Obviously, I don’t mean a literal apocalypse (the stock market certainly won’t matter then), but rather investors who prepare for the absolute worst-case in the stock market that’s more aligned with how bad things got about 10 years ago during the great recession.
I was inspired by this piece from Investopedia which discusses the elements necessary to create an “apocalypse portfolio.” While I’m not going to suggest any specific stocks (though I will mention some companies by name), it will definitely help to take a look at areas of financial safety when it comes to investing in stocks.
Are you ready? Hope so!
Safety Picks
Generally, these are stocks that require a great deal of stability, independent of what the market is doing. Oil exploration, refining, and marketing are all vital activities, so is the preservation of precious metals like copper, silver and gold, as well as telecom companies (because people will still need cellphones and cell service). A good portfolio would, therefore, have companies like Chevron (CVX), Newmont Mining Corp. (NEM), and Verizon (VZ). These are great if things get REALLY bad.
Defensive Picks
In order to be on the defense before a recession, investors are generally advised to rotate out of richly valued technology shares into more defensive energy and utility stocks that offer attractive dividend yields (naturally). U.S. Treasury Bonds are another alternative for safety-oriented investors, even though the yields are at multi-year lows, but there is no risk for loss of principal. However, if you didn’t want to own individual stocks, ETFs or ETNs in sectors like energy, gold, telecommunications, silver, mining, and consumer staples are also a great way to get capital gains with a little more risk.
What to Short
Other than the obvious answer, which would be to just “sell everything,” there is a process to determining what to sell. Firstly, anything that is a luxury, in particular, a luxury to those in the upper-middle to middle-middle classes in the US because they will be so concerned with preserving their retirement money they simply cannot afford luxury goods and dining out. Secondly, financials and (some) technology stocks. Banks will be less likely and less able to lend, plus new investors are not likely to come about to open accounts in a recession, so brokerage stocks would likely fare the worst of the financials. Technology (non-necessities) would also suffer, namely companies like Google or semiconductors like Nvidia.
