Be Smart — How To Recession-Proof Your Portfolio With Gold

ISTANBUL, TURKEY – MARCH 16: Plates of gold are examined in the office of the gold trade company … [+] AYCAN in the Grand Bazaar on March 16, 2005 in Istanbul, Turkey. Traders in the Grand Bazaar have developed a community of traders that trade gold on streets corners of the grand bazaar. Trust and security is what holds this community together and made the Grand Bazaar a traditional place for gold trading. (Photo by Yoray Liberman/Getty Images)

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Despite appallingly incorrect forecasts of an imminent recession for the last year and half, one will arrive. Well eventually one will.

It’s the nature of the business cycle. Risk-takers don’t always have the same appetite for risk. There are time when they do the smart thing and lower their risky investments and take on some more robust assets.

A recent video from Jeff Christian, managing partner at New York based Commodities Consulting firm explains his approach. You can watch it here.

However, here’s a simple summary of what he says.

Star Cutting Debt Now

The first thing to do is to reduce your debt level, he says. That’s something that Americans often don’t bother with. But it’s increasingly important.

The average American had credit card debt of $6,568 in the second d quarter up from $5,963 a year earlier, according to data from the New York Federal Reserve Survey of Consumer Finance. It’s my guess that the surging cost of living will mean those balances will have increased even further.

I think we all know the ways to cut back on debt but many of us aren’t willing to knuckle under. One way is to make lunch at home and take it with you to work. In a similar way, eating at home achieves the same job: it lowers your outgoings. Of course there are many other things to do. But this isn’t the place for a detailed analysis. The message is simple: cut the debt, first by cutting spending, then by paying down the balance.

When the debt is down, then make sure you have some cash on hand. “Build your cash reserves,” Christian says.

Raise Cash

There are a couple of reasons for wanting cash in a recession. First you might need cash to live on if you lose your job or your own business slows down. Second other things are cheaper including financial assets that you might be able to pick up at bargain prices.

The next thing he suggests is pruning your portfolio. “Clean up your portfolio,” Christian says. “Dump the weak stocks.”

Dump Sketchy Stocks

Christian suggests holding onto stocks that are truly recession-proof. He acknowledges that it can be hard to tell what will work in an economic downturn and what won’t. “When the tide goes out all boats go down,” he says meaning that even good solid companies see their share price fall.

Then there is a question of how much gold or other precious metals to hold in a portfolio.

Add Gold and Silver

Christian suggests 20-25% of wealth be invested in gold and/or silver. Gold has the ability to reduce overall portfolio volatility which is usually synonymous with reduced investment risk.

Investors could by bars of gold and silver bullion and store it themselves. or they could consider the SPDR Gold Shares exchange-traded fund which holds bars of solid bullion. There are many other similar products out there.

Some investors may want to consider gold stocks, such as mining companies. However, when the market goes down it can also drag down precious metals mining stocks as well, depending on the company. For instance, the VanEck Gold Miners ETF , which holds a basket of mining stocks plunged during the 2008 recession.

I recommend watching Christian’s video he always provides deep and sensible investing insights.