When the economy seems to be in turmoil, worries about job losses around every corner, and problems coping with skittish stock market readings, it’s easy to see why so many people believe a recession is around the corner. Economist predictions say similar, which means that it’s time to stock up on suitable investments that can weather the storm.
What are the best investments for a recession? Though every recession is unique, some investments are better than others. These typically include:
- Blue Chip Stocks
- Dividend-Rich Stocks
- Real Estate
- Stocks Dealing with Basic Products
- Government Bonds
Learning how to prep for a recession is crucial to making things work for you when the chips are down. If you aren’t sure how to prep your investments, this guide will help you make the most of your prep time.
What Are the Best Investments for A Recession?
The best investments in a recession are low-risk investments. Warren Buffet, for example, is notorious for investing in stocks that feature things that are necessary—such as food, housing, and utilities.
Let’s face it. Most people who are going through a recession are struggling to make ends meet. Using that kind of logic, it makes sense that many people believe that these investments are the ones that involve the bare necessities or cornerstones of the economy.
Need help figuring out how to pad your portfolio? Here are some of the better options when it comes to investing during a recession.
Before You Begin: A Disclaimer
It’s important to realize that all investing, even in “tried and true” investments, carries a risk with it. Past performance does not guarantee that you will get good returns in the future, nor does it even guarantee that you will be able to keep the money you put into it.
You should never invest money that you need to make ends meet. If you want to prepare for a recession, set aside the money you have left over from your paycheck and put it in an investment of your choice.
When picking out an investment or going through with an investment choice, it is important to do your due diligence. If something does not sound right, do not invest in it. Look in an investment you trust.
Choose Multiple Investments
Remember the old saying, “Don’t put all your eggs in one basket?” It’s absolutely true when it comes to investing. Putting all your money into one investment is foolish, especially during a recession. Doing this means that you will see all your money disappear if your investment goes to pot during difficult economic times.
Regardless of what kind of investment you prefer to make, it’s important to make sure that you have a little diversity in your portfolio. To accomplish diversity you should have
- Different Stocks. Man cannot survive on Apple alone. Or Amazon. Or Google. Diversifying stocks just makes sense, since you never know what can happen to a single company.
- Different Investment Categories. Why stick to plain old stocks? Get involved with real estate, bonds, or some good old-fashioned education too. Having a diversified portfolio prevents you from losing big time when the stock market crashes.
- Different Industries. If you stick to real estate alone, you are going to have it hard if real estate crashes. By switching investments up between multiple industries (such as medicine, food, real estate, and tech), you reduce the chances of losing out entirely during stock events.
Why Are Risky Investments A Bad Idea During A Recession?
All investments carry a certain level of risk. There is truth to the statement that death and taxes are the only things guaranteed in the world. Even the sturdiest company can have a sudden disaster or scandal that causes the stocks to become valueless.
Going with stocks that are considered to be reliable makes the chances of having your investments go belly-up far lower. When the economy starts to recover, you can increase your risk tolerance.
How Much Money Do You Need to Invest?
When it comes to investing and creating a portfolio, the more money you have, the better off you are. However, there is no minimum you need to actively invest in your future. If you decide to educate yourself on your own, you might be able to see results without spending a dime!
If you want to go for traditional investment routes, there are a lot of ways to make it work for you. Some investing apps, like Stash, allow you to start investing for as little as $5 or less.
There has never been a time where investing has been easier. The thing is, you might need to get creative or find new investing platforms to make it work. If you keep an eye out for cheap investing methods, you will be able to see some returns.
Are There Some Investments Worth Risking?
If you find a stock or a company that you click with, it’s okay to invest in it regardless of what time it is. Some of the greatest companies ever made got their first starts during depressions and recessions.
The critical thing to remember is that risk should be mitigated and vetted twice over during a recession. There is nothing that should stop you from adding a little sensible risk to your portfolio, but high-risk stocks should not be most of your port.
Blue Chip Stocks
“Blue-chip” is a term that’s used by traders when they refer to stocks that are tried and true. These stocks are tied to companies that people know have staying power, such as Verizon, Apple, Alphabet (formerly Google), and Amazon.
Most blue-chip stocks are companies that have reached the “megacorporation” status and have a market capitalization of $10 billion or more. In other words, these are companies that are large enough to handle a recession and stay afloat.
Why Choose Blue Chips?
Blue-chip stocks are remarkably good choices for a recession. Here’s why:
- They are easy to invest in. You already know the names of most blue-chip stocks since they are always in the news. If you have an investing app like Robinhood, you can easily just search up the company name and have at it.
- People often rely on them already. A lot of people will still be Verizon customers when a recession hits, simply because they need their cellphones to work. The same cannot be said about that trendy new luxury item.
- They have already shown they have resilience. You don’t become a billion-dollar company without having some serious resilience.
- Historically, the stock market has always recovered. While a recession might mean a dip in the stock market right now, you can expect your stocks to (generally) recover after things get better. That’s what’s happened every time so far.
Love stocks, but don’t know what to pick? Does the idea of researching 50-ish companies strike fear into your heart? There is a stock solution for you—just let someone else do the picking with an ETF.
Exchange-traded funds, or ETFs, are funds that involve multiple shares bundled up into one massive fund, then sold by the share. It offers all the perks of investing in stocks but uses multiple stocks to help minimize the risk of loss.
Why Choose ETFs?
ETFs are a great way to start investing if you do not trust your gut when it comes to investments. These are professionally managed funds that are traded on stock exchanges and are designed to minimize risk while maximizing returns.
Much like regular stocks, ETFs are easy to invest in and often come with particular themes. Since they are professionally managed, the expertise of the pros is going to be used to ensure that stock market volatility does not harm outcomes.
Another option to consider when you are beefing up your stock portfolio is to invest in stocks that pay off dividends. Dividends are small cash gifts that the company gives to investors as a way of saying, “thanks for investing with us!”
Many major companies have dividends as part of their plan, including Disney. A typical dividend won’t be much—often just a few pennies or dollars per stock. Even so, that’s guaranteed money that will help give you a passive income during times of need.
Why Choose Dividend Stocks?
Dividends are a fantastic perk for people who want to invest during a recession. For decades, people have chosen dividend stocks because of the way dividends are structured and what they offer.
- It’s guaranteed income. Dividends are guaranteed pre-planned gifts. This means that you get a guaranteed income from your stocks during the course of your recession. Even if the price of the stock decreases, the dividend remains the same.
- Since it’s a type of stock, it’s easy to invest in it. Just whip out your investing app and look for a dividend-giving company.
- Dividend stocks are generally seen as more stable. It takes a bit of stability to issue out dividends, which is why many investors see companies that offer dividends as more stable.
Gold (And Other Precious Metals)
When it comes to recession-worthy investments, you might say this is the gold standard—literally. In the last recession, most people have learned that gold, silver, and other precious metals tend to retain their value or increase during times of turmoil.
Gold, in particular, tends to spike during a recession because of panic-buying. That makes it one of the investments that’s most likely to prosper when companies tend to tank.
How to Invest in Gold
Unlike stocks, investing in gold can be done in a bunch of different ways. Knowing how to invest in gold is just as crucial as actually investing in it. There are several ways that people can invest in gold:
- Buying old jewelry. Believe it or not, buying up old jewelry can be an excellent way to invest in gold during the start of a recession. The trick is to make sure that the gold is real, that it’s the Karat that the seller claims it to be, and to get a lower value for it. If you are worried about losing your assets, having gold is a good option.
- Buying gold bars. Gold bars are easy to store, retain their value, and are highly recommended if you are open to flipping the bars yourself.
- Buying gold stocks. Love the stock market? Good news! Several companies offer stocks that are tied to the value of gold bullion. These specialty equity shares are traded on the regular market, and let you buy gold without the need to store it.
- Try the commodities market. If you have a commodity trading account, this can be an excellent option to consider. However, most inexperienced investors should not try to trade on a commodity account since it tends to be more volatile.
If you are interested in working with other precious metals, you can use these same methods to do so.
Why Choose Gold?
Gold is a common go-to among panic buyers and has historically retained most of its value. Even when it dips, it still will eventually regain its value. Though our currency is not on the gold standard anymore, most economies still have some tie to the value of gold as a marker of economic strength.
Gold can be portable, can be sold quickly, and the demand for gold never runs out. As far as commodities go, it’s an excellent way to go.
While many people might remember the housing crisis a couple of decades ago and get uneasy about real estate, the truth is that this investment still remains solid—as long as you invest wisely. No matter how bad the economy gets, people will still need to have a place to live.
If you invest in real estate, you are going to be able to capitalize on that need and possibly build equity. Much like with any other investment, make sure that you are getting a home that isn’t overvalued due to market hype. If you choose the right area and the right home, you might have a seriously good investment that can help keep your family afloat during tough times.
How to Invest in Real Estate
Much like with gold, one of the perks of choosing to invest in real estate is that you have plenty of options to choose from. These methods below remain the most popular ways to invest in real estate:
- House Flipping. Buy low, sell high! With this method, people buy ramshackle old homes, remodel them, and then sell them for a premium price. This method is not a good idea during a recession, though, since most people will not be buying homes.
- Landlording. When you are a landlord, you have a lot of passive income that you can expect to come in over the course of the recession. Depending on how many renters you have, you might use your investment to retire early—recession or not!
- Airbnb Rental. Some landlords buy up entire houses to rent the individual rooms as Airbnb. Though this does require a decent amount of work, it is still a relatively passive investment that may make you some decent cash.
- Invest in a REIT. REITs are Real Estate Investment Trusts, and they are professionally managed funds that are linked to not one, but multiple real estate investment projects in hot markets. Since there are numerous projects involved, there is less chance of loss. You don’t have to manage the properties, either, which makes it an easy way to get paid.
- Crowdfunding. Did you know that real estate investors and flippers often have projects they want to do, but cannot get money to do them with? Crowdfunding platforms let you invest in these projects and get paid back.
Why Choose Real Estate?
If you are looking for things that people will always need, shelter is as basic as it gets. No house, no stability. Investing in real estate means that you will, in one way or another, have an asset that will provide a home to one or more people.
Even in the worst of recessions, the real estate market will have a fixed bottom line that value won’t go beneath. Having real estate means you will most likely be able to keep some, if not most, of the value that the home has after the recession.
Additionally, if you choose the route of being a landlord, you will also be able to have a stable income during and after the recession. After all, people will be renting more than buying, and that means you will have an easier time finding good renters.
Stocks Dealing with Basic Products
During a significant recession, most of the market is going to start to tighten their belts. Jobs become scarce, stocks tend to plummet, and people tend to have a hard time recovering from the financial blows. In other words, now is not the time to be decadent.
The wealthy know this, which is why they tend to dump stocks that deal with luxury goods prior to a recession. Then, they start “stocking up” on investments that deal with necessities.
What Are “Basic Necessity” Stocks?
A basic necessity stock is any stock involving a company that produces goods or services people need to live. If you are not sure where to invest your money, some of these categories might be a good idea:
- Medical/Pharmaceutical Companies. No matter how bad the economy gets, people will still need medical assistance. This makes major companies like Pfizer a good pick.
- Food. Grocery stores and food production companies that are publicly traded will always stay steady. People need to eat.
- Internet/Cellular Service Companies. Since people will always need a way to communicate, you can bet that these major telecom companies will remain steady during rocky times.
- Transportation. Essential transportation services, such as discount cars or rideshare programs, will always be a staple.
Why Choose Basic Product Stocks?
When you are working with a stock portfolio for a recession, you don’t want to focus on high profitability most of the time. You want to focus on stocks that will retain their value (or at least most of it) while the stock market is volatile.
The reason why basic product stocks are a safe bet is that demand will never shrink to the point of the company being in peril. People will always need food, internet, medical supplies, and other similar goods. Since demand won’t run out, these stocks will stay stable during tough times.
In tough times, the US government allows you to lend them money through the use of bonds. American government bonds are considered to be extremely reliable and low-risk, to the point of being a cornerstone in most retirement portfolios.
While they are not exactly the most profitable investment, many families have used government bonds as a good way to park their money in times of recession.
Why Choose Government Bonds?
The United States government is federally required to pay back the bonds that you have, plus interest. While interest rates are low, it is considered to be a reliable way to park your money. That is why many retirement portfolios rely on them.
These are very long-term options, though, so if you are not willing to take 20-ish years to double your money, you might want to consider other options.
Invest in Yourself
Every recession is going to be a little different, but there is one thing that has proven to be true. People who have better qualifications, such as advanced certifications and college degrees, tend to fare better in terms of hiring than those who do not.
Your ability to remain employed is what will make or break your ability to pay the bills in most situations. That’s why it makes sense to invest in yourself if you are about to hit a significant recession.
How Do You Invest in Yourself?
There are tons of good ways to invest in yourself, boost your career, and find new ways to market yourself. These options below are good starting points for a person who wants to get a competitive edge or just keep themselves safe:
- Have an emergency fund. A good emergency fund will let you survive at least six months of time without a job. Stocking up on that money can help immensely during times of trouble.
- Get a college education or professional certification. Studies show that people who are educated and have a skilled trade are far less likely to suffer from job loss during a recession. If job loss is a concern, bulking up your resume is an excellent way to go.
- Start a side job. A lot of financial pros always suggest having a side gig, simply because of the way it can provide a buffer in case of a sudden job loss. This advice is especially pertinent during times of economic turmoil since it can be your saving grace.
- Cut out habits that are costing you money. Whether it’s smoking cigarettes or drinking beer, cutting out bad habits can turn into an instant paycheck.
Why Choose to Invest in Yourself?
Your workplaces can betray you and fire you. The stocks that you buy won’t always be that great. In a world that is full of uncertainty, you can’t ever fully trust others to do right by you. During recessions, it’s only human nature to start to think of putting yourself before others—and that includes the way your employers think.
The only person that you can expect to act in your best interest is YOU. By giving yourself the tools you need to stay afloat, you empower yourself to get better at surviving and to work towards personal growth. At the end of the day, furthering your career or working to balance your budget is the most reliable way to better your situation.
It’s also worth noting that investing in yourself is the only type of investment that you have full control over. You choose how to invest, how much money or time you invest, and what you do with the investment.
If you are worried about a recession and want to prepare your stock portfolio, the first thing you should do is consider selling off high-risk stocks and switching over to stable, more time-tested investments. The ideal portfolio is one that has passive income methods built into it, diversified, and filled with stable picks.
If possible, consider taking this time to invest in yourself alongside your stock portfolio. By learning how to make yourself more recession-proof, you lower the risk of serious problems later. Any form of investing, when prudently done, will pay off during and after the recession wreaks its havoc.
Eric Baglio has been investing for over ten years and learned a lot of valuable lessons along the way. He has helped numerous people start investing on their own and founded Let’s Start Investing to help anyone willing to learn how to build wealth. His favorite brokerage is Webull and his favorite stock advising service is Motley Fool Stock Advisor.