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Is there such a thing as a 'recession-proof' portfolio?

Even diversified investments can't protect every cent, but you can be recession-resistant

"It's recession-proof."

If I were given a dollar each time someone described his investment portfolio that way, I'd have enough money to ride out any recession.

But, exaggerations aside, I hear that adjective a lot in my line of work. Newsmakers often use this term to explain the idea behind the diversity of their investments.

Experts, too, tell us to spread our finances over a variety of instruments to help cushion the blow in the event of a financial crisis. But do such methods work in the face of the real thing?

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I have often wondered: Is there such a thing as a "recession-proof" portfolio?

As a small-time investor, I have often looked for that perfect way to safeguard my hard-earned money.


ST ILLUSTRATION: ADAM LEE

I read extensively on the subject, devour books by investment gurus, follow blogs written by experts in the investment industry and try to understand my options on how best to safeguard my house against a financial storm. But I have yet to hit upon a perfect solution.

Such a portfolio, if it were to exist, would be akin to the mythical cave of Ali Baba - a well-hidden vault in the woods which would hold my money for safe keeping and protect it against the vagaries of financial markets.

But over time, I realised the futility of such expectations.

I realised no matter how savvy an investment is, it will always come with a caveat, and no matter how diversified a portfolio is, it cannot guarantee the protection of every penny.

My financial adviser explained that while some industries do thrive in recessions, the only portfolio that may be able to weather one would include bank deposits or government bonds.

But, of course, you can always rein in your shopping habits, he teased. "Buy what you need, not what you want."

Admonished, I concluded that the best defence against a recession is to dig a hole in my backyard and bury some moolah for the future.

Sadly, experts say the most common cause of damage to currency is "deterioration by burying". Besides, I don't have a backyard.

After giving this a lot of thought, I finally decided to stop worrying too much, and plan on how to cross the "recession-proof" bridge if I get to one. But my fears resurfaced this month when the region observed the 20th anniversary of the Asian financial crisis.

The tiger economies of South-east Asia and East Asia were brought to their knees by 1997's devastating economic meltdown.

During that period, regional currencies lost much of their value, debt accumulated, companies failed, and many people lost their jobs and took their lives in despair.

I read the commemorative articles in print and digital media with great interest. One report that caught my eye was of a high-flying stockbroker who was so badly hit by the crisis that he had to sell sandwiches on the streets of Bangkok. I was shocked. "Did he not have a 'recession-proof' portfolio?" I wondered.

While some may be too young to remember the shock waves of 1997, the sub-prime mortgage crisis that struck the world a decade later hit closer to home.

The crash that began with the fall of Lehman Brothers in the United States buried under its rubble many big banks and financial institutions.

Millions lost their jobs and millions of others became homeless due to foreclosures.

Although it was contained to a large extent within the shores of the US, a few gusts of those winds did hit other continents.

For me, a mid-career professional by then, the fear of losing my job was real for the first time in my career. I could clearly see my vulnerabilities and the uncertainties of the future.

I shed my complacency and signed on the financial adviser who helped me build a sound portfolio. He also suggested creating an emergency fund which would help tide me over recessions, while investing my money to offset inflation - sage advice which I have heeded for a while now.

But I have also gone a step further. Knowing my penchant for spending, I created an account which would hold enough cash to meet my monthly expenses and maintain the required amount of emergency funds.

I started another account in a different bank which strictly serves the sole purpose of holding my savings - my personal Ali Baba's cave, if you will.

I made it a habit to remit a minimum amount to my mother's account in India, although she does not need the money. It serves as my spending account when I am overseas. Buying small amounts of gold during festive occasions and dropping one-dollar coins in my piggy bank have become a habit I just cannot break.

By my most conservative calculations, squirrelling away of resources in this manner will buy me time - 18 months at most - in an economic crisis.

All this has not exactly made me recession-proof, but it has given me peace of mind. It has definitely made me recession-resistant.

A version of this article appeared in the print edition of The Sunday Times on July 16, 2017, with the headline 'Is there such a thing as a 'recession-proof' portfolio?'. Print Edition | Subscribe