How to position your ASX share portfolio for a downturn

Investors are worried about how their ASX shares will perform in 2021. Here are a few ways to position your portfolio for a recession.
The post How to position your ASX share portfolio for a downturn appeared first on Motley Fool Australia. –

man holding piggy bank under umbrella during a storm

Since the March bear market, it’s been largely good news for ASX shares. The S&P/ASX 200 Index (ASX: XJO) has bounced back strongly as many top companies have surged in value.

It’s easy to invest when the market is hot. It’s much harder to know how to position your portfolio for a market downturn.

Here are a few tips which I think could be helpful in preparing your portfolio for a recession in the short to medium-term.

Avoid ASX shares that need discretionary spending

This one seems like a bit of a no-brainer. Recessions mean job losses and job losses mean people don’t have spare cash to spend on non-essentials.

I’d say that luxury retailers are the obvious candidate here. It could also include buy now, pay later (BNPL) providers like Afterpay Ltd (ASX: APT) based on lower volumes.

BNPL services could be in high demand as people look to reduce payments. However, that would normally see a spike in defaults which is not good news for companies like Afterpay.

Invest in non-cyclical shares

If discretionary spending is set to fall in a recession, companies with non-cyclical earnings could be the answer.

Companies like Coles Group Ltd (ASX: COL) provide essential products and services. That means a recession doesn’t have a huge impact on earnings unlike some other industries.

It could be a good idea to have some non-cyclical or even defensive sector exposure to weather a downturn.

Invest in ASX dividend shares

Growth shares tend to underperform late in the business cycle . That means ASX dividend shares that pay out income on a consistent basis could be the key.

What’s even better is ASX dividend shares that are also non-cyclical or defensive. For instance, Coles shares are currently yielding 3.4% which could be a good value in a recession.

Similarly, some top Aussie gold miners could be worth a look. The Northern Star Resources Ltd (ASX: NST) share price has rocketed 18.0% higher this year.

Despite strong capital gains, the ASX gold share is also yielding 1.3% right now. That could be a very handy portfolio addition if we see the economy deteriorate further in 2021.

Foolish takeaway

There are many ways to position a portfolio for a downturn. No one knows what a recession will look like and which ASX shares will outperform.

However, a disciplined, long-term approach to investing can help prepare your portfolio for the ups and downs of the share market.

These stocks could rocket in a Post-COVID world (FREE STOCK REPORT)

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

Find out the names of our 3 Post COVID Stocks – For FREE!

*Returns as of 6/8/2020

More reading

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post How to position your ASX share portfolio for a downturn appeared first on Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!