Real estate is a great place to start as its value is unlikely to drop, but other investments like precious metals, commodities, other currencies, cryptocurrencies, and even self-sustaining practices can help you deal with the significant repercussions of inflation and a dollar collapse.
If you invest for a longer period, fixed or indexed annuities or even indexed universal life insurance products can provide better returns than Treasury bonds. Corporate bonds and even the preferred stocks of blue-chip companies can also provide competitive income with minimal to moderate risk.
If you try to time the market, you could miss out on the opportunity for nice gains. Recessions often present great opportunities to buy the stocks of well-run companies at discounted prices. Patient investors can (and I'd argue should) buy stocks in 2025, regardless of whether or not a recession is coming.
Treasurys, says Collins, are similar to government and corporate bonds, as they are backed by the full faith and credit of the U.S. government. They are typically seen as safe investments during a recession. "In times of market volatility, investors may flock toward Treasury bonds, seeking stability," he says.
So, the first thing you should do to make your portfolio more recession-resistant is shore up your cash reserves. Otherwise, you may be forced to sell stocks during a market decline, thereby locking in losses and undercutting your portfolio's capacity to recover.
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.
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.
In other words, if you have a solid financial plan, and your 401(k) is well-optimized, sometimes the best thing to do in a market downturn is to stay the course, especially if you are a younger investor with years until retirement.
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.
The reality is that stocks do have market risk, but even those of you close to retirement or retired should stay invested in stocks to some degree in order to benefit from the upside over time. If you're 65, you could have two decades or more of living ahead of you and you'll want that potential boost.
“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.”
Investors may also want to consider increasing exposure to real assets, such as commodities, gold, energy- and power-related infrastructure, and real estate investment trusts (REITs). Also look to international stocks, especially in Japan, India, Mexico and Brazil.
If the dollar collapses, your 401(k) would lose significant value. Exponential inflation would result if the dollar collapsed, decreasing the real value of the dollar compared with other global currencies, which, in effect, would reduce the value of your 401(k).
Healthy large cap stocks also tend to hold up relatively well during downturns. Investing in broad funds can help reduce recession risk through diversification. Bonds and dividend stocks can provide income to cushion investors against downturns.
Treasuries are safe investments because they are backed by the “full faith and credit” of the US federal government. The US government has never defaulted on a debt obligation. One special category of treasury securities is Treasury Inflation-Protected Securities (TIPS). TIPS interest rates are indexed to inflation.
Cash delivers safety in troubled times. Experts recommend keeping three to six months' worth of cash to cover living expenses when people lose their jobs. For businesses, maintaining liquidity through a recession can making the difference between shutting the doors or surviving the downturn.
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. You can invest in precious metals in a few different ways.
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.
While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.
Credit unions and banks are both insured, with most banks being insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per customer.
Inflation Is Eating Away at Your Funds
According to the Bureau of Labor Statistics, the average rate of inflation from April 2023 to April 2024 was 3.4%. If you've been keeping your money in a savings account with a lower yield than the rate of inflation, you should switch over to a higher-yield account.