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Tess Vigeland: So have you heard it recently? The "R" word? Seems to be cropping up a lot -- folks worrying about the specter of recession.
The concerns have picked up steam since the credit crisis busted out in August. Many experts say we're not quite there yet, but even Federal Reserve Chairman Ben Bernanke told Congress that the risks of recession are growing.
So with all these varying predictions, we thought it would be good to find out what you can do to prepare for the possibility of recession. Marketplace's New York bureau chief Jill Barshay has some answers.
Jill Barshay: If you live on the Florida coast during hurricane season, you probably have some bottled water and plywood window boards around -- just in case. Wall Street investors are doing something similar with their portfolios: getting them ready in case the storm comes.
David Darst: I think you have to mentally, as well as financially, prepare your portfolio for a recession.
That's David Darst. He's the chief investment strategist at Morgan Stanley. He says there's a 40 percent chance the economy will fall into a recession. That means there's a 60 percent chance there won't be a recession. Even so, Morgan Stanley has been telling clients to sell some of their stocks. After all, history shows that stocks tend to fall 8 percent way ahead of a recession, six to 12 months before the storm strikes.
Darst: There's no reason to stay there on the edge of the beach and try to guess that the storm's going to pass you by or not be that severe. If the weather reports are building, no reason why you can't pull back a little bit and so we think this is a prudent time to lighten up in some of the areas where there've been big gains.
Just a bit stock selling, less than 10 percent of your portfolio, and not a fire sale, a little bit, slowly, each month. Darst says to stockpile the proceeds in a cash account or very liquid assets like money markets, treasuries or short-term one year notes.
Darst: When the stocks drop, you can then deploy that cash and buy these stocks at lower prices.
There is other fine tuning you can do. Lakshman Achuthan is the managing director of Economic Cycle Research Institute. He says you can shift away from the United States to other countries where the economy is going strong and you can move away from industries like automobiles and appliances, things that consumers don't buy so much of when times are bad.
Lakshman Achuthan: You would like to be in areas that are what we call non-discretionary, things that you have to buy. For example: health care, education, or consumer staples -- toothpaste and toilet paper.
And what about that old tradition of stuffing cash in your mattress?
Achuthan: Right now, the value of the dollar is falling. Maybe you wanna have some yuan in the mattress or some rupees in the mattress right now.
Experts say the time to make portfolio adjustments is now, before stocks turn south.
Achuthan: If you wait for everybody and their brother to say that there's a recession, it's probably too late and then you're better off just buying and holding.
By buying and holding, he means doing nothing to your portfolio. The problem is that it's hard to get the timing right.
Marc Weidenmier is an economics professor at Claremont McKenna College. He's studied how financial markets have reacted to economic downturns over the past two centuries.
Marc Weidenmier: You can't pinpoint exactly the timing of when the market's going to fall and when the market's going to recover. I mean, otherwise, if you could, then investors could change their portfolios appropriately and make a lot of money.
Weidenmier recommends keeping a diverse portfolio -- stocks, bonds, real estate, cash -- in good times and bad and be willing to ride the roller coaster.
Indeed, you could take a lesson from CalPERS, the nation's largest pension fund. It's not making any recessionary adjustments. It's keeping 64 percent in stocks, half of which are in a passive index fund.
In New York, I'm Jill Barshay for Marketplace Money.