Where not to invest during a recession?
Most stocks and high-yield bonds tend to lose value in a recession, while lower-risk assets—such as gold and U.S. Treasuries—tend to appreciate.
Avoiding highly indebted companies, high-yield bonds and speculative investments will be important during a recession to ensure your portfolio is not exposed to unnecessary risk. Instead, it's better to focus on high-quality government securities, investment-grade bonds and companies with sound balance sheets.
Treasury Bonds
Investors often gravitate toward Treasurys as a safe haven during recessions, as these are considered risk-free instruments.
Don't: Take On High-Interest Debt
It's best to avoid racking up high-interest debt during a recession. In fact, the smart move is to slash high-interest debt so you've got more cash on hand. Chances are your highest-interest debt is credit card debt.
But certain businesses are more recession-proof than others. Five businesses to avoid starting during a recession include luxury retail, hospitality, manufacturing, construction, and home services. We'll explain why and go into some of the advantages and disadvantages of opening a business during a downturn.
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.
- Cut living expenses. ...
- Build an emergency fund. ...
- Develop new skills. ...
- Speak with a financial adviser. ...
- Create passive income sources. ...
- Start a business. ...
- Consumer staples. ...
- Bonds.
Where is your money safest during a recession? Many investors turn to conservative asset classes such as bonds during recessionary periods. Mutual funds may also be a useful area to consider, and so may established, large-cap companies with strong balance sheets and cash flow.
Investing in funds, such as exchange-traded funds and low-cost index funds, is often less risky than investing in individual stocks — something that might be especially attractive during 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 it smart to have cash in a recession?
High-yield savings account
Cash? Yes, cash can be a good investment in the short term, since many recessions often don't last too long. Cash gives you a lot of options.
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.
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.
Companies in the business of providing tools and materials for home improvement, maintenance, and repair projects are likely to see stable or even increasing demand during a recession. So do many appliance repair service people. New home builders, though, do not get in on the action.
The tech sector was chosen as one of the best sectors for investors in 2024 due to its continuous innovation, growth potential, and increasing integration into all aspects of life and business.
The best recession stocks include consumer staples, utilities and healthcare companies, all of which produce goods and services that consumers can't do without, no matter how bad the economy gets.
For investors, “cash is king during a recession” sums up the advantages of keeping liquid assets on hand when the economy turns south. From weathering rough markets to going all-in on discounted investments, investors can leverage cash to improve their financial positions.
It's safe from the stock market: If a recession causes short-term market volatility, you won't lose money on your high-yield savings deposits, unlike investing in the stock market.
Generally, the industries known to fare better during recessions are those that supply the population with essentials we cannot live without that. They include utilities, health care, consumer staples, and, in some pundits' opinions, maybe even technology.
Lower prices — A recession often hits after a long period of sky-high consumer prices. At the onset of a recession, these prices suddenly drop, balancing out previous long inflationary costs. As a result, people on fixed incomes can benefit from new, lower prices, including real estate sales.
What stocks do best in a recession?
You should consider buying economically resilient or defensive stocks before a recession. These include healthcare, consumer staples, utilities, and cost-conscious retail companies. Demand for the products and services provided by these companies tends to hold up relatively well during a recession.
The result? When the market rebounded, Getty was a rich man, thanks to his action when the economy appeared to be at its worst. The same thing happened to people like Warren Buffett, Jamie Dimon, and Carl Icahn during the Great Recession of 2008. Each zigged when the rest of the world zagged.
Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.
As rates drop, banks can also cut back on the interest they pay to savers. So you'll typically see lower rates for deposit accounts, including savings accounts, CD accounts and money market accounts, during a recession.
Credit card debt is never a good thing, and if you have hundreds or even thousands to pay off, a recession could make doing so exponentially harder, depending on your circ*mstances.
