7 Best Investments During a Recession
As fears of a recession grow and instability in U.S. Treasury markets persists, investors are urged to reassess their portfolios to better manage risk. Leading financial advisors highlight several investment options considered resilient or favorable during economic downturns. From traditional safe havens like gold to income-producing real estate, these assets tend to hold up better when markets experience volatility.
Rising Recession Risks Drive Portfolio Reviews
Wall Street’s concern about an impending recession has heightened. Goldman Sachs recently increased its recession probability forecast to 30%, marking a notable rise. Simultaneously, BlackRock cautions against relying heavily on long-term Treasurys, which have been a staple for fixed-income portfolios but face increased risk currently. Financial experts recommend investors adopt a measured approach—reviewing risk exposure regularly rather than making panic-driven portfolio moves—especially given evolving economic conditions.
Top Investment Options for Recession Periods
- Gold
Gold traditionally acts as a hedge against market downturns. In 2026, the SPDR Gold Shares ETF (GLD) gained approximately 10.3%, outperforming the S&P 500, which recorded a small loss during the same period. Central banks’ aggressive gold purchases and geopolitical uncertainty continue to support gold prices. Since gold does not depend on corporate profits or economic growth, it tends to retain value or even appreciate amid recessions. However, some advisors caution that elevated gold prices require careful consideration before investing.
- Short-Duration Treasurys
Short-duration U.S. Treasury bonds, maturing between one month and two years, offer a low-risk, liquid investment option. These bonds experience less sensitivity to interest rate changes compared to longer-dated bonds, making them less vulnerable to rate hikes. Being backed by the U.S. government, they carry almost no credit risk. Though offering modest returns, these instruments provide stability and liquidity in uncertain markets.
- Defensive Sector ETFs
Certain sectors are less impacted by economic downturns due to consistent demand for their products and services. ETFs focused on defensive sectors—utilities, consumer staples, and health care—provide diversified exposure to these areas. Consumer staples and utilities, for instance, supply essentials like food and electricity, which people continue to purchase regardless of economic conditions. These sectors generally experience smaller declines than the broader market, helping investors maintain steadiness during volatility.
- Cash and Money Market Funds
Holding cash or investing in money market funds can provide peace of mind and portfolio flexibility during recessions. With online banks now offering competitive yields near 4%, cash positions no longer represent "dead money." They enable investors to avoid market losses, earn reasonable interest, and remain poised to capitalize on future opportunities.
- Investment-Grade Corporate Bonds
High-quality corporate bonds provide steady income with relatively lower risk. Even as Treasury yields have risen, investment-grade bonds remain attractive due to their creditworthiness and above-average yields. Experts advise against chasing higher yields in riskier junk bonds during recessions, as credit spreads tend to widen, increasing default risk. Instead, prioritizing bonds with strong credit ratings helps preserve capital and income stability.
- Income-Producing Real Estate and REITs
Real estate investment trusts (REITs) have shown resilience, with ETFs like the Vanguard Real Estate Index Fund ETF (VNQ) yielding positive returns and dividends. For example, VNQ delivered a 6.2% return year-to-date compared to an almost flat S&P 500 ETF (VOO). REITs can offer inflation protection and consistent income, making them suitable for tax-advantaged retirement accounts. Elevated home prices and mortgage rates have sustained rental demand, supporting real estate values even as the broader economy slows.
- Dividend Aristocrats™
Dividend Aristocrats™ are companies with a history of consistently increasing dividends for at least 25 consecutive years. These stocks typically belong to established firms with stable cash flows, making them potentially more resilient amid economic downturns. Their regular dividend payouts can provide investors with a steady income stream and help cushion portfolio volatility.
Conclusion
Navigating a potential recession requires strategic adjustments to investment portfolios focusing on stability, income, and risk mitigation. Diversification into assets like gold, short-term Treasurys, defensive sectors, cash, investment-grade bonds, income-producing real estate, and dividend-paying stocks can enhance resilience. Investors are encouraged to conduct regular portfolio reviews aligned with their risk tolerance and long-term financial goals rather than reacting impulsively to market forecasts.
This article is based on insights from certified financial planners and investment experts and is designed to help individual investors make informed decisions during economic downturns. For personalized advice, consulting a financial advisor is recommended.