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.
You can buy investments into companies that tend to make more money during recessions - McDonald's, dollar tree, Walmart. Places that offer the lowest prices see an increase in business immediately once the economy starts to decline.
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.
Cash is a good asset to hold before a financial crisis. In a financial crisis, most assets will fall in price. This makes cash more valuable. As the prices of assets fall, you can buy them at historically low values. Shorted stock is a good asset to have before a financial crisis.
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.
Cash Is More Liquid
“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.
“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.”
Gold can be a good way to recession-proof your portfolio, but exactly how much should you buy — and in what way? While "everyone's appetite for risk is different," Elkins says. "We typically like allocating initially somewhere b/w 5% to 20% toward gold or other precious metals if expecting or in a recession."
The Bottom Line
CDs are a comparatively safe investment. They can provide a stable income regardless of stock market conditions when they're managed properly. Always consider emergency money that you might need in the future when you're thinking of purchasing a CD or starting a CD ladder.
During a recession, it is wise not to invest in high-risk assets, such as small-cap stocks, cryptocurrencies, and overly leveraged companies. These assets are already volatile and risky during good times and will be more so during economic downturns.
A stable value investment is neither insured nor guaranteed by the U.S. government. There is no assurance that the investment will be able to maintain a stable net asset value, and it is possible to lose money in such an investment. All investing is subject to risk, including the possible loss of the money you invest.
"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."
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.
Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.
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.
Typically, a recession is marked by falling productivity, investments and business profits, as well as rising unemployment. At any given time, the economy, which is made up of a country's aggregate production and consumption, follows a pattern of activity often referred to as the business (or economic) cycle.
Financial advisors and accountants are recession proof businesses because they offer essential services that individuals and businesses need, regardless of the economic conditions. For example, during a recession, people and businesses may face financial challenges such as budgeting, debt management, and tax planning.
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.
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.
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.
Save like the wealthy do
Recent data suggests High Net Worth Individuals (HNWIs), or those with more than $1 million in liquid assets, keep an average of just 15% of their wealth in cash and cash-like instruments. These can include treasury bonds, certificates of deposit (CDs) or money market funds.