How to invest during recession

THE TYPICAL INVESTOR took a bath last year, because too much of his portfolio was in stocks and his weighting was tilted too much toward tech.

If that describes you, you're probably a bit gun shy about the stock market — especially since recession predictions are proliferating faster than reality TV shows these days.

But an economic slowdown or even a full-blown recession don't necessarily mean it's time to cash in your remaining stocks and hide your money under the mattress. Instead, this should be a time to review the lessons you learned from last year's market misery and make the necessary adjustments to your long-term investment strategy.

We talked to some financial planners for their recommendations of what to do now. Here's what they had to say.

Bond Funds
Now is an especially good time to consider bonds, some planners say — perhaps for as much as 20% of assets. "There are a lot of reasons for investors to reconsider their stock-to-bond balance," says Harold Evensky, a financial planner and principal in the Coral Gables, Fla., money-management firm Evensky Brown & Katz.

Evensky recommends putting money into an investment-grade corporate bond fund rather than buying U.S. Treasurys, the gold standard of fixed-income products. Why? Even after the Federal Reserve's surprise half-point interest rate cut last week, corporate bonds remain an attractive alternative for return-hungry investors looking to avoid some of the risk associated with stocks. The current average yield on a five- to 10-year corporate bond is 6.5%, a full 1.5 percentage points above the 10-year U.S. Treasury. The returns are even greater on 20-year investment-grade corporate bonds, which currently carry an average yield of 7.48%, according to Moody's Investors Services, the bond-rating company.