\Maybe you’ve heard the word recession floating around recently. It’s the kind of word that can make investors a little sweaty, and understandably so. No one wants to see their hard-earned money take a hit. But here’s the good news: with the right strategy, your portfolio doesn’t have to be at the mercy of a downturn. Let’s talk about what a recession actually means for your investments and where your money might be better off when the economy starts looking shaky.
What Is a Recession?
A recession is a period of economic decline. It’s defined as two straight quarters of shrinking gross domestic product (GDP-the total value of all goods and services produced within a country in a given period of time), but it also tends to come with rising unemployment, lower consumer spending, and general uncertainty in the markets. During a recession, businesses might pull back, stock prices can dip, and investors get a little jittery. But it’s also a normal part of the economic cycle, and not necessarily something to panic about if you’re prepared.
So, What Should You Invest In?
When people think a recession is on the horizon, the name of the game is defense. You want assets that tend to hold their value (or even gain) when things get rough. Here are a few places investors often turn:
Defensive Stocks – Think companies that provide everyday essentials, like food, healthcare, household products, and utilities. People don’t stop buying toilet paper or paying their electric bills just because the economy slows down. These sectors tend to stay steady when everything else feels like it’s wobbling. Big names in consumer staples or healthcare are often seen as “safe” places to ride out economic turbulence.
Bonds (Especially Government Bonds) – Bonds are often the go-to when the stock market gets rocky. Government bonds, like U.S. Treasuries, are considered especially safe because they’re backed by the government. They don’t offer huge returns, but they can help protect your money when the stocks are falling. Some investors also look at bond funds or short-term bonds, which are less sensitive to interest rate changes and easier to access than buying individual bonds.
Dividend-Paying Stocks – Even in a downturn, some companies keep paying out dividends, which can provide a bit of steady income when stock prices are volatile. Look for companies with a long history of paying and increasing dividends, especially during tough times. These aren’t guaranteed safe bets, but they often signal a company with solid fundamentals and cash flow.
Cash (or Cash Equivalents) – It might sound boring, but there’s real value in having some cash or highly liquid investments like money market funds. During a recession, having cash gives you flexibility and the ability to jump on opportunities when stocks are suddenly “on sale.” Plus, with interest rates higher these days, cash is earning a bit more than it used to.
Gold and Precious Metals – Some investors turn to gold when the economy looks unstable. It’s seen as a store of value and can act as a hedge against inflation and market volatility. However, you don’t need to go out and buy gold bars or search for buried treasure, you can invest in gold through ETFs or mutual funds instead
Consumer Staples and Utilities ETFs – If you want instant diversification within “safe” sectors, ETFs focused on consumer staples or utilities can help. They spread your investment across several companies that tend to do well, or at least hold steady, when spending slows down.
Don’t Try to Time the Market
It’s tempting to think, “I’ll just pull my money out now and get back in when things recover.” But timing the market is notoriously difficult, even for professionals. Often, the biggest upswings come right after big downturns, and if you’re sitting on the sidelines, you could miss out. If you’re investing for the long haul, staying invested, with some tweaks to reduce risk, is usually smarter than making drastic changes based on fear.
Final Thoughts
Recessions are part of the natural economic cycle. They’re uncomfortable, but they don’t last forever, and smart investing during tough times can actually set you up for future gains. Focus on quality, diversify your holdings, and lean into stability when storm clouds gather. And if you’re not sure what makes sense for your situation, chatting with a financial advisor can be a big help. You don’t need to overhaul everything, you just need a game plan that helps your money weather the storm.
