A recession is a cyclical event that has the potential to bring serious losses to your investments. It’s important to prepare for its eventuality so that you don’t join the panicking stampede out of stocks and into cash. When the rest of the economy is on shaky ground, there are a handful of sectors that continue to forge ahead and provide investors with steady returns. Seeking out core sector stocks like healthcare, utilities, and consumer goods, can insulate you during a recession partly with stocks. Dividend stocks can be a great way to generate passive income, and companies with low debt-to-equity ratios and strong balance sheets are a good choice. Investing in real estate may be a buying opportunity for investment properties. Precious metals like gold or silver tend to perform well during market slowdowns, and the prices usually go up too. If you lose your job and income during a recession, you can rebound by “investing in yourself” or paying down debt.
A financial advisor can help you build an investment plan with a recession in mind. A recession has the potential to bring serious losses. That’s why any investing plan starts with understanding how much risk you can tolerate. SmartAsset’s asset allocation calculator considers your risk tolerance to guide you toward a diversified portfolio that will help you weather the ups and downs of the market.
If you’re investing for the long term, a looming recession shouldn’t panic you. Instead, your strategy should not be to sell when prices are low. You should hold the positions that you entered as long-term investments. If you have the cash to invest, you may want to consider buying recession-friendly sectors such as consumer staples, utilities and healthcare. Stocks that have been paying a dividend for many years are also a good choice. These tend to be long-established companies that can withstand a downturn.
It’s important to note that as of Feb. 2023, the NBER does not consider the U.S. to be in the midst of a recession. However, it’s always wise to prepare for the future and invest smartly. A financial advisor can help you build an investment plan with a recession in mind.
Choosing what to invest in during a recession will first require you to consider your personal goals. Are you looking to:
Minimize the risks of stock market volatility?
Maximize long-term returns?
Create a source of fixed income?
Invest in the stock market while prices are low (also known as buying the dip)?
Here are 5 things to consider investing in during a recession:
- Seek Out Core Sector Stocks: Investing in stocks may seem like a bad idea during a recession, but experts say that it’s best not to give up on equities completely. During a recession, there are typically a handful of sectors that continue to perform well and provide steady returns. These sectors include healthcare, utilities, and consumer goods, as people are still going to spend money on medical care, household items, electricity, and food regardless of the state of the economy.
- Focus on Reliable Dividend Stocks: Investing in dividend stocks can be an excellent way to generate passive income during a recession. When comparing dividend stocks, experts recommend looking for companies with low debt-to-equity ratios and strong balance sheets. Consider investing in dividend aristocrats – companies that have increased their dividend payouts for at least 25 consecutive years.
- Consider Buying Real Estate: When a recession hits and home values drop, it may be a buying opportunity for investment properties. If you can rent out a property to a reliable tenant, you’ll have a steady stream of income while you ride out the recession. Once real estate values start to rise again, you can sell at a profit.
- Purchase Precious Metal Investments: Precious metals, like gold or silver, tend to perform well during market slowdowns. The demand for these commodities often increases during recessions, which drives up their prices. You can invest in precious metals by buying coins or bars from a seller or coin dealer, or by purchasing a gold IRA if you’re saving specifically for retirement. Consider investing in precious metal ETFs, which are collections of investments within a single industry.
- “Invest” in Yourself: Investing in yourself is a smart move during a recession. Consider going back to school to gain additional knowledge or skills that could help you get a better job. Paying down debt is another option if you’re worried that your job situation might go south at some point. The less money you have to spend on bills, the less stressed you’ll feel during an economic crisis.
In conclusion, it’s wise to prepare for a recession’s eventuality, and there are several things you can invest in to weather the storm. Seek out core sector stocks, focus on reliable dividend stocks, consider buying real estate, purchase precious metal investments, and “invest” in yourself. By investing in recession-friendly sectors, you’ll be able to ride out the storm and come out stronger on the other side.