What should I do to protect myself from a recession?

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Anthony from Kankakee asked:

Recession indicators

Earlier this year, banking giants like JPMorgan and Goldman Sachs increased their odds that the U.S. will hit a recession this year, saying the probability was 40% to 60%.

But Christine Benz, director of personal finance and retirement planning at Morningstar, said, "It's not a given that we will be moving into a recession."

"There are a few indicators that perhaps the economy is weakening. We've seen signs that consumers are maybe beginning to rein in their spending a little bit in response to tariffs. But it's too early to call for a recession," she said.

However, it's still good to prepare yourself for a potential economic downturn by doing things like looking at your investment portfolio and saving up more cash.

Reconsider being all-in on stocks

Benz said Morningstar has done research into how different types of investments have performed in economic downturns. The investment management and research firm found stocks in five of the past eight recessions have historically had losses.

"You wouldn't want to be all stocks. You'd want to have some bond assets in your investment portfolio and some potentially cash assets as well," she said.

In eight of the past recessions, dating back to 1929, Benz said, Treasury bonds have stayed in the black. This means they've had positive returns in a recession, while stocks were often performing poorly.

Benz said if you're going to invest in stocks, some industries are worth focusing on such as health care.

"Health care spending is usually a category where people continue to spend," she said. "They'll keep going to the doctor if they need to. They'll buy medications that they need to take. ... So health care [stocks are] usually a good place to be."

She said people often switch to lower-price consumer brands in a recession, but they'll continue to shop, especially for staples like diapers or paper towels. But she cautioned not to over invest in "consumer discretionary stock" like retailers.

Other investments to consider are utility companies, which are typically seen as recession proof as most people will continue to pay their gas or water bills.

Boost your savings

The traditional rule of saving three to six months worth of living expenses is still worth following, Benz said.

"Many households don't have that much, but the idea is that you're protecting yourself against job loss, which is a greater risk in a recessionary environment," she said.

Having cash also reduces the risk of taxes or penalties if you need to access your money quickly.

Check your home equity

Homeowners who have equity built up should consider preemptively lining up a home equity line of credit, Benz said.

"You shouldn't have it instead of your emergency fund, but you would have it in addition to," she said. "And the idea there is if you have exhausted your emergency fund ... and maybe you're still looking for a job, or you still need additional cash, you could turn to that home equity line of credit."

She also said the interest rate will typically be lower than a credit card.

"It's a good kind of backup to the backup," she said.

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