7 Best Investments During a Recession: Insights from Financial Advisors
As worries about a potential recession grow and long-term Treasury bonds face instability, investors are advised to reassess their portfolios to mitigate risk. Market strategists highlight that now may be the time to focus on assets that historically hold up well during economic downturns.
Financial experts from various advisory firms suggest seven types of investments that tend to perform relatively better during recessions:
1. Gold
Often regarded as a safe haven, gold has historically served as a hedge against stock market downturns. In 2026, gold notably outperformed equities; for example, the SPDR Gold Shares ETF (GLD) returned approximately 10.3% year-to-date through early April, while the S&P 500 experienced a slight loss. Central bank purchases at record levels and ongoing geopolitical uncertainty have contributed to gold’s strong performance. Since gold’s value is not tied to corporate earnings or economic growth, it generally retains value during recessions. However, advisors caution that gold prices might currently be elevated and recommend careful consideration before investing.
2. Short-Duration Treasurys
Short-term U.S. government debt securities — those maturing within one month to two years — offer stability, liquidity, and minimal credit risk. These Treasurys are less sensitive to interest rate fluctuations compared to longer-term bonds, reducing duration risk. As such, they can be suitable “safe harbor” assets during volatile market periods. While not designed to generate high returns, they provide conservative investors a secure place to preserve capital while weathering economic uncertainties.
3. Defensive Sector ETFs
Certain sectors show resilience during economic slowdowns, making them attractive investments in recessionary environments. Defensive sectors typically include utilities, consumer staples (such as food and household products), and healthcare. Since demand for these goods and services remains relatively steady regardless of economic conditions, ETFs targeting these sectors can offer diversification with lower volatility. These investments tend to experience smaller declines when broader markets falter, helping investors avoid emotional decisions during downturns.
4. Cash and Money Market Funds
Holding cash used to be considered losing money after inflation, but with current money market fund yields near 4%, cash is regaining appeal. This asset class provides liquidity and capital preservation without exposure to market volatility. Particularly during recessions, maintaining a cash reserve offers flexibility to capitalize on investment opportunities without being forced to sell other assets at depressed prices.
5. Investment-Grade Corporate Bonds
High-quality bonds, including investment-grade corporate bonds and municipals, can generate consistent income and stabilize portfolios in volatile markets. Even with rising Treasury yields, these safer fixed-income investments remain attractive because of their creditworthiness. Experts advise against chasing higher yields in the riskier high-yield or junk bond sector during economic slowdowns, as credit spreads tend to widen sharply. Prioritizing credit quality is essential for weathering recession-induced corporate credit stress.
6. Income-Producing Real Estate and REITs
Real estate investment trusts (REITs) and income-producing real estate have demonstrated relative strength during recent market fluctuations. For instance, the Vanguard Real Estate Index Fund ETF (VNQ) achieved a 6.2% return year-to-date through April 2026, outperforming broader market ETFs like the Vanguard S&P 500 ETF (VOO), which declined slightly. REITs provide attractive yields — around 3.6% compared to roughly 1.2% for VOO — and can offer inflation protection. Elevated home prices and high mortgage rates may encourage longer renting periods, sustaining strong rental demand even amid economic slowdowns. REIT investments are especially beneficial in tax-advantaged accounts but require diligence on the specific sector dynamics.
7. Dividend Aristocrats™
Stocks known as Dividend Aristocrats™—companies that have consistently increased dividends for at least 25 consecutive years—can be solid choices during recessions. These firms tend to have resilient business models and generate steady cash flows that support reliable dividend payments, providing income and potentially mitigating total portfolio volatility. Investors may consider dividend-focused ETFs or individual blue-chip stocks with demonstrated dividend growth histories.
Key Takeaways
- Defensive and non-cyclical assets like gold and real estate currently outperform volatile stocks.
- Short-term Treasurys can preserve capital and provide liquidity with minimal risk.
- Consumer staples, utilities, and healthcare sectors generally see steadier demand in contractions.
- Cash and money market funds now yield enough to be a strategic portfolio component.
- Investment-grade bonds remain preferred over high-yield bonds during weak economic conditions.
- Income-producing real estate benefits from strong rental demand tied to housing market conditions.
- Dividend Aristocrats™ offer dependable income streams in challenging markets.
Final Thoughts
While fears of recession drive many investors to reconsider their holdings, it is important not to react impulsively based on forecasts alone. Instead, adopting a thoughtful approach centered on diversification and risk management can help weather economic uncertainty. Combining several of the above investment types may provide a more balanced portfolio that stands up to market downturns without sacrificing long-term growth potential.
For up-to-date advice and tailored strategies, consulting a certified financial planner or trusted advisor remains advisable.
Article by Kate Stalter, CFP, reviewed by Rachel McVearry – April 13, 2026
Source: U.S. News & World Report