Secure Your Future: 7 Smart Investments to Make During a Recession

7 Best Investments to Consider During a Recession

As concerns about a potential recession rise, investors may be seeking ways to safeguard their portfolios against volatility and economic downturns. Recent commentary from major financial institutions signals a need for re-evaluation of risk exposure, especially given increased recession probabilities and instability in traditionally safe assets like long-term U.S. Treasurys.

Financial advisors recommend considering a diversified mix of defensive investments that tend to hold value or perform relatively well during recessions. Below is an overview of seven investment types that may help mitigate risk when markets get rough:

1. Gold
   Gold is widely regarded as a hedge against economic uncertainty and stock market downturns. The SPDR Gold Shares ETF (GLD) has returned over 10% year-to-date, outperforming the S&P 500, which experienced slight losses. Gold’s appeal is driven by central banks’ record-level purchases and geopolitical tensions. Since gold does not rely on corporate earnings or economic growth, it often maintains value when recessions occur. However, advisors caution against buying gold at inflated prices without considering underlying factors.

2. Short-Duration U.S. Treasurys
   Short-term Treasury securities, which mature within one month to two years, offer safety and liquidity with minimal interest rate risk compared to longer-term bonds. They are backed by the U.S. government, making credit risk negligible. Though yields may be modest, these instruments can provide stability—and a reasonable return—during periods of market uncertainty.

3. Defensive Sector ETFs
   Certain sectors like utilities, consumer staples, and health care tend to be less sensitive to the economic cycle because demand for their products and services remains relatively stable regardless of economic conditions. Exchange-traded funds (ETFs) focusing on these defensive sectors can provide diversified exposure with potentially smaller market drawdowns, helping investors stay invested through downturns.

4. Cash and Money Market Funds
   With money market yields nearing 4%, holding cash is becoming a more attractive strategy than in years past. Cash and money market funds offer liquidity and reduced downside risk, allowing investors to preserve capital and remain flexible in uncertain environments.

5. Investment-Grade Corporate Bonds
   High-quality, investment-grade corporate bonds can deliver reliable income and act as a stable portfolio anchor during volatile markets. Experts advise investors to avoid high-yield or "junk" bonds in recessions, as credit spreads tend to widen and default risk increases. Instead, focusing on top-tier bonds helps mitigate risks associated with economic slowing.

6. Income-Producing Real Estate and REITs
   Real estate investment trusts (REITs) and income-generating property assets offer attractive yields and can provide inflation protection. For example, the Vanguard Real Estate Index Fund ETF (VNQ) has returned 6.2% this year, significantly outperforming the broader market. Elevated mortgage rates and high home prices have pushed up rental demand, which supports real estate income streams even during economic softening.

7. Dividend Aristocrats™
   Companies classified as Dividend Aristocrats™—those with a long track record of consistently raising dividends—tend to be financially robust and can provide steady income streams. These stocks often belong to large, established firms with resilient business models, which may help portfolios weather recessions better than the broader equity market.

Key Takeaways

• Defensive assets such as gold and real estate have recently outpaced stocks amid growing recession concerns.
• Central bank gold purchases and geopolitical risks continue to bolster gold prices.
• Short-term government debt maintains safety and liquidity when volatility rises.
• Consumer staples and utilities are more resilient during downturns.
• Cash holdings earn more today, making them useful for flexibility and preservation.

While no investment is entirely recession-proof, incorporating these asset types may help investors reduce risk and maintain portfolio stability during economic contractions. Regular portfolio reviews to assess risk tolerance and investment objectives remain essential in uncertain markets. Consulting with a certified financial planner or advisor can also provide personalized guidance tailored to individual financial goals.

As always, avoid panic-driven trading and focus on long-term, disciplined investment strategies even when facing potential recessions.