Broker Check
Recession-Proofing Your Retirement Portfolio

Recession-Proofing Your Retirement Portfolio

April 03, 2023

Recession-Proofing Your Retirement Portfolio

Bottom Line Up Front

  • Align your retirement portfolio with your goals and risk profile.

  • Avoid sitting on cash positions due to inflation.

  • Don't try to time the market. Focus on dollar-cost averaging strategies to keep investing without worrying about short-term market fluctuations.

  • Remember that recessions are part of the economic cycle and don't let short-term fear impact your long-term goals. Stick to your plan and rely on your team for support.

We admit it – we used “recession-proof portfolio” in the title to grab your attention. In reality, every asset allocation experiences recession risks differently, and there’s no way of timing market moves perfectly to capitalize upon each up or downswing.

We can, however, work together to optimize your portfolio for a recession. We’ll look at specific, actionable strategies to benefit most retirement portfolios, but each circumstance is different. The only way to optimize and adjust your recession-proof portfolio adapted to your circumstances is to connect with us, review your risk profile, and develop a plan of action.

Still, our broad strategies fall under two specific themes: retirement goals and risk profile.

Risking Retirement

Aligning retirement portfolios to goals and retirement date is the first step when considering asset allocations and structuring a retirement portfolio. But misaligning those investments with the goals for retirement is one of the most common mistakes we see in self-managed retirement portfolios and far more often than we’d like when clients move to us from other professional providers.

The trend tends to swing in one direction, and we’ve seen it get worse over the past year: investors of all ages are far too risk-averse and tend to prefer sitting on cash positions1, chasing yield, and even selling on the way down. Except for the third mistake, these strategies have a time and place, but they’re often not executed deliberately; instead, they result from fear and uncertainty.

Which makes sense. It’s an uncertain time, and the masses of “market experts” on both sides of the bull/bear dynamic shouting about imminent reversals or end-of-the-world predictions don’t help. But managing emotions is a critically underrated component in successfully investing, and one we’ve found to be our most valuable asset when working with unsure clients.

Cash is Trash

Investing juggernaut Ray Dalio is well-known for parroting cash is trash throughout the past decade. Still, his assertion is more accurate today than ever – although for a different reason. Before, Dalio avoided cash because sky-high valuations across most equities all but guaranteed outsized returns in an exuberant market buoyed by low rates and cheap debt.

Today, inflation is grinding cash’s purchasing power2, ultimately making each dollar worth less. Unfortunately, those prone to sitting on cash to preserve capital are older investors with retirement right down the road or, in some cases, already retired.

Either way, it’s an understandable sentiment if this describes you – you’ve worked hard all your life, planning and looking forward to retirement each day. It isn’t your fault that a recession popped up right at the tail-end of your working life, but watching your value dip due to equity crashes or fall based on higher bond yields makes cash feel safe.

But there’s a better way. Hopefully, you’ve worked with your wealth manager to consistently rebalance and guide your portfolio as you’ve aged to align with a more conservative risk profile. Ideally, you have an appropriate mix of equities to capture upside gain over time and a healthy allocation to fixed-income assets designed to generate returns while buffering against stock losses and preserving capital.

If volatility keeps you up at night and you start thinking your money is best off under your mattress in stacks of cash and bundles of bills: talk to us. We’ve worked hard to identify targeted capital preservation strategies for each of our clients that don’t rely on cash. We’ve likely covered them in one of our updates before, but today is different, and we might need to dive into their details a little more if you need reassurance to avoid cash at all costs.

Don’t Roll the Dice

Trying to time the market is a fool's game and often an unsuccessful strategy. The stock market is notoriously unpredictable, and attempting to make short-term predictions about when to buy or sell can lead to poor investment decisions – especially if driven by fear (should I sell now before it falls more?) or greed (this must be the bottom, better get in while I can).

It's often difficult to tell whether a market downturn is a temporary setback or the beginning of a longer-term decline, and attempting to time the market can result in missed opportunities and losses. This is even truer in recessionary periods. These charts drive the point home. Stocks tend to:

  1. Swing wildly throughout a recession, making it difficult to determine whether "this is the end" for those trying to time a bottom.
  2. Front-run both the decline and reversal. This means that stocks tend to fall substantially before the recession or limp into the recession relatively "flat" and reverse their course before the broad economic recovery happens.3

The result of both is the unpredictability that makes timing the market difficult, if not impossible, during a recession. Instead, equity-focused, younger, and more aggressive investors should stick to dollar-cost averaging strategies.

Dollar-cost averaging (DCA) is a strategy where an investor buys a predetermined amount of a stock or index at regular intervals, whether monthly, annually, or somewhere in between. This strategy emphasizes recurring investments that hit the market consistently rather than making trades based on the current share price.

By consistently investing in this manner, you're buying the stock regardless of whether it's down or on the way back up. Over time, the stock's cost basis or average purchase price settles in the middle. This approach can help you avoid emotional trading decisions and reduce the impact of short-term market volatility on your portfolio.

Review Your Requirements

We always advise sticking to your guns and maintaining a long-term investment plan. But even though it's critical to avoid making impulsive decisions based on market fluctuations, there are times when it is important to reevaluate your portfolio's risk. Today is one of those times.

If you're concerned about your portfolio's risk, you might want to chat with us more often or sit down for longer to dive into the details of what we're doing, why, and how it bests sets you up for retirement success. If nothing else, we can provide some critical context to recession investing:

  1. Since our nation's founding, the average period between recessions is just 3.25 years, although that's driven by a hands-off approach in our early economic years that let recessions flare up and die out on their own.4
  2. Since World War II, recessions have happened almost every five years, although it's slowed to about once a decade since the 1980s.4
  3. The average recession length since our founding is about 18 months, but only 11 since World War II.4
  4. The longest recession since World War II, The Great Recession, tied the long-term average at 18 months.4

Bottom line: recessions are less severe, common, and long-lasting today than ever. Whether because of monetary policy intervention, a more robust economic foundation, or simply the effects of post-industrial globalization, recessions are scary when we're in their midst but ultimately far less impactful than the television would have you believe.


In a nutshell, there's no perfect way to recession-proof your retirement portfolio, but there are strategies that can help.

Don't try to time the market – it's like trying to hit a moving target blindfolded. Rely on your team and stick to your risk profile. Dollar-cost averaging can be a great way to keep investing without worrying about short-term market fluctuations.

Remember that cash is not always king, and sitting on cash positions can ultimately hurt your portfolio's growth potential. Inflation eats away at your purchasing power, making it worth less over time. Instead, consider a mix of equities and fixed-income assets designed to generate returns while buffering against stock losses and preserving capital.

Lastly, don't roll the dice by trying to time the market. Instead, focus on recurring investments through dollar-cost averaging. It will help you avoid emotional trading decisions and reduce the impact of short-term market volatility on your portfolio.

In the end, recessions are scary but also part of our economic cycle. Don't let short-term fear impact your long-term goals. Stick to the plan and remember that we're here for you.




[4] &