How to Recession-Proof Your Finances

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3:16All right, I'm just going to jump in here with the question I'm getting a lot right now. How the heck do I protect my money when the economy gets shaky? Well, confidence in the U.S. economy has had its biggest drop since 2021, but I probably don't even need to tell you that. You're probably already feeling it as we slog through another month of the seemingly endless vibe session. So today I want to share the investments that have historically stood the test of time during recessions and even thrive in high inflation environments. I definitely know how painful it is to watch your hard-earned money lose value in the stock market.

3:48So whether you're worried about a looming recession or just trying to keep up with rising prices, I've got you covered with some strategies that can help safeguard your portfolio. First, let's talk about why you need a different game plan for recessions versus high inflation. Well, during recessions, people and businesses cut back on spending. That can hurt corporate profits, which can hurt the stock market. During inflation, the issue isn't necessarily that the companies are struggling, it's that your money buys less because prices are rising. Think of it as two storms that both threaten your financial house, but in different ways.

4:21So how do you protect yourself? Well, the good news is there are investments that tend to perform well in both of those scenarios. I'm going to tell you about three, but of course, you'll need to do your own research or consult with a financial advisor before investing because no one has a crystal ball. And if they say they do, they are lying to you. Okay, so number one, defensive stocks. In the finance world, defensive stocks are different from defense stocks. You might have heard defensive stocks and thought about weapons, helicopters, whatever. But defensive stocks are shares of companies that provide essentials, things people need no matter what is happening in the economy.

5:00These are companies in the consumer staples industries, healthcare, and utilities. So think about Procter & Gamble, Johnson & Johnson, Duke Energy. Why have these industries been called recession-proof? Because no matter the economic climate, people still need toothpaste. People still need their prescription medicine and electricity. These companies are not sexy and flashy, but historically they've been able to provide consistent earnings even when the economy is wobbly. 2. Dividend-paying stocks These can be a portfolio MVP during recessions. When stock prices are down, getting that steady income stream from dividends can soften the blow.

5:39And here's the cherry on top. Historically, companies that pay dividends are more financially stable, which means they're more likely to weather economic storms. When you're digging into options here, look for companies with a strong history of maintaining or increasing their dividends. Think of reliable names here like Coca-Cola or utilities companies that people depend on, rain or shine. Number three, Treasury Inflation Protected Securities or TIPS. Okay, so now let's talk about inflation. One of the best ways to guard against rising prices is with Treasury Inflation Protected Securities or TIPS.

6:13It has the name right there in it. These are bonds issued by the U.S. government that adjust with inflation. So when inflation goes up, the value of TIPS goes up too. This means your investment keeps pace with rising prices, protecting your purchasing power. They're not the most exciting investment either, but they're incredibly effective at what they do. Recessions and inflation don't have to be financial disasters if you are prepared. Defensive stocks and dividend payers can cushion the impact during recessions, while tips, real assets, and short-term bonds can help you keep pace with inflation.

6:48And remember, diversification is key. Don't put all of your eggs in one basket. Spread your investments out across different asset classes to reduce your risk. If you're not sure how to balance your portfolio for these economic challenges, it might be time to get some personalized expert advice. A financial advisor can help you craft a strategy that matches your goals and your risk tolerance. Which brings me to today's tip you can take straight to the bank. When the economy feels uncertain, having a financial advisor there to watch the trends for you can give you some major peace of mind, not to mention also actively making smart decisions to protect your portfolio.

7:26As you know by now, Creative Planning is my favorite wealth management firm with really excellent financial advisors. If you want to know that somebody has your back during these uncertain times, schedule a 15-minute free consultation call with Creative Planning at creativeplanning.com slash Nicole. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's Executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me.

8:06And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself. which is the most important investment you can make.