The industries known to fare better during recessions are generally those that supply the population with essentials we can't live without. They include utilities, healthcare, consumer staples, and, in some pundits' opinions, maybe even technology.
In a recession, it's smart to preserve your capital by investing in safer assets, such as bonds, particularly government bonds, which can perform well during economic downturns.
That's how average investors become millionaires during recessions and far beyond. They save up, wait for a moment when they can get a discounted price on an investment, and then use their money as a tool to purchase more of an investment. “That requires you to have a financial education,” Singh said.
Since economists began studying the distributional effects of the Great Depression in the 1940s, it's been thought that inequality and economic growth could be “countercyclical”, meaning that earnings inequality rises during recessions and contracts during periods of economic growth.
Ninety percent of all millionaires become so through owning real estate.
What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.
Stocks and bonds have relatively low transaction costs, allow you to diversify more easily and leave your cash more liquid than real estate (although the stock market is typically more volatile than the housing market). Meanwhile, real estate is a hedge against inflation and has tax advantages.
"Gold is often considered a safe-haven asset in times of economic uncertainty due to its perceived store of value," Collins says. "During recessions, gold prices may rise as investors look for ways to protect their wealth from market volatility."
“The demand for travel and hospitality services typically declines as consumers cut back on discretionary spending,” Sarib Rehman, CEO of Flipcost, said. “To attract customers, airlines, hotels and travel agencies often lower their prices and offer more promotions.”
Some industries feel the impact of an economic downturn more than others. These industries tend to get hit the hardest. Hospitality and tourism - Many cut down on vacations and travel to save money. Entertainment and leisure - People tend to seek inexpensive, at-home forms of entertainment during a recession.
Recessions have plenty of negative consequences, but they can provide a necessary reset for the markets. Higher interest rates that often coincide with the early stages of a recession provide an advantage to savers, while lower interest rates moving out of a recession can benefit homebuyers.
The good news is that recessions generally haven't lasted very long. Our analysis of 11 cycles since 1950 shows that recessions have persisted between two and 18 months, with the average spanning about 10 months.
“Holding cash during times of economic uncertainty, like a potential recession, can feel reassuring because it offers liquidity and a sense of control,” said Adam Paoli, the lead financial planner at Coltiva Wealth.
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.
A recession can impact the housing market in several ways. Typically, buyer demand weakens due to economic uncertainty, potentially leading to price drops or mortgage rates typically drop. However, the current situation is unique, with already high interest rates and low housing inventory.
However, while the average recession lasts just 11 months, it generally takes the market more than two years to bounce back to its pre-bear peak. So, the first thing you should do to make your portfolio more recession-resistant is shore up your cash reserves.
For workers and households, the picture was less rosy. Unemployment was at 5% at the end of 2007, reached a high of 10% in October 2009, and did not recover to 5% until 2015, nearly eight years after the beginning of the recession. Real median household income did not recover to pre-recession levels until 2016.
Gold. The potential of investing in gold is a rewarding move. Gold is typically seen as a safe investment, which is why it's a popular investment in times of recession. “Due to its reputation for being a safe-haven asset, gold tends to perform well during a recession,” per Bloomberg.
Recessions can be great times to buy a home. Sellers are motivated, interest rates may be lower and there may be less competition among buyers. The combination of lower interest rates and potentially lower housing prices can bring homes that were out of reach before the recession within reach.
As of the second quarter 2024, the average American household had wealth of $1.17 million. The average wealth of households in the top 1 percent was about $35.5 million. In the top 0.1 percent, the average household had wealth of more than $158.6 million.
Many millionaires keep a lot of their money in cash or highly liquid cash equivalents. And they tend to establish an emergency account even before making investments.