Knowing what to invest in during a recession might feel tricky, and while there's no surefire strategy to follow, there are some tried-and-true tactics that can help investors navigate market uncertainty. Downturns in the market can present opportunities to buy quality investments at lower prices.
Wise Takeaways
- While not guaranteed, investments that focus on stability over growth often fare well during recessions.
- Assets like bonds, precious metals and health care stocks are popular during a recession.
- Investors have to define their risk tolerance and time horizon when building a recession plan.
What is a recession?
A recession generally refers to a prolonged economic downturn. Economists often use gross domestic product (GDP) as a benchmark — if GDP declines for two consecutive quarters, it meets the textbook definition of a recession.1
In the United States, the National Bureau of Economic Research (NBER) is the official organization that determines and declares recessions. The NBER is a private, nonprofit research group that assesses economic indicators such as GDP, employment and industrial production to determine when a recession begins and ends.
But recessions involve more than just GDP declines. They also often involve higher unemployment, decreased consumer spending and reduced business investment, signaling a broader economic slowdown that can last months or years.
What to invest in during a recession
During a downturn, many investors instinctively pull out of the market to avoid losses, and while this may sound logical, it can actually hurt long-term returns by locking in losses and missing out on potential rebounds. Instead of exiting the market entirely, investors should consider their approach — whether they want to buy the drip, focus on defensive assets, or take a balanced strategy.
Regardless of strategy, no investment is completely risk-free, and price fluctuations can still occur. That’s why it’s crucial to assess risk tolerance and long-term goals before making any moves.
For those looking to capitalize on lower prices, recessions can present opportunities to buy high-quality investments at a discount, though this approach requires patience and a tolerance for volatility. On the other hand, defensive investors may prioritize stability, opting for assets like government bonds, health care stocks, or consumer staples, which tend to hold up better in uncertain terms.
Four examples of defensive investments include:
1. Bonds
Government bonds historically rank as some of the best-performing assets during a recession. Investors flock to bonds like U.S. Treasuries, which are backed up by the full faith and credit of the U.S. government and insulated from the revenue declines that affect company stocks. High-quality corporate bonds from financially stable companies can also appeal to investors willing to take on slightly more risk in exchange for higher yields.
2. Commodities
Gold often shines during economic downturns as a safe-haven asset. Even if metals like gold don't post record-breaking gains during a recession, conservative investors favor it for its historical resilience and tendency to be less turbulent than the stock market.2 Beyond gold, essential commodities like many agricultural products tend to remain in demand regardless of economic conditions, making them another viable option during a recession.3
3. Defensive stocks
Stocks don't always underwhelm during recessions, but a few sectors provide greater protection. Health care and consumer staples stocks, including large pharmaceutical firms, medical device manufacturers or companies that produce essential household goods tend to hold up well.4 Many also offer reliable dividend yields, providing investors with steady cash flow even when the broader market declines.
Johnson & Johnson (JNJ) defensive stock—historic performance
Johnson & Johnson (JNJ) has historically been a resilient defensive stock, delivering steady returns through market cycles due to its diversified healthcare business and strong dividend track record.
4. Real estate
While the real estate market isn't immune to economic slowdowns, certain segments often remain stable.5 Real estate investment trusts (REITs) focused on essential sectors like health care or warehousing might be viable options for capital preservation, while funds specializing in income-generating rental properties might also provide a steady income stream during a recession. Though less conventional than bonds or defensive stocks, the long-term growth potential in the real estate market makes it a compelling option during recessions.
What is the best investment in a recession?
There's no single "best" investment during a recession, but certain assets tend to hold up better than others. Investors typically seek assets with consistent yields, a history of resilience and low correlation to economic downturns — think essential services and defensive investments that remain in demand regardless of market conditions.
Government and high-quality corporate bonds tend to outperform during recessions, and precious metals and defensive stocks focused on health care or consumer staples can also provide stability.
To minimize risk, diversification is key — spreading investments across multiple sectors can help protect wealth while also allowing for opportunistic buys at discounted prices.
How financial advisors can help you invest wisely
Navigating a recession can feel overwhelming, and knowing where to invest isn’t always straightforward. While some investors prefer to shift toward lower-risk assets, others see downturns as opportunities to buy at a discount. But regardless of your approach, making informed decisions is crucial. That’s where a financial advisor can help.
A qualified advisor can assess your risk tolerance, investment goals and overall financial situation to create a personalized strategy. They can help you balance safety and opportunity, ensuring your portfolio remains resilient during economic uncertainty. Whether you want to focus on preserving wealth, diversifying assets or taking advantage of market dips, an advisor can provide expert guidance tailored to your needs.
Recessions can be unpredictable, but working with a professional can help you avoid emotional decision-making and stay on track for long-term financial success. If you’re unsure where to put your money, seeking professional advice may be a smart first step.
Our financial advisor pick
WiserAdvisor is an online directory that helps connect you to certified financial advisors throughout the USA. With a free account, you can search WiserAdvisor's database to find qualified advisors in your area and see whether they meet your expectations.
How long do recessions last?
Recessions don’t follow a set timeline — some last months, while others stretch for years. For example, the Great Recession that began in 2007 didn't end until 2009. According to the National Bureau of Economic Research (NBER), the average recession since World War II has lasted about 10 months.6
Just keep in mind that there are no guarantees on how long or short a recession will last, and it's often difficult to tell when it's over until after the fact. That’s why investors should stay proactive and adapt their strategies to shifting economic conditions rather than waiting for a clear signal that the downturn is over.
FAQs
Eric Esposito is a freelance contributor on MoneyWise with an interest in financial markets, investing, and trading. In addition to MoneyWise, Eric’s work can be found on financial publications such as WallStreetZen and CoinDesk. When not researching the latest stock market trends, Eric enjoys biking, walking his dog, and spending time with family in Central Florida. Eric holds a BA in English from Quinnipiac University.
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