What to Invest in During a Recession

Much like the longest droughts or heaviest storms, economic recessions come and go. It’s possible for your investment portfolio to withstand even severe recessions — all you need to know is where to invest! Here are five things to invest inif you know that a recession is on the horizon.

5 Great Recession-Proof Investments

Even if a recession is very clearly setting in, don’t panic! Instead, look at these following five excellent investment opportunities:

1. Core Sector Stocks

In the event of a recession, many people completely abandon their stocks, but doing so is not always the best course of action. It is true that many stocks do indeed underperform in recessions, but some don’t. People need healthcare, food, and other essentials, regardless of whether money is tight, so you might want to consider investing in these core sector stocks:

  • Utilities
  • Healthcare
  • Food companies
  • Household staples (cleaning supplies, toothpaste, etc.)
  • Information technologies (social media, streaming services, etc.)

Bear in mind, however, that each market downturn and recession is different. For example, at the height of the COVID-19 pandemic, Clorox’s stocks performed extremely well, largely because so many people were purchasing bleach, sanitizing wipes, and other cleaning supplies to protect themselves. In a market decline not directly linked to a virus, Clorox may not have performed as well.

2. Large-Cap Stocks

As people panic and start to sell off their stocks as soon as possible at the onset of a recession, you may be able to purchase quality, high-performing stocks for much less than usual. As detailed above, investing in certain sectors can absolutely pay off, but so too can investing in large-cap stocks.

Large-cap stocks are shares of massive companies (usually valued at a minimum of $10 billion), and thanks to their large valuations, these companies tend to be more stable during recessions. 

Stock-screening tools can give you a sense of which large-cap stocks tend to perform the best, and if you want to be extra safe, you can invest in large-cap stocks that are also a part of some of the core sectors from earlier.

3. Real Estate

Though real estate might seem like an unusual investment choice in a period of economic decline, you only need to look back at the 2008 recession to see why real estate investments might be a good choice.

If you have the funds to do so, purchasing one or more homes as real estate values drop can prove to be a profitable investment. During the recession, you can gain steady rental income, and when the home’s value rises again, you can then sell it for a sizable profit.

4. Reliable Dividend Stocks

Some large companies pay dividends, which means that they pay their shareholders a percentage of their profits monthly, quarterly, or annually. When you invest in the right companies, your dividend stocks can act as a great form of passive income.

Reliability is key when choosing what dividend stocks to invest in. You may want to look into a class of companies referred to as “dividend aristocrats,” which have dividend payouts that have steadily increased over at least 25 consecutive payments.

Even with that being said, not all companies are “immune” to recessions, of course, so before investing, check out a company’s debt-to-equity ratio. Those with lower ratios will be better equipped to come out of a recession unscathed. 

If you haven’t invested in dividend stocks before, it can be hard to know where to start. An experienced financial advisor will be able to help you decide which investments are most likely to pay off.

5. Precious Metals

According to the United States Gold Bureau, the value of gold will usually move inversely relative to the value of the stock market. Therefore, even in a severe market downturn, the value of gold (and often other precious metals) almost always goes up.

There are a few different ways to invest in precious metals. You can purchase bars or coins of gold, silver, or other precious metals from a verified dealer, but if you’d rather not store or handle metals directly, you can consider investing in securities instead. The best way to do so is by investing in exchange-traded funds (ETFs) within the precious metals market.

Create an Investment Portfolio to Weather Any Recession

If you want to enjoy the confidence that comes with having a recession-proof investment portfolio, Good Life can help! Our knowledgeable financial advisors are dedicated to making your money work for you and helping you manage your financial goals.

If you’re thinking about working with us or just want to learn more, we invite you to contact us to schedule a no-obligation discovery meeting, which lets us learn a bit about you and your goals and also gives you a chance to interview us to see if we’re the best fit for you.

The opinions voiced here are for general information only and are not intended to provide specific advice or recommendations for any individual. All Investing includes risks, including fluctuating prices and loss of principal.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

ETFs are traded like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above and below the ETFs net asset value (NAV). Upon redemption, the value of the fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.

Precious metal investing involves greater fluctuation and the potential for losses.