The classic financial advice is to diversify your portfolio.However, diversification alone does not eliminate risk. Past recessions—including the dot-com bust in the early 2000s, the financial crisis in 2008–09, and the COVID-19 pandemic in 2020—show that the best portfolio strategies were not all the same.Dot-Com Bust (Early 2000s):Driven by excessive tech stock valuations, protection came from overweighting value, mid, and small-cap stocks. These outperformed tech for nearly a decade. Treasury bonds and gold appreciated as investors sought safety.Financial Crisis (2008–2009):Triggered by weak lending standards and risky mortgage-backed securities, banks were central to the collapse. Value stocks underperformed due to their financial sector exposure. Treasury bonds and gold again provided safe havens, supported by Fed actions like rate cuts and asset purchases.COVID-19 Recession (2020):An unexpected health crisis caused both stock and bond markets to plunge. Cash offered stability. Gold rallied briefly. Aggressive monetary and fiscal stimulus followed. Treasuries rallied and growth stocks surged.Inflation & Fed Tightening (2022):High inflation and rising interest rates led to a bear market. Treasury bonds failed to hedge due to climbing yields. One effective strategy was to hold cash instead of low-yield bonds, and to favor value over growth stocks.What Is Causing Economic Duress Today?Today’s economic environment is shaped by:Rising tariffsHigh national debt (≈100% of GDP)Large budget deficit (≈7%)Limited fiscal and monetary policy flexibilityUnlike past periods, today’s globalized economy and interconnected financial systems magnify these risks. The Fed has less room to cut rates, and confidence in the U.S. fiscal position may falter—raising rates or weakening the dollar.What Are the Risks?We see two major possibilities:RecessionStagflation (slow growth + high inflation)While outcomes depend on unpredictable policy moves, we lean toward stagflation. Here are strategies for both scenarios:Strategies for RecessionReduce equity exposureEspecially if you need liquidity, have lower risk tolerance, or revised goals. U.S. equity valuations remain high.Shift into dividend-paying stocksThese offer income and tend to hold up better in downturns. Unlike 2008, banks are less likely to be at the center of any crisis.Buy bondsThe Fed would likely cut rates or buy bonds, boosting prices. That said, effectiveness may be muted due to high debt and uncertain foreign demand.Hold cashWith falling inflation, cash provides stability. Note: money market yields drop in a recession as the Fed cuts rates.Strategies for StagflationAdjust equity holdingsAs with recession, favor dividend-paying stocks that may fall less in volatile markets.Buy commodity stocksReal assets tend to outperform during supply shocks and inflation. Focus may vary: oil in the 1970s; now agriculture and rare earths.Buy gold and gold stocksGold is liquid, independent of institutional credit risk, and provides diversification. It's a hedge against geopolitical instability and dollar weakness. While gold has rallied, it may consolidate before rising further.Gold is especially attractive if we're nearing a global monetary reset. A significant dollar devaluation relative to gold could reprice real assets.Need Help?If you’d like help thinking through portfolio adjustments or risk management strategies, we’re here to help.