1. Look to stocks over bonds and
U.S. over international
History suggests that the years before a recession are often lucrative (albeit volatile) for stocks.
Sources: Morningstar Direct and Wells Fargo Investment Institute, March 31, 2018.
Monthly data from August 31, 1926, to September 30, 2007. All returns are for one-year intervals—the first, second and third year before a recession—as defined by the National Bureau of Economic Research. Performance results are for illustrative purposes only and do not represent the performance of any investment, nor should they be interpreted as a forecast or as an indication of how the asset classes may perform in any future recession period. An index is unmanaged and not available for direct investment. Past performance does not guarantee future results. Index returns represent general market results; assume the reinvestment of dividends and other distributions; and do not reflect deduction for any fees, expenses, or taxes applicable to an actual investment.
Intermediate-term government bonds are represented by the Ibbotson Associates Stocks, Bonds, Bills and Inflation Series (IA SBBI) U.S. Intermediate-Term Government Bonds TR Index. Large-cap equities are represented by the Ibbotson Associates Stocks, Bonds, Bills and Inflation Series (IA SBBI) U.S. Large Stock TR Index. Small-cap equities are represented by the Ibbotson Associates Stocks, Bonds, Bills and Inflation Series (IA SBBI) U.S. Small Stock TR Index.
Different investments offer different levels of potential return and market risk. Investing in stocks involves risk and their returns and risk levels can vary depending on prevailing market and economic conditions. Small-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. Government bonds are guaranteed as to payment of principal and interest if held to maturity and are subject to interest rate. Please see the end of this report for index definitions and additional asset class risk considerations.