ETF Strategies for RecessionProofing Your Portfolio

Post on: 16 Март, 2015 No Comment

ETF Strategies for RecessionProofing Your Portfolio

Talks of a surging recovery have faded into distant memory as the financial landscape has become littered with news of gloom. In case the dire news proves true, we highlight below a few strategies and ETFs you can use to recession-proof your portfolio.

Nilus Mattive of Money and Markets thinks dividend stocks are the only way to go because history seems to indicate that they weather recessions better while producing non-refundable returns along the way.

Mattive explains that in 2002, dividend-paying stocks outperformed non-paying stocks almost 3 to 1 during the market crash. In 2008, at the height of our current financial crisis, he claims that dividend-paying stocks outperformed non-paying stocks by almost 6%.

Mattive further expounds on the value of dividend-paying stocks by breaking down the recession-performance of stocks into sectors. His numbers show that the S&P 500 lost an average of 21% during past recessions (excluding the most recent) while other dividend-paying sectors lost much less.

  • The average utility stock lost 15%
  • The average health care stock lost 7.3%
  • The average consumer staples stock lost just 2.4%
ETF Strategies for RecessionProofing Your Portfolio

Even more specifically,

  • Alcoholic beverage stocks rose an average of 6%
  • Household products stocks rose an average of 1.8%
  • Tobacco stocks rose an average of 9.6%

A popular dividend-paying ETF is iShares Dow Jones Select Dividend (NYSEARCA:DVY ) .

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Elliot H. Gue of InvestingDaily also agrees that dividend-paying stocks can help investors weather a financial storm. He warns not to look for the highest yield, but to look for companies with a track record of solid earnings to maintain its payouts.

In addition to dividends, Gue recommends using shorts. Shorts, he claims, can help hedge your portfolio against a market decline. Although theoretically, you could lose more than 100% of your investment, Gue argues that it is unlikely that a stock would double in a few months.

If you dont want to deal with margin accounts, ETFs have made it easier to take short positions. Two such ETFs include ProShares Short S&P 500 (NYSEARCA:SH ) and ProShares Short Russell 2000 (NYSEARCA:RWM ) .

Sumin Kim contributed to this article.

Disclosure: None


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