Items that hold value during a recession generally include defensive assets, essential goods, and tangible commodities, as they are necessary for daily life or act as a hedge against market volatility. Key items include precious metals (gold, silver), utility stocks, healthcare services, consumer staples (food, cleaning products), high-quality bonds, and cash/cash equivalents.
"High-quality, investment-grade corporate bonds generally hold up well during a recession, because they are considered a safer asset in comparison to stocks, and their prices can actually increase while investors seek safety," says Farrell Liger, CEO of New York-based financial education firm Farrell Liger Inc.
For investments, utilities and consumer staples tend to be decent stocks during a recession. People still turn the lights on and run the furnace or A/C, even during bad recessions. Consumer staples are products that people use everyday like food, shampoo, toilet paper, soap, etc.
Consumer staples
Asset allocation is also critical. A recession-resilient portfolio might include a larger share of bonds, dividend-paying stocks, and cash equivalents like Treasury bills or money market funds. These can offer lower returns, but they also help limit downside risk and give you liquidity if opportunities arise.
The 10-5-3 rule is a simple guideline for long-term investment returns, suggesting 10% average annual returns for equities (stocks), 5% for debt instruments (bonds), and 3% for cash (savings accounts), helping investors set realistic expectations and build diversified portfolios balancing risk and stability, though these are historical averages, not guarantees.
Millionaires are made during recessions because fear causes asset prices (stocks, real estate) to drop, creating "fire sale" buying opportunities for those with cash and financial knowledge, while innovative entrepreneurs launch businesses that solve new problems, leading to fortunes built on discounted assets and emerging trends, like Uber and Airbnb after 2008. Recessions clear out weaker businesses, allowing stronger, adaptable companies and investors to grow as the economy eventually recovers and prices rebound.
Some stock market sectors, such as health care and consumer staples, generally perform better than others in a recession. Healthy large-cap stocks also tend to hold up relatively well during downturns. Investing in broad funds can help reduce recession risk through diversification.
Some popular methods include starting a business, investing in stocks or mutual funds, or working from home. Starting a business can be a great way to make money in a recession, as long as you have a good idea and the ability to execute it well.
Be wary of investment pitches, job offers, or “side hustles” that promise fast, guaranteed money. Always do your homework. Credit might feel like a safety net, but it's a trap if used recklessly. Racking up big balances during a recession can bury you under high-interest payments.
Diversification can protect you from the stock market crash, allocating your funds to multiple assets instead of investing all your savings in a single asset class. By investing in bonds, you lend money to the government or a company that agrees to repay the invested amount with interest.
Recession-proof products are goods that continue to experience demand even during periods of economic downturn. These products possess specific characteristics that make them resilient to the effects of a recession, allowing them to maintain a stable or even increased level of consumer interest.
For example, demand for luxury goods and services tends to fall sharply during economic downturns, as consumers focus on essential items and reign in discretionary spending. Similarly, businesses that cater to big-ticket items such as cars or holidays may also see a drop in demand as consumers tighten their belts.
Companies that provide basic necessities like consumer staples and food will always have demand, even during an economic downturn. People still need to prepare meals, wash, and clean. Discount stores often do relatively better during recessions because their staple products are cheaper.
Some of the most recession-proof industries include companies that sell things people need, such as:
To make $3,000 a month ($36,000/year) from investments, you need a significant lump sum or consistent, high-yield income streams, with estimates ranging from roughly $300,000 at a 12% yield to over $700,000 for stable Dividend Aristocrats, depending on your investment type, dividend yield, risk tolerance, and strategy. A simple formula is: Investment Needed = ($3,000 x 12) / Annual Dividend Yield.
Warren Buffett's #1 rule of investing is famously simple and stark: "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.". This principle emphasizes capital preservation and avoiding significant losses, suggesting that protecting your principal is more crucial for long-term wealth building than chasing high, risky returns. It means focusing on buying good businesses at fair prices, understanding what you invest in, and being disciplined to prevent large, permanent losses, even if it means missing out on some fast gains.