The mere fear of recession can drive prices down further, especially when the herd instinct kicks in. There are strategies you can use to recession-proof your investment. One of them is investing in diversified funds that could veer you away from significant losses. Here are some of good funds for recession for your consideration.
Federal Bond Funds
For risk-averse investors, bond funds are very ideal especially in times of market downturn and uncertainty.
Among the top choices are funds that are made up of US Treasury bonds, which are considered to be one of the safest investments.
Investors of this fund suffer no credit risk since the government can simply levy taxes and print money. There’s no default risk, so there’s also capital protection.
Municipal Bond Funds
Then there are municipal bond funds. These are issued by state and local governments. Such funds leverage local taxing authority to provide a high degree of safety and security to investors.
Meanwhile, these funds carry greater risks than funds that invests in securities supported by the federal government. However, they are still considered to be among the safest.
Taxable Corporate Funds
Taxable funds coming from corporations can also be among your choices. These funds offer higher yields than government-supported issues. The catch is that they carry significantly more risks.
Choosing a fund that invests in bonds that are considered high quality will help you minimize your risks. Although corporate bonds are riskier than funds that only invest in government-issued bonds, they are still a lot less risky than stock funds.
Money Market Funds
When it comes to sidestepping recessions, bonds take the cake as the most popular asset. However, they are certainly not the only player in town.
Super-conservative investors and other investors usually put their cash in money market funds. Although these funds offer a high degree of safety, they should be used for short-term investment.
Many investors think that when slowdown kicks in, it’s time to completely leave the stock market behind. However, that’s not necessarily true.
Although investors usually think of the stock market as a vehicle for growth, stock price appreciation isn’t the only way to play the stock market.
You can invest in mutual funds that focus on dividend stocks that can provide regular, strong returns with less volatility than funds that focus only on growth stock.
Utilities Mutual Funds
Utilities-based mutual funds as well as funds that invest in consumer staples are less aggressive kinds of stock fund strategies. They also tend to focus on investing in companies that pay predictable dividends.
Large-cap funds are those that invest in large-cap stocks, and they tend to be less vulnerable than funds that invest in small-cap stocks. Larger companies in general are better positioned to withstand tough times.
Switching assets from funds investing in smaller, more aggressive companies to those that bet on blue chips offer a way to cushion your portfolio against market declines without abandoning the stock market altogether.