What to Invest in During a Recession?

Between inflation, rising interest rates, and bank failures, the stock market’s volatility suggests an imminent recession in 2023.

Whether you’re an individual investor or a business owner, the ringing of the recession bells likely feels threatening. However, the results don’t have to be catastrophic with proper planning and goals.

I’ve worked in the finance industry for over two decades as a CPA and helping with personal finances. During the last recession, I was able to keep multiple individuals and small businesses afloat through their investments.

If the thought of a recession has you biting your nails, keep reading. Together, we can come up with a plan to:

• Minimize your financial risks
• Maximize your returns
• Buy the dip

Let’s get started.

What is a Recession?

Financial experts have frequently defined a recession as 2+ consecutive quarters of decreased GDP (gross domestic product). This has been the case during the first half of 2022.

A recession marks a period of economic decline, typically lasting several months to several years. It can take a significant chunk of time for the economy to return to its previous peak. Economists measure the length of recessions from the height of the market’s last expansion to the trough of the downturn.

During this time, unemployment rises, consumer spending decreases, and businesses see lower profits. The economic decline during a recession is pervasive and persistent.

Recessions are inevitable in the economic cycle, so governments have developed monetary policies to stop their effects from becoming too disastrous. Some of these include unemployment insurance and cutting interest rates.

Do Things Get Cheaper in a Recession?

Widely speaking, prices do fall during a recession. When people and businesses cut back on spending in tough economic times, prices can drop significantly, creating an excellent opportunity for bargain hunters.

During a recession, you’ll likely find discounts on everything from cars to clothes to vacations. Businesses will offer price cuts to entice customers, and item prices may temporarily drop to eliminate excess inventory.

However, it’s important to remember that this price dip will only last for a while. Once the recession ends, prices will eventually return to normal.

What you can take away from this is that a recession is a great time to bargain-hunt certain items. Housing, for example, tends to get cheaper as people are warier on significant investments. Those unafraid often leave recessions with a discounted home.

Is Cash King During a Recession?

The short answer is: not necessarily.

During a recession, some people are stuck with too much cash and a lack of investment opportunities. At the same time, having access to liquid funds gives you more flexibility in uncertain economic times.

What’s more important than just having cash is having the right mix of investments for your financial growth. What works for one person may not work for another, so creating a portfolio tailored to your individual needs and goals is crucial.

Though it’s essential to think about risk management, there are also opportunities for growth during a recession if you have the right investing strategy. What stocks or investments your portfolio consists of is up to you.

The bottom line is that cash can be a helpful tool during a recession, but it’s not necessarily king.

Top Investments During a Recession

There are plenty of wise investment options available during a recession. You can invest in stocks, bonds, mutual funds, ETFs (exchange-traded funds), and more, depending on your financial situation.

The best investments during a recession depend on your goals and risk tolerance. Some prefer low-risk investments likely to preserve their capital, such as savings bonds or treasury bills. Other investors may take advantage of the price dip by investing in stocks.

My primary recommendations for recession-friendly investments are:

• Core sector stocks
• Dividend stocks/ETFs
• Real estate/REITs
• Precious metals
• Goldco

Now, let’s get into what makes these investments a good idea.

Core Sector Stocks

Core sector stocks are those that are considered safe and predictable investments, such as:

• Utilities
• Pharmaceuticals
• Oil & gas companies
  

• Communication services
• Healthcare
• Energy
• Consumer staples

These stocks tend to be less sensitive to economic cycles than other stocks because the public needs their services regardless of the state of the economy. As such, they can provide steady returns during a recession.

Many of these stocks also pay dividends, which can help cushion your portfolio against market volatility. So while there are no guarantees, core sector stocks can offer a safe and steady source of income during a recession.

Often, these types of stocks are also referred to as defensive stocks — not to be confused with defense stocks, which correlate with the weapon market.

Investing in defensive stocks can help protect your portfolio during times of uncertainty and economic stress.

Dividend Stocks or ETFs

Dividend stocks or ETFs are other excellent options for investing during a recession. These investments typically earn income by paying dividends instead of relying solely on price appreciation.

Since these investments pay out money regardless of the stock price, they can provide a steady stream of cash flow to your portfolio and help protect it from market downturns. Moreover, dividend-paying stocks or ETFs often have lower volatility than non-dividend-paying stocks, making them an attractive option in uncertain times.

Furthermore, many dividend-paying companies have strong balance sheets with healthy reserves that can weather economic storms better than their non-dividend counterparts. This means you can invest in stable companies that will continue to pay dividends even during a recession.

Real Estate or REITs

During recessions, real estate prices remain relatively stable, making them an attractive option for investors looking for stability.

Moreover, many REITs are legally required to distribute most of their profits as dividends, providing you with a steady income stream regardless of market conditions.

Additionally, investing in real estate or REITs doesn’t require a significant upfront investment like buying property, making them a great option for investors who don’t have the capital to invest in physical real estate.

Precious Metals

Finally, we can’t discuss recession investments without bringing up precious metals.

Precious metals have long been considered a safe haven during recessions. Gold, silver, and other precious metals can act as insurance policies against economic downturns, as their prices tend to rise when the economy weakens, and stock markets decline.

If you need more convincing of their value, check out this article on how gold investments can help your small business.

The most popular way of investing in precious metals is through ETFs or mutual funds. These investments don’t require buying physical metals, so you don’t need to worry about storing them safely. Unlike stocks and bonds, precious metals don’t pay dividends and won’t be affected by market fluctuations or interest rate changes.

Goldco is my number one recommendation for a precious metals investment company. This industry leader offers a wide range of products, from gold coins and bars to ETFs and other investment options. What’s more, they provide comprehensive services tailored to the individual needs of their clients, including retirement planning, portfolio balancing, and asset protection solutions.

You can be sure that your assets are safe and secure, as Goldco uses world-class technology to protect your investments from attacks. What’s more, their team of experienced professionals is available to help you make informed decisions about how best to manage your assets during times of economic uncertainty.

What Investments are Recession Proof?

Recession-proof investments can weather economic storms and provide a steady income stream regardless of market conditions.

Defensive/core stocks, dividend stocks or ETFs, real estate or REITs, and precious metals are some of the most popular recession-proof investments. These types of investments typically offer stability and protection from downturns, thus protecting your portfolio in times of uncertainty. Moreover, many of these options also pay out dividends or other forms of income to help you grow your wealth over time.

Unfortunately, though, no investment is 100% recession-proof. The most we can do in a recession is to identify investments with a good chance of surviving an economic crisis. Investing in these assets while still affordable ensures that your portfolio can handle economic uncertainty.

Remember to do your due diligence and research before investing in any asset. This means ensuring that the investment is suitable for your circumstances.

Consider seeking professional advice if you’re having trouble navigating investments to help defend you against a recession. Top-notch investment experts can assist you in making an informed decision about what investments are best for you.

Doing this will help you protect your wealth now and into the future. If this recession has kicked your wealth-management goals into action, don’t stop when the market is less volatile. Sound investments and financial management should be lifelong endeavors, not ones we adopt only in times of potential crisis.

Who Benefits in a Recession?

The general tone around recessions is one of stress and threat, so does anyone do well during them? Indeed, they do!

Economists

First and foremost, economists benefit from recessions because they experience a higher demand for their services. Many people — possibly like you — find themselves hyperaware of their financial insecurity and looking for advice. Furthermore, businesses and policymakers seek their advice on stock market patterns. Economists’ in-depth understanding of economic history can be invaluable during a recession.

Auto Repair

Repair services, especially auto repair and maintenance, also tend to see an uptick in their demand during recessions. Because people are wary of making new investments/financing major purchases, they’re less likely to purchase a new car.

As such, they’re more likely to take their current car for repair. In a recession, people would often rather pay a few hundred dollars cash on a car repair than agree to another monthly payment or car loan.

Home Maintenance

Following this logic, home maintenance stores see increased demand as individuals choose to conduct their repairs instead of hiring builders or moving houses. Do-it-yourself projects increase across the board during recessions — both out of financial conservatism and credit conditions.

Landlords and Property Management

Homes for rent also increase in demand during recessions, as people either couldn’t buy a home or were forced to sell needed places to live. For many of these people, the answer lies in a rental — often with roommates. Landlords and property management centers thrive during recessions for this reason.

Supermarkets

Dining out seriously decreases in popularity during recessions, as people prefer to save money than spend it on frivolous luxuries.

As a result, grocery stores see significant sales increases as families opt for primarily cooking meals and entertaining friends at home.

Bargain Stores

This is relatively self-explanatory — as people try to save more money, they want to spend less. Discount and bargain stores are an excellent way to save, as you can buy household essentials for less than their cost at other major retailers.

Theories like the “lipstick index” even suggest that discount stores are appealing because they offer people the sense of indulging in luxury without overspending.

People miss being able to buy extravagances from time to time. Discount stores give this illusion without the major price tag.

How to Become a Millionaire During a Recession?

Whether you like it or not, becoming a millionaire during a recession requires the same effort as becoming one during an economic boom.

As the stock market fluctuates, you must be mindful of your investments and diversify your portfolio. What to invest in during a recession will depend on your individual circumstances — again, consulting with a financial advisor can help you navigate this specific territory.

Investing in stocks can be a shockingly good way to make money during a recession if you make the right decisions. Many investors call stock purchasing during a downturn “buying the dip.” It’s like the stocks are discounted when their demand is this low.

Every investor knows that successful investing involves buying low and selling high, so this recession presents an ideal opportunity for bargain hunters.

Although there were only modest contractions in the GDP during Q1 and Q2 of 2022, the stock market saw a dramatic fall, with a more than 20% decline by last June. Nevertheless, cautious investors looking to scoop up shares at discounted prices focused their efforts on “recession-proof” companies that have demonstrated their ability to survive and thrive during economic downturns.

You can become wealthy despite economic uncertainty with discipline, hard work, and intelligent investment decisions.

Now Go Get Rich!

Recessions can be great for savvy investors willing to take calculated risks. What to invest in during a downturn will depend on your individual circumstances and comfort level with risk, so I advise you to consult a financial advisor about the current market conditions.

If you understand what types of investments are likely to increase in value during recessions and make intelligent choices regarding your portfolio, you may become very wealthy even amidst economic uncertainty. What good fortune!

Now get out there and become the next millionaire… or billionaire. Good luck!

For more information, check out this article on preparing your small business for a recession.

If you have any questions or suggestions for this article, please comment.