Recession-Proof Your Portfolio

This column was originally published on RealMoney on Sept. 10, 2007 at 11:46 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

The release of the seemingly rotten employment numbers last Friday has opened many more people up to the possibility of a recession. This article will not focus on whether there will be a recession . I do, however, suggest what to do with sector weightings within your portfolio to try to ride out a downturn until the next cycle begins.

Financial sector -- 19.81% of the S&P 500: A precursor to a recession is often an inverted yield curve . Curve inversion impedes success within the financials, and the best thing to do when the curve inverts is to simply underweight the sector . I first started expressing concern about the slope of the curve about a year-and-a-half ago.

My preference for the time being is to remain underweight, favor high-yielding foreign banks and wait for the yield curve to normalize before adding volatility back in with the brokerages or exchange stocks. I would not want to own small or volatile or narrowly based companies (like mortgage only) until the yield curve normalizes. ...