If you've read any financial news media this year, you've probably read that there's a recession on the way.
While the Federal budget is expected to be in surplus, and a commodities rebound has boosted the ASX 200 higher, many pundits think the economy is waiting to tank.
The S&P/ASX 200 Index (INDEXASX: XJO) has reached record highs and we've seen the yield curve invert earlier this year. Wage growth has slowed to a snail's pace and we're seeing some weak data from the Aussie retail sector.
So, whether you believe a recession is headed our way or not, here are a few ways that you can position your portfolio to protect your downside risk.
Hold more cash
If you think we're about to hit a market downturn, the obvious answer is to hold more cash.
More cash in the bank means that your savings won't be hit in a recession, and you might even grab a few bargains. If you wait on the sidelines until the market crashes, you can potentially buy cyclical stocks like BHP Group Ltd (ASX: BHP) for a bargain.
If you've got your money tucked away in a savings account or term deposit, this is a low-risk solution to the problem. However, it's also a low-return solution and you might lose out on big gains when trying to time the market.
Diversify your ASX portfolio
If you're worried about a recession but want to stay invested on the ASX, you can consider diversification. This might include looking at asset classes with lower correlations, such as commercial real estate (CRE).
While CRE can be hard to invest in directly, the use of Australian real estate investment trusts (A-REITs) can be your friend.
National Storage REIT (ASX: NSR) is one of my favourites and is yielding a tidy 5.17% at the moment. The self-storage REIT could be a good option for a different style of investment.
Similarly, Centuria Metropolitan REIT (ASX: CMA) could be worth a look for its largely office-based CRE investments.
