3 Signs Your Retirement Portfolio Is Not Prepared for a Recession

With the stock market falling into one of its fastest corrections in recent memory, many retirees may be wondering if they’re ready to ride out what could be a rough rest of the year. Indeed, it never feels good to hear the word “recession” being thrown around as a growing number of investors fear a potential bear-case scenario with tariffs. At this juncture, it’s easy to sell stocks and ask questions later as you reach for risk-off assets while interest rates are still relatively elevated. Why stay in stocks if volatility has picked up and you sense that a storm is coming?

Whether it’s calls for “lower prospective returns” moving forward due to lofty valuations, the return of negative momentum with the S&P 500 dipping around 10% from its peak to the more recent trough, AI bubble concerns, tariff uncertainty, or the supposed increased risk of recession (or even stagflation, which entails sluggish economic growth and high inflation), there’s no shortage of reasons to rotate from stocks and into HYSAs (high-yield savings accounts), CDs, gold, silver, or any other safe haven that’s not tied to the larger day-to-day swings in markets.

Treat the latest correction as an opportunity to re-evaluate one’s risk exposure.

Of course, selling stocks and parking cash in HYSAs is not the correct answer for every retiree. As I mentioned in a previous piece, there is such a thing as taking too little risk in retirement by not owning enough (or any) stocks. Undoubtedly, many retirees seek certainty as the golden years approach. With Trump tariffs threatening to refuel inflation and take a big bite out of GDP, times couldn’t be more uncertain.

Retirees should treat the latest market bloodbath as a chance to put their portfolio into perspective.

Is there too much risk on the table? Too little? Is one diversified enough geographically? What about alternative assets? By asking such questions, a retiree can find out where they stand and course correct as necessary with or without a bit of outside help.

Here are three potential symptoms of a retirement portfolio that may not be ready for an economic downturn:

Your portfolio has fallen far more than the S&P 500 since Trump’s presidential win.

The first red flag for retirees to consider carefully is how their portfolio has stacked up against the S&P 500 since Trump won the election. Undoubtedly, the Trump trade minted a number of winners and losers before it ultimately peaked and fell flat. With tariff fears mounting, the companies most vulnerable to tariffs could be at risk of a larger hit on the way down. Still, it’s not just the tariff-sensitive firms that have amplified the downside in recent months.

The high-multiple stocks have gotten hammered, with many already deep in bear market territory. Whether you view the latest correction as the start of something far more horrific or just a de-frothing of the market’s most expensive stocks, having a portfolio that’s down more than the market since Trump’s win is a sign that one’s portfolio may be under-diversified or taking on too much risk.

You’re too heavy in tech.

The Magnificent Seven stocks have been cherished by many, including retirees, in recent years. Of late, they’ve been clawed down by the bear. And if you’ve bought on the way up while never taking any profits off the table, you’re probably feeling amplified damage from this market correction. Perhaps it’d be a good time to revisit your sector exposure.

If it’s too heavy in tech, you could be at risk of feeling the brunt of the next recession-driven decline in markets. Indeed, the Magnificent Seven names are among the bluest of blue chips. But don’t forget that some of the names — like Meta Platforms (NASDAQ:META), which fell over 75% from peak to trough — completely crumbled during the 2021-22 bear market.

You have few, if any, international investments.

Finally, if you’ve vastly underperformed in recent months, perhaps you’re not diversifying internationally. Indeed, the iShares Europe ETF (NYSEARCA:IEV) has been a robust performer, up 17% year to date, as the S&P 500 crumbled.

While it may be too late to diversify into Europe or other geographies, the year-to-date discrepancy in performance between U.S. and international stocks hasn’t been this pronounced in a while. Indeed, we’re witnessing the value of diversifying internationally first-hand.

If you’re heavy on U.S. stocks, you’re not alone. Many investors may be guilty of “home country bias,” especially after periods of exceptional performance. All one can do is treat the latest decline as a learning opportunity and move on. Now, that doesn’t necessarily mean it’s time to start loading up on the IEV as you ditch the S&P 500 right now. However, it could entail broadening one’s horizons over the long run and buying into non-U.S. markets gradually over time.

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