As we enter 2025, economic uncertainty is on the rise, and many investors are wondering: Are we heading into a recession? Understanding the key economic indicators and adjusting your investment strategies is crucial to protecting your investment portfolio during challenging times. In this blog, we’ll cover:

In this blog, we’ll cover:

• Major signs of a recession and whether we’re seeing them now
• The last U.S. and Canadian recessions
• How bonds normally work and why the yield curve inverts
• What investments perform well during recessions
• How to adjust your asset allocation to minimize losses
• Should you buy or sell before a recession?
• Best ETFs to strengthen your portfolio
• Warren Buffett’s cash strategy—what we can learn from it

1. Major Signs of a Recession

Key economic indicators that signal a potential recession include:

• Inverted Yield Curve – Historically, one of the most reliable recession predictors.
• Stock Market Volatility – Large swings indicate uncertainty.
• Housing Market Cooling – Rising interest rates slow down home sales.
• Corporate Layoffs – Job losses often signal economic weakness.

2. The Last U.S. and Canadian Recessions

The last U.S. recession occurred during March – April 2020, triggered by the COVID-19 pandemic. Canada also entered a brief recession during the same period.

Before that, the 2008 Financial Crisis was the most severe economic downturn, lasting 18 months.

3. How Bonds Normally Work & Why the Yield Curve Inverts

How Bonds Normally Work

• Long-term bonds (10-year, 30-year Treasuries) pay a higher interest rate than short-term bonds (2-year, 3-month Treasuries).
• Investors demand more return for locking up their money longer.
• A normal yield curve slopes upward, showing that longer-term bonds yield more than short-term bonds.

Why the Yield Curve Inverts

An inverted yield curve happens when short-term bond yields rise above long-term bond yields. This occurs due to shifts in investor sentiment:

• Fear of Recession → Investors believe economic growth will slow.
• Flight to Safety → Investors rush to buy long-term bonds.
• Higher Demand for Long-Term Bonds → Their yields drop as prices rise.
• Higher Short-Term Yields → The Fed raises interest rates to fight inflation.

Why does this matter? The yield curve has inverted before every U.S. recession since 1955.

4. Best Investments During a Recession

• Gold & Precious Metals – Safe-haven assets.
• Government Bonds – Provide stability.
• Dividend-Paying Stocks – Companies with strong cash flow.
• Defensive Sectors – Healthcare, utilities, and consumer staples.

5. How to Adjust Your Asset Allocation

• Increase cash reserves – More flexibility during downturns.
• Diversify with bonds – Helps balance stock market risk.
• Hold quality dividend stocks – Provides consistent income.

6. Should You Buy or Sell Before a Recession?

Investors often panic-sell, but history shows that staying invested in strong companies pays off.

• If you sell, you may miss out on the recovery.
• Buying during market dips allows you to get quality stocks at lower prices.

7. Best ETFs for Recession Protection

Consider these ETFs focusing on defensive sectors, bonds, gold, and low-volatility strategies:

Defensive Sector ETFs

• XLP – Consumer Staples Select Sector SPDR Fund
• XLV – Health Care Select Sector SPDR Fund
• VDC – Vanguard Consumer Staples ETF

Bond ETFs

• BND – Vanguard Total Bond Market ETF
• TLT – iShares 20+ Year Treasury Bond ETF

Gold & Commodities ETFs

• GLD – SPDR Gold Shares ETF
• IAU – iShares Gold Trust ETF

8. Warren Buffett’s Cash Strategy

Warren Buffett’s Berkshire Hathaway is currently holding $167.6 billion in cash, much higher than his usual $100 billion. This suggests he is waiting for market corrections to deploy capital strategically.

9. Final Thoughts: Stay Invested in Strong Companies

Economic cycles create opportunities. Long-term investors should focus on:

• Buying strong businesses at lower valuations.
• Investing in defensive assets to hedge risk.
• Staying patient and following a solid investment strategy.

Adding recession-proof ETFs, such as dividend ETFs (SCHD, NOBL), bond ETFs (TLT, BND), gold ETFs (GLD, IAU), and defensive sector ETFs (XLV, XLP), can help mitigate losses and stabilize your portfolio.

Are you preparing for a possible recession? Share your thoughts in the comments!