A recession is an unfortunate reminder that good economic times don’t last forever. When the economy starts to go into a tailspin, finding an investment that feels right can be challenging.
Whether you are living through a recession or a booming market, investing your funds is a critical part of building wealth. In fact, investing might be even more important during an economic downturn.
If you want to invest during a recession but aren’t sure what the best options are for your portfolio, the investment vehicles below are good options to consider.
In This Article
Ways to Invest During a Recession
Investing your money wisely is a critical part of a successful financial future. This is especially true during a recession.
In many ways, a recession is a challenging financial time. But it’s also a time of opportunity. With the right investments, your finances could come through the recession stronger than ever.
Here’s a look at the top ways to invest during a recession.
1. Core Sector Stocks
As a whole, the stock market may look like a disaster when there’s a recession. However, even during the midst of a bad economic cycle, there are typically some sectors of the equity market that still produce reliable returns for their investors.
These stocks aren’t often exciting options that have sky-high growth projections. But, if you are looking for a slow and steady vehicle to get you to the finish line, then core sector stocks can be a useful tool during market downturns.
Plus, many advisory or brokerage services can give you access to this investment strategy during economic downturns.
There are a few industries to consider when searching for the best core sector stock to add to your portfolio if you want to invest during a recession.
These include:
- Healthcare
- Basic utilities
- Necessary consumer goods
Typically, a recession means households have to cut back on their spending. That said, certain parts of a budget are unavoidable. After all, you’ll still need to pay for consumer staples like healthcare, food and electricity.
Regardless of it’s a bear or bull market, past performance indicates that those items are the top priority in every budget. This means that consumer staples sector stocks catering to those must-have items will likely remain fairly solid.
Pros
- Core sectors hold steady
- Long-term investment opportunity
Cons
- Requires research
- Can lose money
2. High-Yield Savings Accounts
A high-yield savings account might not be an extremely lucrative investment option. However, it is a way to grow your funds without losing access to the liquidity that can come in handy during an economic recession.
Plus, it’s an easy strategy to implement if you have a fixed income. It’s also a great option if stock prices are still too high for you to invest.
Throughout a recession, you might be tempted to stockpile a bit of extra cash whenever you can. Although beefing up your emergency fund is never a bad idea, keeping it in a regular savings account is not ideal.
The reason for this is that most savings accounts pay abysmal interest rates. Usually, the rate is so low that you are actually losing the value of your money due to the powers of inflation.
With that, any plans to keep cash on hand should be accompanied by a high-yield savings account. If you can find a savings account that’s paying more than the national average, that’s a good place to store your funds.
Make sure to scope out all of the options to find the highest possible interest rate for your savings.
All that said, if you don’t already have an emergency fund, now is a great time to start one. You never know what expenses are coming your way.
Plus, the unfortunate reality is that a job loss could completely derail your finances, whether or not an economic recession hits. Before you build out other investment vehicles, make sure that your emergency fund has enough money in it.
Generally, experts recommend keeping three to six months of expenses on hand in your emergency fund. Nevertheless, you should store the amount you feel comfortable with.
For example, freelancers might want a larger emergency fund than those with a reliable job since work and income can be more unpredictable.
If you aren’t sure what the best accounts are, we’ve compiled the best high-yield savings accounts currently available. Each offers competitive interest rates that can help you grow your money in a distressing economic cycle.
Pros
- Easily accessible
- Still making your money grow for you
Cons
- Minimal return on investment
- Challenging to find competitive rates
3. Precious Metals
Past performance has shown that precious metals generally hold their value well during a recession. A few of the most popular precious metal investments to consider during economic downturns include gold, silver and platinum.
Although these metals tend to maintain their value, that also means that rising prices can make them expensive to buy during a recession. So, you’ll want to make sure you are prepared to pay top dollar for this recession-friendly commodity.
If you choose to invest in this asset, there are a few different options.
The most common choice is to buy the coins or bullion directly from a seller or coin dealer. For example, you can find many dealers where you can buy gold coins or bullion online. The downside to this strategy is that you’ll have to store physical gold.
Unfortunately, that can be an expensive decision if you choose to purchase a safe to protect your investment.
Other ways to invest in gold include buying an ETF that tracks gold’s value, a gold certificate or shares of gold streaming companies.
If you decide to invest in precious metals, consider your liquidation strategy before buying. Selling physical gold means you’ll need to physically deliver it to a buyer, which can be an expensive proposition.
But if you have a robust emergency fund and want a way to store value, precious metals are an excellent opportunity to invest during a recession.
Pros
- Useful hedge against inflation
- Helps diversify your portfolio
Cons
- Physical storage can be challenging
- Will not provide passive income
4. Real Estate
Real estate is one way to build a passive income stream. When there is economic uncertainty, the thought of a passive income stream is especially enticing.
Depending on your situation, you may decide to purchase brick-and-mortar rentals to produce an income stream.
Or you might purchase shares of a real estate investment trust (REIT) to build out a real estate component to your investment portfolio.
When you jump into real estate, the opportunities for investments are plentiful. Nevertheless, it’s critically important to choose a strategy that aligns with your long-term goals.
If you are comfortable managing tenants or hiring a property management company, then a physical rental might be the right fit. If you want to pass off the management responsibilities and some of the profits, then a REIT is likely the better fit.
The reality is that even during a recession, people need a place to live. As a real estate investor, you can build an income stream on that fact.
But, before you jump in, make sure to accurately assess your portfolio risk tolerance. You don’t want to sign up for more debt than you can handle.
Instead, look for a way to buy real estate investments without jeopardizing your financial future. Also, you can consider speaking with someone in the financial services industry to ensure you choose the right investments.
Pros
- Tangible asset
- Income-producing asset
- REITs offer a low barrier to entry
Cons
- Difficult to find the right opportunity
- May need a large down payment
5. Reliable Dividend Stocks
Reliable dividend stocks can help you build a passive income stream. But what exactly are dividend-paying stocks?
Essentially, a stocks that pay dividends provide a cash payment to shareholders as a way to share the profits. As a stockholder, the business will reward you for your financial commitment.
In most cases, you’ll find that dividend stocks tend to pay out once per quarter. That leads to four payments each year.
Many dividend-producing companies know that consistency is key. With that, most try to keep their dividends growing at the same rate each and every year. A skipped payment can lead to a steep drop in the number of investors and a falling share price.
If you are just getting started, check out the Dividend Aristocrats. These are large, high-quality companies that have a long-term track record of increasing their dividends.
Ultimately, adding some high-quality dividend stocks to investment accounts is something most investors should consider doing.
Pros
- Build a passive income stream
- Reliable investment returns
Cons
- Dividend policies can change
- Requires investment research
6. Bonus: Invest In Yourself
Although investing in yourself is a unique choice, it can be a great option during a recession. After all, whether there is a market downturn or the economy is booming, you are your own best asset.
The income you earn and the decisions you make will chart a course for your financial future.
With that, investing in yourself is a smart option. The best option will vary based on your unique situation. Here are a few of the top ideas.
Focus on Your Health
Health is an incredibly important part of your life. With good health, you can find more ways to live life to the fullest.
Plus, maintaining good health can help you avoid costly medical bills.
Hire a Coach
Whether it’s a business coach or a life coach, hiring a coach can help you take your company or life to the next level.
Sometimes, having an outside perspective on what you are striving for can be just the push you need to take that next big step forward towards success.
Journal
Journaling can help you build a clear understanding of your goals. Plus, it can help you create a solid plan to turn your goals into a reality and is a low-cost option if you are on a fixed income.
It’s easy to get started with just five to 10 minutes a day.
Learn New Skills
New skills can open the door to new opportunities. Take a look around your industry, then ask yourself what skills are in demand. Once you identify those, find out how to learn those skills.
Depending on the skill, you might be able to learn it through a free course. Or, you may have to pay for a college course.
Run the numbers to see how this investment might pay off for your earning potential.
Start a Side Hustle
A side hustle can help you tackle your financial goals at your desired pace. Although a side hustle will be a lot of work, it can also be incredibly fun.
There are plenty of fun side hustle ideas you can consider to start making some extra income. It truly can be as easy as turning your hobby into a money-making opportunity.
Pros
- Build your own skills
- Create a better mental space
- Increase your earning potential
Cons
- Challenging to commit to yourself
- Hard to pick just one option
FAQs
Investing during a recession can feel overwhelming. These frequently asked questions might be able to clear up any hesitations you may have about pursuing investment opportunities in a stressful economic environment.
The safest investments during a recession include money market funds, dividend funds and utility funds. However, there are risks that come along with any investment, so be prepared for potential losses.
Before jumping into any particular investment, make sure that you have a robust emergency fund on hand. Also, getting investment advice from a certified financial planner can be helpful.
A recession should not impact your risk tolerance. Instead of assuming that times will remain good, map out an investment plan that considers the impact of a recession.
That said, a recession might be a wake-up call that pushes you towards a lower risk tolerance. As a result, you might decide to move your portfolio into lower-risk investments.
Diversification is important whether or not an economy is in a recession. A diverse portfolio helps prevent your investment portfolio from getting too far off balance.
In the best-case scenario, a well-diversified portfolio will help you mitigate losses when you are investing during a recession. It will provide balance in the event one of your investments goes south.
When investing during a recession, you should stay away from companies with high debt burdens.
Additionally, it’s a good idea to avoid high-risk options that result in portfolio volatility in a bad economic climate.
Summary
As you work towards financial freedom, the state of the economy will impact your investment confidence.
That’s understandable. After all, when times are good, the stock market only seems to go up. But when times are bad, the reverse seems to hold true.
Instead of allowing the volatility of the stock market to put your investment goals on pause, keep building your investment portfolio in a way that makes sense for your financial goals.
If you have the funds to invest during a recession, then move forward with one of the worthwhile opportunities above.
