Best Recession-Proof Investments to Make Now

 

No one can predict exactly when the next recession will hit but being prepared can make all the difference. During uncertain times, smart investors look for assets that can weather economic storms and still hold their value. These are known as recession-proof investments. In this article, we’ll explore some of the best options you can consider right now to protect your money and grow it safely even in a downturn.

What Happens During a Recession?
Recessions usually follow periods of economic growth and can be triggered by factors like rising inflation, political instability, or a drop in consumer spending.

According to the National Bureau of Economic Research (NBER) the organization responsible for officially tracking U.S. recessions a recession is defined as "a significant decline in economic activity that spreads across the economy and lasts more than a few months."

To determine whether a recession is happening, the NBER looks at various indicators such as employment rates, personal income, and industrial output. The most recent recession it recognized began in 2020, and no new one has been declared since.

1. Defensive Sector ETFs
Some companies are naturally more resilient during economic downturns. These businesses tend to perform better than others because they don’t depend heavily on strong consumer spending to generate revenue.

Instead of selecting individual stocks, investors can gain exposure to these stable industries through exchange-traded funds (ETFs), which are available in both actively managed and index-based forms.

According to Zacks, ETFs that focus on defensive sectors such as utilities, healthcare, or essential consumer goods may offer stronger performance during a recession. That’s because products like electricity, medications, and everyday necessities like toilet paper remain in demand, even when the economy slows.

2. Gold
Gold has traditionally been viewed as a safe haven during times of market turbulence and rising inflation.

According to Stephen Akin, a registered investment advisor at Akin Investments in Charleston, South Carolina, gold becomes especially appealing when a recession leads to rapid expansion of the money supply and inflation becomes a major concern.

Investors have multiple options for gaining exposure to gold.
“For secure storage, physical gold in the form of bullion or coins is ideal,” Akin explains. “Gold mining stocks can offer higher returns during market upswings, as they tend to amplify price movements.”

He also notes that he prefers mining stocks because they have the potential to outperform broader market indexes. Additionally, gold-focused ETFs are another option investors can explore.

3. REITs
Real Estate Investment Trusts (REITs) are known for providing reliable income, largely due to their requirement to pay out at least 90% of their taxable earnings as dividends in order to keep their special tax status.

During economic downturns, REITs tied to essential property types often remain stable, helping maintain consistent income streams. Additionally, REITs can act as a hedge against inflation, since real estate values and rental income tend to increase over time.

According to Zacks, these features make REITs appealing to some investors during a recession.
However, he notes that not all REITs perform equally. Those focused on defensive areas like healthcare are likely to be more resilient than office space REITs, which can be more sensitive to economic cycles.

4. High-Quality Corporate Bonds
Often referred to as investment-grade bonds, high-quality corporate bonds are generally seen as safer investment options during economic downturns. Credit rating agencies typically consider the companies behind these bonds financially stable and capable of repaying their debt.

When the stock market declines, many investors turn to these bonds to help protect their capital. The steady income they provide can also help balance out losses from stocks.

According to Richard McWhorter, a private wealth advisor and managing partner at SRM Private Wealth in Beverly Hills, California, these bonds can offer slightly higher returns than holding cash or cash-like assets, making them an attractive choice in uncertain times.

5. Consumer Staples
Clorox saw strong performance in early 2020, largely due to high demand for its disinfectant and sanitizing wipes during the COVID-19 outbreak. It wasn't alone other consumer staples like Kroger, Hormel Foods, General Mills, Costco, and Colgate also delivered solid returns while much of the market was under pressure.

These types of companies often perform well during recessions because they provide essential products that people continue to buy regardless of economic conditions. Even in tough times, consumers still need food, hygiene products, and basic household items.

6. Communication Services
This sector covers a wide range of companies, including telecommunications providers, social media platforms, internet search engines, streaming services, and video game developers. Major players in this space include Meta (formerly Facebook), Alphabet (Google’s parent company), Verizon, and Netflix.

Netflix, for example, experienced significant growth in early 2020. As lockdowns kept people at home, many turned to streaming for entertainment, boosting both its subscriber base and stock price. While some might see streaming as a non-essential expense that people cut during tough times, Netflix’s success during that period proved otherwise.

7. Information Technology
In the first quarter of 2020, the information technology sector was the most prominent on the list, with three companies delivering double-digit returns despite the economic downturn. These gains weren’t due to the sector’s typical defensive qualities but rather because these companies benefited directly from the global lockdown caused by COVID-19.

For example, Citrix saw growth thanks to the increased demand for video conferencing tools. NortonLifeLock experienced higher demand for cybersecurity and data backup services. Meanwhile, NVIDIA benefited from a surge in video gaming and home computing needs.

Although information technology is often seen as a cyclical industry, it has shown greater resilience compared to other sectors during economic slowdowns.