Health care. Health-care stocks tend to be safer during recessions for the same reason as consumer staples: The services and products they offer are always in demand. This sector includes companies in the biotech, pharmaceutical and health care equipment industries, as well as health care providers and services.
Rebalancing your portfolio — which involves buying and selling investments to restore your original asset allocation, or mix of stocks, bonds and other investments — is usually a good idea, but not during a market sell-off. When things are looking bleak, consider holding on to your investments.
“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.”
Consumer discretionary companies
This sector can be particularly susceptible to recessionary pressures, as the economy slows and people start spending less. Consumer discretionary companies move more dramatically with consumer sentiment and economic cycles, which can worsen in times of financial uncertainty.
If you decide to make some changes to your investment strategy in response to economic concerns, there are ways to reduce your risk. Most stocks and high-yield bonds tend to lose value in a recession, while lower-risk assets—such as gold and U.S. Treasuries—tend to appreciate.
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.
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.
Investing during a recession can be wise with a long-term perspective. Stock prices are often lower, presenting opportunities to buy quality assets at a discount. However, having a solid financial plan and preparing for market volatility is important.
Actually only one of these three stocks (Apple Inc., Amazon.com and Netflix) delivered positive returns during the 2008 crash and found a place in our list. Currently all three stocks are among the 30 most popular stocks among hedge funds though Netflix is declining sharply in rankings.
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.
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.
Key Takeaways. While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term. Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.
Apple. Apple (NASDAQ: AAPL) has ranked as the largest holding in Buffett's Berkshire Hathaway portfolio for several years. The iPhone maker is still at the top early in the new year. Berkshire owns 300 million shares of Apple worth around $73.2 billion, representing 24.8% of its total holdings.
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.
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.
Don't: Take On High-Interest Debt
It's best to avoid racking up high-interest debt during a recession. In fact, the smart move is to slash high-interest debt so you've got more cash on hand. Chances are your highest-interest debt is credit card debt.
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.
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.
“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.
High-quality, dividend-paying stocks in defensive sectors like utilities, healthcare, and consumer staples can provide relative stability and income. Gold and other precious metals typically perform well during market turmoil as investors seek tangible stores of value.
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.
Defensive stocks—such as those in the consumer staples, utilities, and healthcare sectors—tend to perform better during economic downturns and market corrections. These companies provide essential goods and services, making them less vulnerable to shifts in economic conditions.
Eventually, most recessions plunder the housing market, which involves real estate agents, mortgage lenders and everything connected to construction, from workers to suppliers.