Email FacebookTwitterMenu burgerClose thin

Worried About a Recession? Use These Strategies From Fidelity to Protect Your Retirement Savings


Many financial professionals are worried about an imminent recession. It has become such a watchword in financial circles, in fact, that most Americans believe a recession has already begun.

A financial advisor can help you plan for economic uncertainty and protect your portfolio from recession.

While that isn’t true, there are reasons for guarded concern. Between the Federal Reserve rate hikes and an inverted yield curve, Fidelity Investments released a recent analysis warning that their researchers expect “the US economy could slow and potentially enter a recession in the second half of 2023.”

Whether it happens in 2023 or down the road, the economy will eventually cycle into recession – it’s how market economies work. The question is what you should do when one does arrive?

Don’t Unload Your Stocks

First and foremost, Fidelity warns against selling all of your stocks.

Falling stock prices, the company writes, “may suggest that selling stocks before a recession arrives and buying them after it departs would be a smart strategy. But savvy investors know that it is extremely difficult to do this successfully and it’s often a recipe for locking in losses.”

Fidelity’s advice refers to market timing, the old adage of “buy low, sell high.” Essentially, investors try to predict when stocks will peak and sell out. Then, they try to again predict when stocks have hit their low point and buy back in. While intuitive, it’s critical for investors to understand that this strategy simply does not work.

Selecting the right moments to sell your positions and buy back into the market is exceedingly difficult, if not impossible. Instead, the right approach is to stick with your long-term strategies and adapt them to new conditions. In particular, Fidelity recommends diversifying into assets that have less volatility and tend to perform better during recessions. In practice, this advice means two main things:

  • In general hold onto good assets
  • Make new purchases oriented around diversification

You want to invest for years, not months, so selling around a recession will likely just cost you money in the long run. But that also doesn’t mean you should hold on to a bad asset out of sheer stubbornness. If an asset looks like it’s been swimming naked, by all means, cut your losses and get out.

Diversifying with new purchases means adding to your portfolio as regularly planned. Don’t stop making your retirement or portfolio contributions – just start putting that new money into other asset classes designed to help protect your money through a recession.

In 2023, Fidelity recommends looking into a few key areas, including:

Look to Corporate Bonds

“In every recession since 1950,” Fidelity writes, “bonds have delivered higher returns than stocks and cash. That’s partly because the Federal Reserve and other central banks have often cut interest rates in hopes of stimulating economic activity during a recession. Rate cuts typically cause bond yields to fall and bond prices to rise.”

Pay attention to that last part. While bonds can generally be a good source of security, they work best when purchased in advance of a recession.

Once a recession begins, interest rates are likely to fall. Bonds that you buy at that point will yield less interest and will return lower capital gains because lower interest rates reduce their market value. The highest-value bonds will be ones that you buy in advance of a potential recession, not in response to one.

Just be careful about which bonds you buy. With corporate bonds, err in favor of investment-grade assets, according to Fidelity. High-yield bonds, meaning less creditworthy assets, can be good too, but treat them as a more speculative segment of this portfolio. In both cases, look for industries where bonds have tended to perform well during recessions, such as utilities and energy companies.

Consider Mid- and Long-Term Treasury Bonds

Worried About a Recession? Use These Strategies From Fidelity to Protect Your Retirement Savings

Fidelity also recommends considering Treasury assets in the five or 10-year range.

While U.S. Treasury bonds and bills are incredibly safe assets, the return is quite low. Ordinarily, this makes it difficult to build wealth in a retirement portfolio with this asset class. However, recession planning is a little bit different.

Right now, relatively high interest rates have pushed up the interest payments on Treasury assets. That makes them easier to integrate into a growth-oriented portfolio.

During a recession, investors start looking for safe places to put their money until the uncertainty has passed. That improves the return on Treasury assets, particularly those bought in advance of a recession because of their higher interest rates.

Investors looking for safety will be able to take advantage of the higher rates that current Treasury assets pay. Those looking for returns can lock in assets that will likely jump in value during a recession.

Precious Metals – Maybe

Precious metals, particularly gold, can do relatively well during a recession. For investors, Fidelity recommends pursuing this opportunity by investing in the stocks of companies operating in the industry.

But be careful. While corporate stocks are more stable than buying gold or silver directly, this is still a very unpredictable industry. They can be a good recession hedge, but it’s much harder to predict the trajectory of these stocks. If you want to invest in gold to protect against a recession, you may want to consider doing so as a speculative asset in your portfolio. If it works, you can collect some nice gains during a downturn. If not, then you didn’t lose serious money.

Bottom Line

A recession in 2023 is by no means certain, but financial professionals have been forecasting one for more than a year. It may be wise to start making plans in case there’s economic turbulence ahead. Whether in 2023 or later, a recession will happen eventually. When it does, Fidelity recommends diversifying your portfolio, particularly into bonds, and avoiding the temptation to sell off all of your stocks in a rush out the door.

Recession Management Tips

  • Recessions can be particularly tough on current retirees. For people building wealth, typically you can wait out a recession. For people who need to sell assets for income, it’s important to understand how long you should anticipate the tough times to last.
  • A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: ©, ©