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.
“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.”
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.
The simple answer is that during recessions people tend to lose their jobs, and when you don't have cash coming in for a while it's very important to have savings available to spend. That buffer could save you from losing your home or worse.
“While it can be tempting to withdraw all your funds from a bank and keep them at home, banks are typically more secure and offer protection against theft or loss. Plus, keeping money in a bank allows for easier access to funds if needed for emergency expenses or unexpected bills.”
Toothpaste, deodorant, shampoo, toilet paper, and other grooming and personal care items are always in demand. Offering these types of items can position your business as a vital resource for consumers during tough times.
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.
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.
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.
Because people have less money to spend, demand falls, taking the prices of many goods and services with it. Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same.
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.
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.
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.
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.
There are rules of thumb as to how the individual asset classes usually behave – such as the stock market flourishing in times of economic boom, government bonds being significantly less risky investments than stocks, and gold shining the most in times of crisis.
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.
During an economic downturn, it's crucial to control your spending. Try to avoid taking on new debt you don't need, like a house or car. Look critically at smaller expenses, too — there's no reason to keep paying for things you don't use.
Consumer staples, including toothpaste, soap, and shampoo, enjoy a steady demand for their products during recessions and other emergencies, such as pandemics. Discount stores often do incredibly well during recessions because their staple products are cheaper.
These include the medical industry, the legal industry, and essential services, like grocery stores. If you're looking for greater stability in your career, considering industries and professions that tend to remain in demand across economic conditions can be a good idea.
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.
Don't use funds that you need soon.
Make sure you have the time horizon to weather any losses, or hold your cash in stable assets like an interest-bearing savings or checking account, money market fund, or CD—especially if you're expecting a large expense or purchase in the short-term.
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.