How to Protect Your Portfolio During a Recession

Recessions are a normal part of the economic cycle. On average, the economy enters a recession roughly every seven to ten years. They cannot be reliably predicted, they cannot be avoided, and they are not signs that the economy is broken. They are a feature of how economic growth works.

The good news for long-term investors is that every recession in modern history has been followed by a recovery that exceeded the previous peak. The bad news is that most investors make their worst decisions during recessions, locking in losses that turn temporary declines into permanent damage.

Protecting your portfolio during a recession is not about avoiding losses. It is about maintaining the discipline that allows you to participate fully in the recovery.

Diversification across genuinely independent economic themes provides the strongest structural protection. During a recession, not all sectors decline equally. Healthcare tends to be more resilient than technology. Agricultural demand persists even when consumer spending falls. Energy cycles often move independently of broader economic cycles.

The portfolio that survives a recession best is not the one that avoids all losses. It is the one that maintains balance across themes so that the strongest performers help offset the weakest. This balance requires rebalancing during the downturn, which automated systems handle without the emotional resistance that prevents most investors from executing.

Cash reserves are commonly recommended as recession protection, but holding too much cash comes with its own cost: missed recovery gains. The investors who held significant cash positions during past recessions often missed the sharpest part of the recovery while waiting for confirmation that the recession was over.

The most important thing you can do during a recession is nothing extraordinary. Maintain your allocation. Continue your contributions if possible. Let your rebalancing system do its work. The recovery will come, and the investors who maintained their position will capture it fully.

Automated portfolio management is particularly valuable during recessions because it removes the emotional element from decision-making during the period when emotions are most likely to cause harm.