We’ve been talking a little bit about what’s going on in the housing markets and how they can be a leading indicator of a potential recession on the horizon. We have solutions that we think could be helpful to you, but of course, Wall Street has their own ideas of what a solution might be. I’m about to read from an article that shows exactly how people get in trouble, especially during a recession.
Many economists and people in the financial industry believe that there is a strong probability that a recession is coming. Technically, we’re in one now. The White House doesn’t want us to call it a recession. They’ve even tried to change the definition, but it’s clearly a recession, although a mild one so far. I think many of us can agree that there could be a more substantial recession coming soon. We’re hoping for the best but planning for the worst.
History tells us that certain types of stocks tend to hold up better than others during recessions. For example, small companies you’ve never heard of, regardless of how much money they make, will do worse. If people are panicking and selling everything, they’re certainly going to sell a company they’ve never heard of. During a recession, people are more likely to invest in a company that they’re familiar with.
Home Depot is probably going to do better than Larry’s Lumber Yard during a recession. If times are good, people might give Larry’s Lumber Yard a shot, but they’re going to be more likely to invest in Home Depot during a recession. They’re going to feel more confidence that Home Depot will still be around afterward.
Another type of company that doesn’t tend to do well is a growth company. They’re often not making money, yet. They’re burning through cash, and if it weren’t for their investors, they would run out of money and fail. A growth company tries to get a bunch of people to use their product and then sells to a bigger company.
There are some types of companies that do much better. Number one, we have large companies that are well-known. For example, it’s not likely that Coca-Cola is going anywhere anytime soon. They’ll be around even after a recession. Investors will feel more comfortable investing in a large well-known company, and the company’s stock price will hold better. Stock prices may still go down but not as badly.
A second type of company that tends to do well is one that pays dividends. If a big company that pays dividends, like Exxon Mobil, is making money, they can still pay dividends during a recession. People are going to feel better if their investment is paying them something. The stock price might go down a little but if they’re still getting dividends that offsets it a bit.
Big insurance companies and big utilities are also still likely to do well. Everyone is still going to need air conditioning and electricity. It doesn’t mean that those companies are guaranteed to make a lot of money, it just means that during a recession they may do better than many other companies.
With that information as a backdrop, let’s read the wisdom of Wall Street from CNBC. It’s smart to remember that Wall Street is not in the business of protecting your money. They’re in the business of selling risk. That’s how they make money. It has nothing to do with protecting you. “Top Wall Street analysts named the best stocks to ride a market down cycle.” I would expect to see them naming large companies, companies paying dividends, utilities, and maybe insurance companies. Right out of the gate the first company they think you should invest in is GXO Logistics. Have you ever heard of them? I’ve drawn a blank. If you’ve never heard of a company, it’s likely that investors are going to run away during a recession. They’re not going to be putting their money into an unknown company.
The next company on the list is Nova. I had to ask myself if that was a Carl Sagan program on PBS. Again, I’ve never heard of them. If you want to lose your money, follow Wall Street analysts’ advice. The next one’s going to be a winner for sure: TD SYNNEX. I haven’t heard of them either. If you follow the investing advice here, you’re in trouble.
In the last two companies they list we finally get to one I’ve heard of, Alphabet. For those of you that don’t know, Alphabet is Google. Google is a big company, and they make money. That’s a little better. They’re not really a tech company, they’re more of an advertising company.
The last one is one that I could finally agree with: Edison International. Edison is a big old utility. Out of the five companies they list, three of them I’ve never heard of. This is why you don’t listen to Wall Street’s advice.
Here’s something else that’s important. Whether you work with a financial advisor or manage your own money, think about to what degree you have been exiting market positions and moving to cash this year. The markets are going down. You pay a financial advisor to manage your money and part of managing money is managing risk. To what degree is your financial advisor moving out of the markets and into cash? If they’re not doing that right now, I have to ask the question, why not? If you’re not doing it, again, why not?
When the markets crash, get out of the way, don’t just sit there and take it. If it was pouring rain out, you wouldn’t keep going 85 miles an hour on the highway. You would slow down. Driving is riskier when it rains. Investing is riskier when the markets are going down. If you haven’t been taking that into account with your portfolio, maybe it’s time to visit us for a Retire Right Report. Right is an acronym that stands for Risk, Income, Growth, Healthcare, and Taxes.
Part of investing is growth, but the other part of investing is risk and return. Many people don’t pay enough attention to the risk side of that equation. Successful investing happens when you risk little but have large growth potential. If you’re looking at your portfolio numbers and wondering what the heck is going on, then you can give us a call so we can put together a report for you.
We want to make sure you’re on the right track with your retirement. In retirement you should be enjoying the fruits of your labor; it should be a happy time. It’s not going to be a happy time if you’re worried about your money, or if it’s not invested the right way. Maybe you’re not managing your risks the way you should. Let’s get that free report put together for you.
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