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. –
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
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.
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.
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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.