Here are 3 solid investments to consider during a recession (and 3 to avoid) (2024)

An impending recession largely means bad news, including high unemployment rates, volatile markets, and a generally slowing economy. Yet there is one silver lining for savvy investors: It’s possible to buy investments at a discount and potentially see bigger returns down the line. The key is choosing the right ones.

Signs of a recession

A recession is a sustained period of decline in economic activity. The most common measurement of a recession is declining gross domestic product (GDP), but factors such as high unemployment, slowed consumer spending, and an inverted yield curve can also be signs that the economy is about to take a nose dive.

Recessions are a natural part of our cyclical economy. So although we can’t predict exactly when one will occur, it’s safe to say that there will be one eventually. And the best way to get ready for a recession is to build a portfolio that can weather a recession before the market turns.

“Proactive planning allows you to focus on the things that you can control—how much you save, your level of risk, the accounts you use, and fees and taxes—and ignore what you cannot (the markets, economy, inflation, and interest rates),” says Brent Weiss, a certified financial planner and head of financial wellness at Facet.

So if you want to prepare your portfolio for a recession—just in case—here’s what you should know.

Best investments during a recession

When the economy and stock market are down, you can often buy into securities at a cheaper price than if you invested while the market was at its peak. That gives you the opportunity to realize higher gains as the economy recovers.

And the best investments during a recession are not so different from the best investments to make at any point of the business cycle. Still, there are certain investments that can help your portfolio weather a recession and minimize losses.

1. Dividend stocks

Investing in dividend stocks is one of the most effective ways to take advantage of long-term growth among top companies. These stocks share profits with investors on a regular basis (often quarterly) in the form of dividends, which can be cashed out or reinvested. Only the most stable and profitable companies tend to pay out dividends, meaning these stocks are generally less volatile overall.

However, if you don’t want to purchase individual stocks, another option is to invest in a dividend fund, which allows you to invest in a basket of the top-performing dividend stocks.

2. ETFs

Investment funds are a strategic option during a recession because they have built-in diversification, minimizing volatility compared to individual stocks. However, the fees can get expensive for certain types of actively managed funds.

Exchange-traded funds (ETFs), on the other hand, generally have lower fees compared to mutual funds because they’re passively managed—they’re set up to track a specific index, such as the S&P 500. And value stock ETFs are particularly well-suited to fare in a volatile or down market because the companies that make up the funds tend to have solid fundamentals and produce essential goods.

3. Real estate

Equities aren’t your only option for investing when the market is down. Real estate can be attractive to investors because when the economy is slow, it’s possible to buy property at lower prices and lock in lower mortgage rates. Again, that translates to greater returns as the market recovers, especially because real estate generally appreciates over time.

Investing in rental properties is also a good way to diversify income streams, which can be especially important during a recession when job stability tends to weaken.

Investments to avoid during a recession

Having a well-rounded and diversified portfolio is the key to weathering economic ups and downs. However, there are some investments that generally perform poorly during times of market uncertainty or turbulence.

1. Speculative investments

There are certain times when putting money in riskier investments is the right move. But a recession is generally not one of them.

It’s important to follow your long-term investment plan and avoid getting distracted by promises of big returns or caught up with what other people are doing. “Your situation is unique, and your investment strategy needs to reflect that,” says Weiss. “What the 28-year-old billionaire is doing with his or her money shouldn’t be your North Star.”

2. High-yield bonds

Bonds are generally considered safe, stable investments. That said, not all bonds are created equal. High-yield bonds are issued by companies with lower credit ratings, indicating a higher probability of default. During a recession, these businesses often face greater financial difficulties, declining revenues, and increased default risks. So as economic conditions worsen, the likelihood of companies failing to meet their debt obligations and defaulting on their bond payments increases.

3. Highly leveraged companies

In general, it’s important to invest in companies with sound financial health. That’s even more true during a recession. Businesses that carry a lot of debt tend to see their share prices fall when the economy is down, as investors see them as more vulnerable to changing interest rates and declines in profit.

The takeaway

Investing during a recession can be stressful, especially if your portfolio loses value. However, it’s important to stay the course. “How you behave matters far more than how the market behaves,” says Weiss.

In other words, mindset is just as important as expertise when investing during a recession. It’s crucial to remember that selling when the market is down means selling at a loss. If you panic, you may make a poor investment decision to get out of the market right before stocks begin to climb again. Remember that ups and downs are part of the investing process.

“Proactive planning is the most important thing you can do to help you keep your financial calm amidst the chaos of bear markets and economic recessions,” says Weiss. “Focusing on the things you can control, and ignoring the things you cannot, will help you navigate any market or economic environment with clarity and confidence, and that can make all the difference.”

Here are 3 solid investments to consider during a recession (and 3 to avoid) (2024)


What are the best investments to prepare for recession? ›

Still, here are seven types of investments that could position your portfolio for resilience if recession is on your mind:
  • Defensive sector stocks and funds.
  • Dividend-paying large-cap stocks.
  • Government bonds and top-rated corporate bonds.
  • Treasury bonds.
  • Gold.
  • Real estate.
  • Cash and cash equivalents.
Nov 30, 2023

What stocks should be avoided during a recession? ›

What investments should you avoid during a recession?
  • High-yield bonds. Your first instinct might be to let go of all your stocks and move into bonds, but high-yield bonds can be particularly risky during a recession. ...
  • Stocks of highly-leveraged companies. ...
  • Consumer discretionary companies. ...
  • Other speculative assets.
May 10, 2023

What should you avoid during a recession? ›

Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Don't quit your job if you aren't prepared for a long search for a new one. If you own your own business, consider postponing spending on capital improvements and taking on new debt until the recovery has begun.

Where is the safest place to put your money during a recession? ›

Options to consider include federal bond funds, municipal bond funds, taxable corporate funds, money market funds, dividend funds, utilities mutual funds, large-cap funds, and hedge funds.

What is the best thing to do with money in a recession? ›

5 Things to Invest in When a Recession Hits
  • Seek Out Core Sector Stocks. During a recession, you might be inclined to give up on stocks, but experts say it's best not to flee equities completely. ...
  • Focus on Reliable Dividend Stocks. ...
  • Consider Buying Real Estate. ...
  • Purchase Precious Metal Investments. ...
  • “Invest” in Yourself.
Dec 9, 2023

What sells best during a recession? ›

Toothpaste, deodorant, shampoo, toilet paper, and other grooming and personal care items are always in demand. Offering these types of items can position your business as a vital resource for consumers during tough times. People want to look good, even when times are tough.

What should I not buy during a recession? ›

During an economic downturn, it's crucial to control your spending. Try to avoid taking on new debt you don't need, like a house or car. Look critically at smaller expenses, too — there's no reason to keep paying for things you don't use.

What gets cheaper during a recession? ›

Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.

What are the CDs and should I invest my money in them during recession? ›

CDs are a relatively risk-free way to grow your funds, but they also have some downsides. Mapping out plans to build your savings can be challenging, especially when interest rates fluctuate. A certificate of deposit (CD) is a good alternative if you're risk-averse when it comes to investing.

Should I take my money out of the bank before a recession? ›

Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.

Should you keep cash at home during a recession? ›

During economic downturns you want to have as much cash on hand as possible. If it is not absolutely necessary, it may be best to delay any big-ticket purchases. Big purchases, such as a car or house, typically require you to either put down a large lump sum of cash or have a hefty ongoing payment.

What stocks hit hardest in a recession? ›

Equity Sectors

On the negative side, energy and infrastructure stocks have been the hardest-hit in recent recessions. Companies in these sectors are acutely sensitive to swings in demand. Financials stocks also can suffer during recessions because of a rising default rate and shrinking net interest margins.

What is the best asset to hold during a recession? ›

Cash, large-cap stocks and gold can be good investments during a recession. Stocks that tend to fluctuate with the economy and cryptocurrencies can be unstable during a recession.

What are the best stocks to own in a recession? ›

  • The Best Recession Stocks of May 2024.
  • Merck & Company, Inc. ( MRK)
  • PepsiCo, Inc. ( PEP)
  • Becton, Dickinson and Company (BDX)
  • CMS Energy Corporation (CMS)
  • Xcel Energy Inc. ( XEL)
  • Ameren Corporation (AEE)
  • Amgen Inc. ( AMGN)

How do you not lose money in a recession? ›

Build up your emergency fund, pay off your high interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.

Is it better to have cash or property in a recession? ›

Cash: Offers liquidity, allowing you to cover expenses or seize investment opportunities. Property: Can provide rental income and potential long-term appreciation, but selling might be difficult during an economic downturn.

Is cash king during a recession? ›

Cash Is King During a Recession

As companies cut back and job losses mount, “it's better to be safe than sorry and beef up cash reserves during times of high employment.” However, selling investments to get cash in anticipation of a recession is risky. You might sell prematurely and get trapped in cash as markets rise.

What sectors thrive in a recession? ›

There are also fundamental services that consumers can't do without, even in hard times.
  • Accountants. ...
  • Healthcare Providers. ...
  • Financial Advisors and Economists. ...
  • Auto Repair and Maintenance. ...
  • Home Maintenance Stores. ...
  • Home Staging Experts. ...
  • Rental Agents and Property Management Companies. ...
  • Grocery Stores.

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