7 Best Investments to Buy in a Recession: Insights from Financial Advisors
By Kate Stalter | Edited by Brady Porche | December 11, 2025
In the face of economic downturns, many investors feel compelled to react swiftly to market turbulence. However, financial experts caution against making panic-driven portfolio changes during recessions. U.S. News & World Report’s financial advisors emphasize that a balanced mix of stocks, bonds, and defensive assets can help investors weather market downturns and position themselves for recovery.
Understanding Market Behavior in Recessions
Markets tend to anticipate recessions well before they officially begin, often pricing in expected downturns early. According to a 2023 article by Dimensional Fund Advisors titled "Long-Term Investors, Don’t Let a Recession Faze You," equity markets typically decline prior to a recession but have historically demonstrated positive average returns afterward. Selling off assets at the onset of an economic contraction can lock investors into losses and reduce future growth potential.
Avoiding Reactionary Moves
Market experts recommend maintaining a deliberate investment strategy, focusing on steady portfolio rebalancing rather than reactionary sales. This approach reduces the risk of overexposure to risky assets, which can severely impact portfolios, especially during retirement when sequence of returns risk becomes a critical concern.
Dan Pascone, founder and CEO of Tailored Wealth in Fairfield, Connecticut, advises that building a diversified portfolio comprising dividend stocks, Treasurys, quality bonds, defensive sector exposure, Treasury Inflation-Protected Securities (TIPS), and a reasonable cash reserve will serve investors far better than attempting to time the market perfectly.
Top 7 Investments for a Recession
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Gold
Regarded as a hedge against stock market losses and inflation, gold has proven resilient during uncertain times. In 2025, the SPDR Gold Shares ETF (GLD) returned an impressive 61%, significantly outperforming the broad S&P 500 index. While gold can provide a defensive buffer, Prudence Zhu, founder of Enso Financial, suggests keeping gold as a "small slice" within a well-rounded portfolio. -
Dividend Stocks
Dividend-paying stocks, particularly in stable sectors such as utilities, healthcare, and consumer staples, tend to better withstand recessions. They provide income and can smooth market volatility, but remain subject to stock market risks. Pascone stresses choosing companies with reliable cash flows and a history of steady dividends rather than merely chasing high yields. -
U.S. Treasury Bonds
Long-term Treasury bonds serve as a refuge during economic slowdowns. The 30-year Treasury bond, in particular, offers protection against inflation and economic volatility, although it carries higher interest rate risk than shorter maturities. When economic growth declines and the Federal Reserve lowers interest rates, Treasury yields generally fall, driving up bond prices. -
Defensive Sector ETFs
Certain consumer habits remain steady regardless of economic conditions. ETFs tracking defensive sectors like consumer staples (e.g., toothpaste, food), healthcare, and utilities tend to be more durable. Examples include the Utilities Select Sector SPDR Fund (XLU), Health Care Select Sector SPDR Fund (XLV), and Consumer Staples Select Sector SPDR Fund (XLP). Defensive ETFs are a practical way for busy investors to reduce risk without having to select individual stocks. -
High-Quality Corporate Bonds
Investment-grade bonds from financially solid corporations offer a safer alternative to equities during recessions. These bonds typically maintain or even increase in price as investors seek safer assets. Credit quality and duration are important considerations, with shorter duration bonds generally less sensitive to interest rate changes. -
Cash or Cash Equivalents
Cash and equivalents such as money market funds or certificates of deposit provide stability and liquidity. While their yields are lower compared to other investments, they ensure capital preservation and flexibility during turbulent market periods. -
Treasury Inflation-Protected Securities (TIPS)
TIPS offer protection against inflation by adjusting principal value in line with inflation rates. They provide a defensive layer for portfolios sensitive to inflation spikes, which can often accompany or follow recessions.
Building a Portfolio for Stability and Growth
The overarching advice from financial advisors is clear: no single investment is foolproof during recessions. Instead, a diversified approach that balances income, safety, and growth potential can help investors "sleep at night" while maintaining readiness for market rebounds.
Maintaining discipline, avoiding panic sales, and regularly rebalancing portfolios are essential tactics to mitigate losses and capitalize on recovery opportunities. As historical data shows, recessions, while challenging, can also present strategic investment openings for those who remain patient and prepared.
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