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The bubble in almost everything is going to burst eventually and I figure while markets are at an all time high it would make sense to start planning for an eventual recession. What investments can I make now besides hoarding gold?

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    "...besides hoarding gold" Please don't blindly hoard gold on the assumption that it is a miracle investment which can't fail... Dec 14, 2017 at 13:46
  • It's always fair to rebalance to your target asset allocation; and if you're in an older age bracket, to consider a new age appropriate asset allocation.
    – user662852
    Dec 14, 2017 at 17:40

2 Answers 2

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I understand your question is not about if or when a recession will come, or if or when stocks or other risk assets will fall. Predicting those things with any degree of confidence is impossible.

The kinds of positions and assets that make you well positioned and perform well (relative to other assets) when entering a recession are cash (while unpopular now, "cash is king" in a crisis) or liquid, short-term debt, such as short-term treasuries (short-term is the important thing here, as bonds as a whole may not be a good investment in this phase of the cycle, when interest rates are rising, especially when they do it from historically low levels). Of course, by holding these, you give up any potential further gains in stocks, which may be significant (and don't forget dividends).

If you want to make your portfolio more conservative but still stay (to some extent) exposed to gains in the equity markets, there are several ways to do it:

1) Choose the less popular, more "boring" stocks. The most popular stocks like Amazon, Facebook, Apple, Google have very high valuations. But there are many stocks in the "old economy" sectors which are valued much more reasonably.

2) Invest greater weight in defensive, low-beta sectors, such as utilities or telecoms. These typically do well, on a relative basis, in a bear market. Focus particularly on stocks which have a long-term stable record of dividends (these are often stocks from the sectors mentioned).

3) Invest internationally. While US stocks as a whole are quite expensive in terms of valuations, there are regions and countries whose stock markets are trading at more attractive levels. Not just some small, illiquid emerging markets, but you will find such opportunities in established developed markets, such as Europe or Japan.

Regarding gold, it does have some diversification potential and it may be beneficial (improve long-term risk adjusted performance) to invest a small portion of one's portfolio in gold, but it should never be a dominant portion, or anywhere close to that. History shows that gold price volatility is not far from stocks (in other words, gold can also make big losses in short periods of time). If you treat gold as a kind of insurance against possible financial or political system collapse, keep in mind that if (as unlikely as it is) such collapse happens, you may have other things to worry about than your investment portfolio (like life, food, or protecting your hoard of gold from others). Besides, if you buy things like the GLD ETF, then in the collapse scenario you are not really owning gold, you are still owning just a worthless piece of paper (or more precisely, an electronic record somewhere). In other words, no investment is 100% safe and apocalypse-proof (other than investments in your health, education, and skills).

You may also want to look for potential investment opportunities in your local area, outside the global, public markets. For example, small businesses or real estate - if you can find a situation when you have an informational or other advantage, which you don't have in the global markets (otherwise, as a whole, the valuations of businesses and real estate are as inflated as everything else, the key is to find the rare deal).

Lastly, if you strongly believe a market crash is just around the corner and want to more aggresively bet on it, there are some ways which may be safer than outright shorting the stocks. Like put options (implied volatility, which measures their overall prices, is at historically low levels) or volatility products (VIX derivatives, ETFs/ETNs, which everyone appears to be shorting these days). I'm just saying these alternatives exist, not that it is a good idea. The markets may crash tomorrow, but they may as well keep on rising for several years before the bubbles eventually burst (holding the above mentioned positions costs a lot of money in eroding time value).

History has shown that trying to time the market can be very rewarding in the unlikely case when you happen to get it right, but very expensive and very painful if you don't. As John Maynard Keynes reportedly said, the markets can stay irrational longer than you can stay solvent.

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What investments can I make now

Something conservative and stable. (US government and investment grade Corporate bonds are the typical answer. Even though Corporate bonds dipped for a while in 2008/09, they dipped less than stocks, and rebounded faster.)

The problem with your question is that there's no good evidence of a coming recession. The stock market is due a "correction", but it's been "due" for 3 years, and in that time the DJIA has gone up 38%, and the S&P500 up 30%.

besides hoarding gold?

Gold is not a stable investment.

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    +1 for "Gold is not a stable investment". So much emphasis should be put on that. Personally, I would probably have to have exhausted a bazillion options before considering putting money in gold.
    – Leon
    Dec 14, 2017 at 11:16

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