Dividend Dominator
- Feb 4, 2023
- 7 min read

Recession Proofing Your Portfolio (the easy way)

Updated: Mar 3

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Making money in the stock market is important, but if you’re a long-term investor it’s not always about how much you can make but more so, how much you can keep.

The wealthiest investors didn’t hit a bunch of home runs. Instead, they held recession-proof businesses that grew over time. You never want to be in a position where you’re taking 1 step forward and 2 steps back.

What is a Recession?

A recession is a period of time where consumer confidence in the stock market is low, unemployment rises, disposable incomes fall and businesses experience decreased sales and production as a result. In other words, bad for the economy.

The Keys to Recession Proofing Your Portfolio

First off, it’s important to understand that nobody has the ability to time the market. However, it may be true that a recession is in fact coming.

After all, with inflation on the rise, I wouldn’t be surprised if we see one within the decade.

But trying to time a recession will do more harm than good. Naturally during a recession (or if one is “coming”) investors will lose confidence in the market and shift their portfolio’s allocation around. Some will move their money into government-grade bonds, some will buy treasury bills or GICs, and some will pull their money out completely and may buy up physical assets.

The thing to remember is that it’s okay to keep your money in the stock market. After all, some of the best companies will be trading at massive discounts allowing you to lower your average cost. Who doesn’t like a stock market sale?

A Dividend Investors Dream

Being a dividend investor during (or right before) a recession is the ultimate wealth hack. While growth and value investors are running for the fences, you can sit back and relax while your investments continue to generate cash flow.

Getting paid to be in the stock market is a cheat code everyone should take advantage of. The best recession-proof investments are quality companies in mature industries that have been raising dividends for years. Have a look at the 2023 Dividend Aristocrats List for examples.

All of the companies listed were able to continue raising dividends during the last recession from 2007-2009. These are the types of companies you want to hold and perhaps allocate the majority of your portfolio to if you’re scared of losing money during a recession.

Stock Picking for a Recession

Here are some things to look out for when stock picking for a recession-proof portfolio:

Small amounts of debt
Healthy growing cash flows
Significant free cash flow
Quick ratio/Current ratio (A companies ability to pay off its short-term obligations)
Products that people need regardless of their income levels (think food, beverages, alcohol, tobacco, healthcare, hygiene products, and daily materials we can’t live without like toilet paper, tissues, soap, etc.)

These are the companies that will fair well during a recessionary period.

If you’re looking at industries that need massive amounts of capital for research and development, long-term investment, and don’t have much brand awareness then you’re looking in the wrong place.

Your Age Matters

Believe it or not, how old you are has a large effect on the allocation of your recession-proof portfolio. Those who are younger naturally have a longer time horizon meaning they have more of a chance of recovering from a large drop in the value of their portfolios due to a recession. If you’re older or nearing retirement, your investments may be what you plan on living on so it’s important to invest accordingly.

In my personal opinion, if I'm nearing retirement I'm putting 90%+ of my money in a fixed rate no risk asset like a GIC (Canadian term for Guaranteed Investment Certificate) so I can secure a rate of return without being worried about my money.

The Emergency Fund

Every recession-proof portfolio has an emergency fund. Period. No questions asked. Since it’s common for unemployment to rise during a recessionary period because businesses have less money for wages, it’s possible that you get laid off.

An emergency fund acts as a safety net to pay for any unexpected expenses without having to dip into your investments. It’s incredibly important to have AT LEAST 3-6 months' worth of expenses in your emergency fund. Some will say more, and some will say less. But I believe 3-6 months is more than enough time to either find a new job and generate some income or even start a side business that can help you in the meantime.

5 Recession Proof Stocks That Should Be In Every Investors Portfolio

1) Procter and Gamble - the maker of all household necessities (shampoo, laundry detergent, diapers, toothpaste)

2) PepsiCo - almost every household in North America buys a PepsiCo product on a weekly basis

3) 3M - they make everything from tape to office supplies to electrical wiring to automotive parts to medical supplies (always needed regardless of income levels)

4) Walmart - a one-stop shop for basically everything you need to survive at low prices. There’s a reason why it’s the world's largest retailer.

5) Lowe’s/Home Depot - when disposable incomes are low and people can’t afford to hire independent contractors but still need to do home renovations or fix things around the house, where do they go? These two companies flourished during the pandemic and would during a recession as well.

Final Remarks

Remember, recession-proofing your portfolio is about owning quality businesses that create products people need and use every single day. Just take a second and look around you. What products can you not live without? What do you use every morning? What do you eat or drink with every meal? What vitamins do you take? What do you use to wipe after you take a sh*t?

Identify the products that would change your life if you didn’t have them and invest in those companies. Because chances are if you can’t live without them, millions of others can’t either.

Those are your recession-proof stocks.

And that’s how you keep growing your wealth.

Alex (The Dividend Dominator)

Founder of The Profit Zone

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