What to Invest In During a Recession?

Some stocks, funds, and strategies can help you weather economic downturns, but there is no such thing as a recession-proof investment. However, there are still ways for smart investing during a recession which we’ll discuss below.

Investors must act cautiously during a recession, but they must also keep an eye on the market landscape where they can find high-quality assets at discounted prices. Although these environments are difficult, they also offer the best opportunities. 

High-leveraged, cyclical, and speculative assets are the worst performers during a recession. A company falling into any of these categories could become bankrupt, making them a risky investment for investors.

In contrast, investors seeking survival and growth during a recession will invest in high-quality companies with strong balance sheets, high cash flow, and low debt. In addition, they tend to select industries with a long history of success.

Is Investing a Good Idea During Recession?

There is more to recessions than just poor economic growth. There are often numerous other characteristics that accompany them, such as widespread job losses, fewer employment opportunities, and increased government assistance, i.e., stimulus payments and unemployment benefits.

All that being said, it’s natural to wonder if investing is a good idea during or heading toward a recession. Do you think keeping every dollar you make in cash is a better choice?

In times of economic collapse, investing may be something that can be useful for you to make money. Stocks, for example, can be riskier in a down market. You can, however, generate large returns if you follow timeless strategies and smart investing during a recession.

What is a Recession?

It’s important to know what a recession is before looking for investments to purchase. Generally, recessions are defined as sustained declines in the gross domestic product (GDP) over two or more consecutive quarters. There is, however, a more complex method for defining a recession employed by government departments that monitor the economy.

An economic recession can be simply defined as a period of declining economic growth. It is possible for some sectors to grow during a recession while others contract, but the bottom line is the overall level of activity decreases.

The decline in spending and investment causes recessions. There are several reasons why this might happen. Overindebted consumers, high valuations for companies, and a lack of capital can all lead to recession. Economic downturns can also be triggered by black swan events or major corporate bankruptcy.

Indicators of an impending recession lead to a fall in confidence, which contributes to a downward spiral in investment and spending. In order to encourage companies to continue investing, central banks often cut interest rates at this point. Once confidence returns to the economy, the decline slows, and investment picks up again.

Why Recessions Can Be a Great Time to Invest

A downturn in the economy will typically result in decreased profits for many leading companies. Therefore, stock market crashes or corrections can occur just by anticipating a recession. However, investing during a recession can also be beneficial.

Even though investors fear economic downturns, they can also provide some of the best opportunities for investment. There were many investors who thought the global economic crisis of 2008 was the last straw. Yet this was actually a once-in-a-lifetime opportunity, opening the door to a ten-year bull market.

Investors may benefit from recessions for a variety of reasons. Generally, high-quality stocks are more expensive. Only in recessions can you invest in them with any margin of safety. Behavioral finance provides evidence of investors’ irrationality. When bear markets and volatility increase, they make more mistakes.

Recessions also allow the best companies to gain market share by taking advantage of their competitors’ cash shortages.

In terms of investing during recessions versus after, there are several strategies to make money. One approach is to short sell, while another is to put money in investments that can weather economic downturns. In the event of a correction, this should at the very least give you greater buying power.

Great Sectors for Investing in a Recession 

Investors may find it tempting to ride out a recession without exposure to stocks, but they might be missing out on significant opportunities. In economic recessions, there have been companies that have done well historically. Investing in counter-cyclical stocks with strong balance sheets in recession-resistant industries might be a good strategy for investors.

Health Sector, Pharmaceutical, Biotech

A recession tends to affect some sectors of the economy more than others due to the shifting needs of consumers. Among the companies in the health care sector are biotech and pharmaceutical companies. These historically do well during an economic downturn.

Food and Beverages

Food and beverages, household products, and even tobacco and alcohol are all included in the consumer staples sector. 

Meanwhile, some sectors experience slower growth than others. The list includes products and services that consumers consider more wants than needs, such as apparel, luxury items, restaurants, or information technology. An upturn might only occur when the economy is rebounding and recovering from a recession.

Consumer staples are often the first thing we look at during a downturn. Obviously, there are the usual things like the groceries we buy and the stores we go to. Whatever the case may be, you will need toiletries, you will eventually need medical supplies, and you will need to eat and drink.

Real Estate

How about properties? Is real estate an inflation hedge? The need for shelter will always exist, regardless of what happens.

If you’re thinking of buying a property and selling it in the future, there will surely be someone looking for a home no matter what the circumstances may be. This is one of the advantages of investing in real estate.


Stocks that are considered defensive stocks may not be as appealing during boom periods like bull markets. However, bear markets and recessions are ideal times for reassessing companies that sell items everyone needs, no matter what the external conditions are.

This is why you need to ask yourself, what does inflation do to real estate, consumer staples, and other sectors before you decide on what to invest in during a recession?

Investing During a Recession

When the market is down, it’s best to have a flexible investment strategy to get the most out of a rebound. Nobody can predict what the stock market will do or how people will react in the short term.

Economic cycles include recessions whether we like it or not. Recessions are not only associated with shrinking economies, but also with market crashes, corrections, and bear markets. However, recessions can also prove to be some of the best times to invest in the stock market.

Reinvesting during a recession at lower prices can result in smaller losses, leaving more capital available to reinvest.

If you would like to learn more about what to invest in during a recession, you may want to discuss your options with a financial advisor. Our team can help, contact us at 949-881-7128 at Sain Investment Group today!