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BUSINESSMonday 22 February 2016
Investor Playbook:
What a recession could possibly do to your money
STAN CHOE A trader works at the New York Stock Exchange. If we are indeed in the midst of a recession, in turn means they can’t
AP Business Writer stocks likely still have a long way to go down. Every downturn is different, but a look at the num- possibly provide as strong
NEW YORK (AP) — If we are bers gives investors a sense of at least what’s possible. a cushion as in past reces-
indeed in the midst of a re- sions.
cession — and we won’t (AP Photo/Mark Lennihan) Gold, meanwhile, is up this
know we’re in one until well year but has been on a
after it’s begun — stocks Bad, but not as bad as the out now. The Russell 2000 generate regular income general downward trend
likely still have a long way since the summer of 2011.
to go down. last one. has lost 26 percent since for investors. During the last Gold tends to do best
The Standard & Poor’s 500 when worries about infla-
index has dropped 14 per- A drop of more than 20 peaking in June, nearly recession, bonds helped tion are spiking. Many cen-
cent since peaking last tral banks around the world
summer, and it joined mar- percent should be expect- double the S&P 500’s drop. to limit losses for investors now see the opposite — a
kets around the world in sustained cycle of falling
another slide on Thursday. ed, and most recessions with balanced portfolios, prices, or deflation — as the
Worries are high that the bigger threat.
sharp slowdown in China’s have seen the S&P 500 fall — Which stocks tend to and then helped them get
growth, falling U.S. cor- — Why not sell stocks and
porate profits and other at least that much. Includ- hold up best? back to even long before just get out of the way?
downward pressures will It’s scary to watch the stock
pull the economy back into ing the 19.9 percent drop Even when the economy’s stock-only investors did. market plummet, but long-
a recession. term investors have always
If a garden-variety one is around the 1990-91 reces- shrinking, people still buy The average intermediate- eventually been made
on the way, the stock mar- whole.
ket’s drop isn’t even half- sion, it’s happened in 10 of food and diapers. term bond mutual fund has Someone with terrible tim-
way done. ing who bought an S&P 500
Stocks have lost an aver- the last 14. Because profits tend to stay returned 1.3 percent this index fund on Oct. 9, 2007,
age of 33 percent from when stocks peaked be-
top to bottom around past The last recession was far steadier for companies that year, through Wednesday. fore the financial crisis, got
recessions, going back to back to even by August
1929, according to a re- more painful for investors, sell everyday items to con- Another traditional land- 2012, aided by dividends.
view by strategists at Credit That meant a wait of about
Suisse. Investors are scared with its 57 percent plunge. sumers, so do their stock ing spot for jittery investors, five years.
enough that they’re al- Plus, much of stocks’ long-
ready pulling pages from But that occurred when prices. That’s why investors gold, has also climbed this term returns can come
the recession playbook. from just a handful of really
They’re moving into types investors were questioning lump them with health care year. big days, and it’s impos-
of stocks and other invest- sible to predict when they’ll
ments that have typically whether the financial sys- and telecom stocks into a occur. Miss them, and own-
held up best during past ing stocks gets much less
downturns and avoiding tem would even continue category known as “defen- — Why might the playbook lucrative. Two thirds of the
those that tend to get hit S&P 500’s gain over the last
the worst. to exist, and it was far from sive” stocks. not work as well this time? decade has come from just
The temptation to sell five days.
everything and get out typical. You have to go They still fall during reces- Investors scarred by the “This is the whole point of
of stocks can be costly, why equities generate the
though. Following every back to the Great Depres- sions, but not as much Great Recession have piled best returns of any major
past recession, stocks have asset class over long pe-
eventually gone on to re- sion to find a bigger drop as the rest of the market. into relatively safe stocks in riods of time,” says David
cover their losses — and Lefkowitz, senior equity
then climb higher. for stocks. Procter & Gamble and recent years, even while strategist at UBS Wealth
Every downturn is different, Management Americas.
but a look at the numbers other makers of consum- the economy was grow- “They have higher volatility.
gives investors a sense of If you can live with the high-
at least what’s possible. — Which stocks tend to do er staples fell 31 percent ing, in search of steadier er volatility, you should be
Here’s what they show: in a position to earn higher
worst? around the Great Reces- returns. All that demand returns. I fully expect that
— How bad are recessions stocks ultimately will reach
for stocks usually? Size matters. The smaller sion, roughly half the broad means they’re trading at new highs.”q
the company, the more its market’s loss. higher prices relative to
stock tends to fall during a their earnings, and more
recession. The Russell 2000 —What about other “safer” expensive valuations mean
index of small-cap stocks investments? these stocks may not offer
has done worse than the Bonds are a traditional as much protection as in
S&P 500 index of large-cap comfort blanket for inves- past downturns.
stocks in each of the past tors during downturns be- As for bonds, their low yields
five recessions. cause they are less vola- mean they’re not produc-
A similar scenario is playing tile than stocks, and they ing as much income. That
