How to Prep Your TFSA for the Looming Recession

Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) is precisely the type of all-weather stock the smart money would want to own for rough times.

Is a recession coming to an economy near you? You’d better believe it.

The yield curve has inverted once again, and investors are confused as to what their next course of action should be given the seemingly high risk of recession.

Although many headlines are encouraging investors to ditch equities for gold, cryptocurrencies, bonds, cash, and cash equivalents, I’m going to continue to recommend investors to stick with equities through these rougher waters in spite of all the recession indicators that are flashing red.

I’m not biting on the recent inverted yield curve warnings, because, to be frank, you’re not going to make money by paying attention to news that everybody else has already had ample time to act on. Instead of wasting your time with shallow market projections, focus your attention on finding individual companies that are priced at discounts to their intrinsic value.

A recession may be coming, but not because of some inverted yield curve. There’s always a recession that’s coming, and it’s important to remain humble and not attempt to predict when exactly such a recession and accompanying market crash will occur. Instead, one must prepare themselves to profit in up and down markets with a risk-parity portfolio that’ll hold up under any weather.

If you’re overweight cyclical stocks and are looking to maximize your returns in an upmarket, you’re likely to be more concerned about the state of the economy and less so on the performance of the individual companies themselves.

By playing both the bull and bear sides of the coin, you’re positioning yourself to win no matter what. It’s foolish (lower-case f) to not have a “Plan B” in case we do get caught up in a bear market that’ll probably hit us when we expect it least.

So, what’s the best way to prep for a recession?

A recession is always coming, but few, if any, people know when or why. And a majority of those talking heads on TV certainly have no idea!

With that in mind, it makes sense to ensure you’re adequately compensated in case that 10 % in expected capital gains has a negative sign slapped on courtesy of a disgruntled Mr. Market.

If you’re going to wait months or years for potential paper losses to reverse, you might as well get paid to do so. That’s why I’m a massive fan of lowly correlated dividend stocks in the late stages of the economic cycle — not because of some silly inverted yield curve, but because one day the bear will re-gain control of this market. And when it does, it’s only prudent to insist on a growing dividend with a business that’ll remain on stable footing as its peers stumble.

Consider Brookfield Infrastructure Partners (TSX: BIP.UN)(NYSE: BIP), a firm that acquires and manages various quality infrastructure assets that span the globe.

Think utilities, energy, communications, and transport infrastructure — much-needed infrastructure that’ll need to stay online, regardless of how robust the economy is faring. Such infrastructure assets are considered “alternative assets” and are less correlated to choppy moves made in the broader markets.

The stock also pays a bountiful distribution, which currently yields 3.1%, which is yours to keep, no matter what. What’s even more impressive is management’s target of 5-9% in annual distribution growth.

Given the boring but predictable nature of BIP’s cash flows, such high single-digit distribution-growth numbers will be sustainable through good times and bad. That’s precisely the type of foundation you’ll want for your portfolio if you’re going to score satisfactory returns over time with recessions, slowdowns, and all the like thrown into the mix.

Stay hungry. Stay Foolish.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. Brookfield Infrastructure Partners is a recommendation of Stock Advisor Canada.

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