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.
Your home is likely your most valuable asset, and the value that you assign to it will have a great impact on your net worth calculation. A qualified real estate professional can give you an estimate of your home's value, or you can research online real estate aggregators such as Trulia or Zillow.
Equities are generally considered the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the successes and failures of private businesses in a fiercely competitive marketplace. Equity investing involves buying stock in a private company or group of companies.
The Bottom Line
Safe assets such as U.S. Treasury securities, high-yield savings accounts, money market funds, and certain types of bonds and annuities offer a lower risk investment option for those prioritizing capital preservation and steady, albeit generally lower, returns.
Stocks are generally considered to be riskier than bonds, cash alternatives and commodities. While both bonds and cash alternatives offer the investor a promised rate of return, stocks offer no such guarantee.
Those wealthy whose wealth was all in the stock market or was highly leveraged, lost everything. However, not every wealthy person had all their assets in the stock market or leveraged with debt. Many wealthy people owned land and buildings, all debt free. Many had lots of cash.
Saving Accounts
Like checking accounts, they're federally insured and are generally the simplest and safest place to keep cash in good times and bad.
Information technology can also be considered more resilient than other industries during a downturn. This sector has historically been viewed as cyclical. The industries considered to be the most defensive and better placed to fare reasonably during recessions are utilities, healthcare, and consumer staples.
Generally, life is the most valuable asset, without it all other assets is impossible.
Millionaires often have large real estate portfolios. Once they have established themselves as a buyer in the real estate market, real estate agents start bringing them deals and they can find it easy to obtain financing. Large investors have many millions tied up in real estate.
According to some experts, the optimal range for home-ownership is between 10% and 30% of your net worth. Rental properties and passive income: Rental properties are another common and attractive form of real estate.
Examples of recession-proof assets include cash and cash-equivalent investments, such as three-month U.S. Treasury bills, while examples of recession-proof industries are consumer staples, utilities, and healthcare, among others.
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.
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.
The best performing investments during the Depression were government bonds (many corporations stopped paying interest on their bonds) and annuities.
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.
The Depression
In all, 9,000 banks failed--taking with them $7 billion in depositors' assets. And in the 1930s there was no such thing as deposit insurance--this was a New Deal reform. When a bank failed the depositors were simply left without a penny.
Could the Great Depression happen again? It could, but such an event is unlikely because the Federal Reserve Board is unlikely to sit idly by while the money supply falls by one-third.
Purchase Precious Metal Investments
Precious metals, like gold and silver, tend to perform well during market slowdowns. But since the demand for these kinds of commodities often increases during recessions, their prices usually go up, too.
The highest risk investments are cryptocurrency, individual stocks, private companies, peer-to-peer lending, hedge funds and private equity funds. High-risk, volatile investments may bring high rewards, or they may bring high loss.