A recession is a significant, widespread, and extended decline in economic activity. Riskier assets like stocks and high-yield bonds tend to lose value in a recession, while gold and U.S. Treasuries appreciate.
Seek Out Core Sector Stocks
If you want to insulate yourself during a recession partly with stocks, consider investing in the healthcare, utilities and consumer goods sectors. People are still going to spend money on medical care, household items, electricity and food, regardless of the state of the economy.
They typically overlap with drops in international trade as exports and, especially, imports fall sharply during periods of slowdown. The unemployment rate almost always jumps and inflation falls slightly because overall demand for goods and services is curtailed.
Some businesses and industries that tend to do well during a recession include: Healthcare: Healthcare is considered recession-proof because people get sick regardless of the economy. Consumer staples: Companies that sell food, beverages, and personal hygiene products are often profitable during recessions.
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.
During a recession, economic activity slows. When consumers spend less, the demand for goods and services falls. Once that happens, prices tend to drop, slowing down inflation.
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.
“Historically, when there is a recession, people start buying less — especially large purchases. So, this means that demand for cars would decrease pretty significantly,” said Ben Michael, director of auto, Michael & Associates. “And, when demand decreases, prices decrease as well.”
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.
Keep Some Assets in Cash or Cash Equivalents
Liquidity is crucial in uncertain times. “I've seen people struggle during a recession because their assets were too tied up in investments. This is why I suggest keeping some of your money in cash or in easily liquidated instruments like Treasury bills,” Kovar said.
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.
Traveling can actually be cheaper when there's a recession. “The demand for travel and hospitality services typically declines as consumers cut back on discretionary spending,” Sarib Rehman, CEO of Flipcost, said.
Typically, in recessions, the demand for houses declines and as a result house prices will fall. This was the case in the last recession back in 2008 when the housing bubble burst and the recession began.
During recessions, home values often decline due to decreased demand, while rents tend to remain stable or even increase, as more people opt to rent instead of buy.
A 2024 recession is generally seen as unlikely, but metrics that economics take seriously hint that a recession could occur, perhaps in 2025.
Whatever you call it, a recession can impact your finances. Economic expansions create opportunities: new businesses, more jobs, and higher wages. Recessions reduce opportunities: failed businesses, fewer jobs, and lower wages.
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.
During a recession, companies often have to cut back on hiring and lay off a portion of their employees. Because of this, unemployment often rises, and many people experience a decrease in disposable income. Because people have less money to spend, demand falls, taking the prices of many goods and services with it.
For this process, the innocent party must notify the breaching party of their intention to rescind due to the breach. Rescission for breach aims to restore the innocent party to their pre-contractual position by undoing the contract, in so that the innocent party isn't able to be made whole.
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.
Typically, prices do not fall across the board unless the economy slows or even tips into recession, which would reduce consumer demand but also impose economic hardship, some economists told ABC News.
1. Saving Accounts. There's a good chance you already have a savings account. Like checking accounts, they're federally insured and are generally the simplest and safest place to keep cash in good times and bad.