that income. So if you've got a need for a steady, more predictable, dependable income stream, like dividends are good for the extra cream on the top. But I think that there are better ways to produce your core income needs that won't be reactive to market ups and downs and volatility. More predictable as far as the income and cash flow rates from things like fixed or fixed indexed annuities right now is actually probably beating bonds in a couple aspects.

And I say that I'll quantify and qualify that it is reducing the risk to the portfolio, reducing the fees to a portfolio and improving the interest or returns to the portfolio in general. So because of the interest rates and the payout rates that we're seeing in the fixed and the fixed indexed annuity world, either multiyear guaranteed interest rates or the ability to share in the gains of the market, both of those are pretty advantageous. And then the interest and the payout rates are very advantageous right now.

I think that that should or could be considered for either a bond alternative or substitute or complement in many people's income producing portfolio. OK. And last, even during downturns or especially during downturns, keep investing. This is known as dollar cost averaging.

Yeah. I mean, you are buying while prices are on sale because, again, the market not only in history has always come back. It has always surpassed previous highs. So in the midst of a downturn, if prices are lower and you're buying in and then the market comes back, those shares gain more than the shares that you had prior to that downturn. And dollar cost averaging is an important component. It really is the gasoline in the engine of financial progress.

It is the thing that is providing the most horsepower and the direction of the market matters. But the direction of your money matters as much, if not more than the direction of the market. If you're adding money during a downturn, fantastic. You're in a great position to take advantage and dollar cost average. Now, on the other side, if you are needing income and making withdrawals during that downturn, during that same period, you could be locking in losses and removing those dollars ability to participate in the eventual recovery.

And that really changes the trajectory. So we really need to assess what we need from our money. In other words, do we need an income? Are we investing?

Are we net contributors or are we withdrawing in need of income? And then differentiate the approach, keeping a long term vision in mind, the approach that we take with our investment and how much risk we're taking. And it all comes back, boils down to having that plan, Erin. Yes, Peter, you took the words right out of my mouth. Of course, if you have a plan, you are statistically less likely to react to these scary headlines.

Yeah, and the headlines are scary and a lot of people react to them. But that is where the value of having that plan comes into play. Look, we've all got access to tools.

The ability to be an investor has been commoditized. You can essentially go and do that anywhere on an app, on your phone, at any of the major financial institutions. We have access to those tools. But what is going to allow you to use those tools effectively is having a plan that says, hey, this is what this account or these accounts are for. This is the timeline I intend to use them over. And therefore, I don't need to worry about a temporary downturn when I'm really not planning on using this money. In fact, I'm contributing to it for the next five, 10, 15 years or on the other hand, hey, this is money that I plan to use over the next one to five years, probably should remove it from risk prior to any downturn. And yes, we've seen a little volatility, Erin, but if that is your situation, if you are looking or thinking about retiring over the next five to 10 years, it is still a great time to look at getting that correct balance in place. Because, yes, we've seen some volatility, but we are still around all time highs in the market. This really has not been that significant of an event to derail your projections if you've got a good plan in place.

Exactly. Peter, if somebody wants to work with you to create that plan or maybe they have a plan, but they still feel uncomfortable, that might mean their plan is not in line with their risk tolerance. So if they want a second opinion on their plan, how can they get a hold of you? Yeah, give me a call at Rashaan Planning, 919-300-5886, 919-358-86. You can also go online, rashaanplanning.com. It looks like richonplanning.com.

There's a button right there. You can schedule a call or a complimentary review and an investment tactical strategy session. So I would love to talk to you, would love to help you optimize your retirement. That's what we do at Rashaan Planning. We put together the optimized retirement plan.

It's a proprietary planning process where we take a look at all aspects of your plan, income investments, taxes, health care, legacy, and give you a written plan for your financial future. Great. Peter, thank you. Thank you, Aaron.

Hey folks, Peter Rashaan here with Rashaan Planning. So glad that you are enjoying the podcast Planning Matters Radio. You know, one of the tools that we've put out there that people really seem to appreciate and really are our finding of value is at 919retired.com. It is your retirement tax bill calculator. If you've got any kind of retirement account, your tax deferred 401k or IRA. This is the website.

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