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It may not seem like it, but a recession in 2020 is a serious possibility.
In fact, researchers at MIT have developed a new recession prediction model that says the chances are at 76% right now.
With the S&P 500 surging 20% higher over the last year and sitting near record highs, a recession might be the last thing on investors' minds. The economy is humming too. Unemployment is at a rock bottom 3.6%, and GDP grew 2.1% last quarter.
But according to another metric, this is no reason to be complacent.
It's called the "Mahalanobis distance," and it was originally designed to analyze human skulls.
And it's turned into one of the most reliable recession indicators we have...
Why a Recession in 2020 Is a Real Risk
The Mahalanobis distance is simply a statistical measure of how one point relates to a larger group. You can use it to compare how one skull relates to a group of skulls, or how one time period in the economy compares to another.
The MIT researchers used it to compare our current economy to our economic history.
Specifically, they looked at four key factors: stock market growth, the yield curve, nonfarm payrolls, and industrial production.
This indicator rose before every recession going back to 1916, and it currently shows a probability of 76% for the next recession to hit in the next six months.
Of course, a 76% probability doesn't mean a recession is guaranteed to happen. Even if the economy slips into a recession, a stock market crash isn't sure to follow either.
But it's a sign investors can't let the great stock market returns lull them to sleep.
A sudden downturn or even market crash could wipe out all of last year's gains or worse. But vigilant investors can hedge against this risk by getting ahead of the curve.
And it's as simple as making one investment...
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How to Protect Your Cash Against a 2020 Recession
One of the best and simplest ways to protect your portfolio is to open a position in gold.
Gold is a safe-haven asset, so when uncertainty rises or stocks plunge, investors pour cash into gold. By owning gold before disaster strikes, you'll be making a profit if the worst-case scenario happens. That could help stabilize your portfolio as stocks fall.
And you don't need to buy gold bars or coins either. These require extra money to ship and secure, and then you're responsible for finding a buyer when you're ready to reduce your position.
A better strategy is a gold ETF. We like the SPDR Gold Trust ETF (NYSEArca: GLD). It's liquid, reliably tracks the price of gold, and has a low fee structure. You get the benefit of owning gold without the inconvenience.
GLD is up 5% on the year compared to just a 3.4% gain for stocks. That's with stocks near all-time highs and the economy roaring - imagine what will happen if recession fears creep in.
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