Here are 3 solid investments to consider during a recession (and 3 to avoid) (2024)

An impending recession largely means bad news, including high unemployment rates, volatile markets, and a generally slowing economy. Yet there is one silver lining for savvy investors: It’s possible to buy investments at a discount and potentially see bigger returns down the line. The key is choosing the right ones.

Signs of a recession

A recession is a sustained period of decline in economic activity. The most common measurement of a recession is declining gross domestic product (GDP), but factors such as high unemployment, slowed consumer spending, and an inverted yield curve can also be signs that the economy is about to take a nose dive.

Recessions are a natural part of our cyclical economy. So although we can’t predict exactly when one will occur, it’s safe to say that there will be one eventually. And the best way to get ready for a recession is to build a portfolio that can weather a recession before the market turns.

“Proactive planning allows you to focus on the things that you can control—how much you save, your level of risk, the accounts you use, and fees and taxes—and ignore what you cannot (the markets, economy, inflation, and interest rates),” says Brent Weiss, a certified financial planner and head of financial wellness at Facet.

So if you want to prepare your portfolio for a recession—just in case—here’s what you should know.

Best investments during a recession

When the economy and stock market are down, you can often buy into securities at a cheaper price than if you invested while the market was at its peak. That gives you the opportunity to realize higher gains as the economy recovers.

And the best investments during a recession are not so different from the best investments to make at any point of the business cycle. Still, there are certain investments that can help your portfolio weather a recession and minimize losses.

1. Dividend stocks

Investing in dividend stocks is one of the most effective ways to take advantage of long-term growth among top companies. These stocks share profits with investors on a regular basis (often quarterly) in the form of dividends, which can be cashed out or reinvested. Only the most stable and profitable companies tend to pay out dividends, meaning these stocks are generally less volatile overall.

However, if you don’t want to purchase individual stocks, another option is to invest in a dividend fund, which allows you to invest in a basket of the top-performing dividend stocks.

2. ETFs

Investment funds are a strategic option during a recession because they have built-in diversification, minimizing volatility compared to individual stocks. However, the fees can get expensive for certain types of actively managed funds.

Exchange-traded funds (ETFs), on the other hand, generally have lower fees compared to mutual funds because they’re passively managed—they’re set up to track a specific index, such as the S&P 500. And value stock ETFs are particularly well-suited to fare in a volatile or down market because the companies that make up the funds tend to have solid fundamentals and produce essential goods.

3. Real estate

Equities aren’t your only option for investing when the market is down. Real estate can be attractive to investors because when the economy is slow, it’s possible to buy property at lower prices and lock in lower mortgage rates. Again, that translates to greater returns as the market recovers, especially because real estate generally appreciates over time.

Investing in rental properties is also a good way to diversify income streams, which can be especially important during a recession when job stability tends to weaken.

Investments to avoid during a recession

Having a well-rounded and diversified portfolio is the key to weathering economic ups and downs. However, there are some investments that generally perform poorly during times of market uncertainty or turbulence.

1. Speculative investments

There are certain times when putting money in riskier investments is the right move. But a recession is generally not one of them.

It’s important to follow your long-term investment plan and avoid getting distracted by promises of big returns or caught up with what other people are doing. “Your situation is unique, and your investment strategy needs to reflect that,” says Weiss. “What the 28-year-old billionaire is doing with his or her money shouldn’t be your North Star.”

2. High-yield bonds

Bonds are generally considered safe, stable investments. That said, not all bonds are created equal. High-yield bonds are issued by companies with lower credit ratings, indicating a higher probability of default. During a recession, these businesses often face greater financial difficulties, declining revenues, and increased default risks. So as economic conditions worsen, the likelihood of companies failing to meet their debt obligations and defaulting on their bond payments increases.

3. Highly leveraged companies

In general, it’s important to invest in companies with sound financial health. That’s even more true during a recession. Businesses that carry a lot of debt tend to see their share prices fall when the economy is down, as investors see them as more vulnerable to changing interest rates and declines in profit.

The takeaway

Investing during a recession can be stressful, especially if your portfolio loses value. However, it’s important to stay the course. “How you behave matters far more than how the market behaves,” says Weiss.

In other words, mindset is just as important as expertise when investing during a recession. It’s crucial to remember that selling when the market is down means selling at a loss. If you panic, you may make a poor investment decision to get out of the market right before stocks begin to climb again. Remember that ups and downs are part of the investing process.

“Proactive planning is the most important thing you can do to help you keep your financial calm amidst the chaos of bear markets and economic recessions,” says Weiss. “Focusing on the things you can control, and ignoring the things you cannot, will help you navigate any market or economic environment with clarity and confidence, and that can make all the difference.”

Here are 3 solid investments to consider during a recession (and 3 to avoid) (2024)


What should you not invest in during a recession? ›

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.

What is the best safe investment during a recession? ›

Cash and Cash Equivalents

Cash equivalents include short-term, highly liquid assets with minimal risk, such as Treasury bills, money market funds and certificates of deposit. Money market funds and high-yield savings are also places to salt away cash in a downturn.

What are the 3 main investment categories? ›

There are three main types of investments:
  • Stocks.
  • Bonds.
  • Cash equivalent.

Where is the safest place to put your money during a recession? ›

Saving Accounts

Like checking accounts, they're federally insured and are generally the simplest and safest place to keep cash in good times and bad. Other advantages of savings accounts include: Simple to open and maintain. Deposits are fully insured.

Is cash king during a recession? ›

During challenging financial times, cash and liquidity is king. Having easy access to cash during a recession can help you avoid going into serious debt.

What to do in a recession to make money? ›

Recessions can also push you to reexamine your finances, develop passive income streams, and consult financial advisers to make sure your assets are safe.
  1. Cut living expenses. ...
  2. Build an emergency fund. ...
  3. Develop new skills. ...
  4. Speak with a financial adviser. ...
  5. Create passive income sources. ...
  6. Start a business. ...
  7. Consumer staples. ...
  8. Bonds.
Jan 5, 2024

Can you lose money in a savings account during a recession? ›

It's safe from the stock market: If a recession causes short-term market volatility, you won't lose money on your high-yield savings deposits, unlike investing in the stock market.

What stocks do worst in a recession? ›

Equity Sectors

On the negative side, energy and infrastructure stocks have been the hardest-hit in recent recessions. Companies in these sectors are acutely sensitive to swings in demand. Financials stocks also can suffer during recessions because of a rising default rate and shrinking net interest margins.

Is it better to have cash or property in a recession? ›

Cash: Offers liquidity, allowing you to cover expenses or seize investment opportunities. Property: Can provide rental income and potential long-term appreciation, but selling might be difficult during an economic downturn.

What are 3 high risk investments? ›

Understanding high-risk investments
  • Cryptoassets (also known as cryptos)
  • Mini-bonds (sometimes called high interest return bonds)
  • Land banking.
  • Contracts for Difference (CFDs)

What is the 3 investment strategy? ›

A three-fund portfolio is a portfolio which uses only basic asset classes — usually a domestic stock "total market" index fund, an international stock "total market" index fund and a bond "total market" index fund.

What are the 3 A's of investing? ›

The 3 A's of successful investing

You're more likely to achieve your goals with a strategy grounded in the three A's: amount, account, and asset mix.

Are CDs safe in a recession? ›

CDs are primarily a safe investment. They are guaranteed by the bank to return the principal and interest earned at maturity. CDs can provide modest income during turbulent economic times like recessions when other types of investments often lose value.

Should you keep cash at home during a recession? ›

Recessions typically go hand in hand with higher unemployment, and finding a new job may not happen quickly. Catherine Valega, a CFP and wealth consultant at Green Bee Advisory in Winchester, Massachusetts, suggests keeping 12 to 24 months of expenses in cash.

Is it bad to have money in the bank during a recession? ›

Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

What stocks do the worst during a recession? ›

Equity Sectors

On the negative side, energy and infrastructure stocks have been the hardest-hit in recent recessions. Companies in these sectors are acutely sensitive to swings in demand. Financials stocks also can suffer during recessions because of a rising default rate and shrinking net interest margins.

What are the CDs and should I invest my money in them during a recession? ›

CDs are a relatively risk-free way to grow your funds, but they also have some downsides. Mapping out plans to build your savings can be challenging, especially when interest rates fluctuate. A certificate of deposit (CD) is a good alternative if you're risk-averse when it comes to investing.

Should I keep cash during a recession? ›

Finance Experts All Say the Same Thing

They all said the same thing: You need three to six months' worth of living expenses in an easily accessible savings account. The exact amount of cash needed depends on one's income tier and cost of living.


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