Colors fade, templates crumble,
empires fall, but wise words endure.
It’s hard to avoid headlines warning of a looming recession. Signals have been slowly flashing over the past several months, culminating with an inverted yield curve at the end of March. An inverted yield curve, when short-term bonds have higher yields than long-term bonds, is a very good indicator that a recession is coming.
Unfortunately, the yield curve is very bad at timing a recession. Like a tsunami after an earthquake on the coast, you know it is out there, but you don’t know how much time you have to get to higher ground. You also don’t know if the wave will be 5 feet high or 50 feet high. So how do you prepare your portfolio for a recession?
Frankly, it should always be ready for volatile markets. Professionals in the investment industry recognize that investors should not change their investment allocations based on current, or worse, predicted, market volatility. Successful investors stay invested through highs and lows regardless of market volatility.
Admittedly, that is easier said than done. But if you break down your goals, it can be managed. There are two questions an investor needs to ask themselves: When do I need the money I have invested? Am I properly diversified for my long-term needs?
The first question requires coming up with an allocation between cash, bonds and stocks that’s right for you. An easy way to think of it is breaking your money into three buckets: near-term, mid-term and long-term. The near-term and long-term buckets are easy to allocate. The middle-term is a little more individualized. ... [Read the full story at Mainebiz.biz]