Alternative Assets That Can Carry Your Portfolio Through A Recession

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April 24, 2023

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Is a recession coming to Canada in the near future? Economists believe that a moderate recession could hit Canada at some point in 2023 or 2024 due to aggressive interest rate hikes aimed at countering inflation.

Whether one comes in a matter of months or a matter of years, a recession is inevitable. The economy is cyclical, and corrections are part of the broader process.

Investment success depends on your ability to ride through recessions. In part, that means resisting the urge to panic sell when your stocks or fund investments are in decline. Unless you really need the funds, market downturns are the worst time to sell.

Another way your portfolio can ride out the storm is by including alternative assets that aren’t affected by recessions. These alternative assets are affected by other market influences and have little correlation or negative correlation to stock markets. They’re worth exploring as part of a portfolio that’s resilient through downturns.

#1 Bullion: Gold and Silver Bars and Coins

Precious metals are a unique commodity that can offer a hedge against recessions and stock market crashes. Recessions have historically had a positive impact on gold prices, largely due to changes in investor sentiment. As market volatility increases, more investors want to park their money in gold and silver bullion.

One of the most popular ways of owning bullion is the physical product. Gold and silver are available in refined bars and coins. Find a Canadian source for bullion investments to get the best prices for investment-grade gold and silver products.

It can make a lot of sense to allocate part of your portfolio to bullion as an alternative that can help you ride the waves of a recession.

#2 Real Estate

The real estate market is another market that can prove to be resilient against recessions. If you’re investing in real estate beyond your own home, you’re usually investing in income-generating properties by collecting rent. Regardless of the state of the economy, people need somewhere to live, and properties generally continue to generate rent.

There are downsides to investing in real estate. Real estate is more sensitive to localized economies than stocks, bullion, or deposits. It can also be a lot more work owning a rental property than putting your money into stocks or gold.

#3 Term Deposits

A term deposit like a GIC (Guaranteed Investment Certificate) is where you invest a sum with a guaranteed interest rate. These are often offered by financial institutions which use the investment as a loan with either a fixed or variable interest rate.

The financial institution will invest that money itself. Some GICs are market-linked, offering the best of both worlds. You will always receive the minimum, guaranteed interest rate, but if markets perform well, you may even be able to earn more.

Usually, GICs have a fixed term, as well, and you will not be able to redeem them until they mature. The longer the term, the higher the interest rate.

Term deposits are remarkably safe investments. The main risk that you face is that inflation can outpace your gains or that growth in a mutual fund outpaces a long-term deposit. Nevertheless, the guarantee provides a lot of peace of mind.

See: Smart Investing Tips While Working a 9-5

The right mix of assets can help your portfolio thrive no matter what the market is doing. Don’t be afraid to diversify your assets and explore alternatives to stocks.

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