7 Best Investments During a Recession: Strategies to Protect Your Portfolio
As concerns about a potential recession mount, investors are increasingly seeking ways to safeguard their portfolios against market volatility and economic downturns. Financial experts recommend diversifying with assets that historically perform well during recessions and offer stability when economic growth slows. Below, we explore seven investment types favored by financial advisors for weathering recessions effectively.
Rising Recession Fears Call for Portfolio Review
Wall Street is signaling increased caution. Goldman Sachs recently estimated a 30% probability of a recession, marking a 5% rise in their forecast. Meanwhile, BlackRock has raised concerns about the reliability of long-term U.S. Treasury bonds, traditionally seen as safe assets in tough times. BlackRock strategists suggest investors prepare “plan B” portfolio hedges given the potential fragility of long-dated Treasurys.
While reacting wildly to forecasts is not advisable, periodically reassessing your portfolio for exposure to risk can be prudent as economic conditions shift.
1. Gold: The Classic Safe Haven
Gold has long been prized as a hedge against stock market downturns and economic uncertainty. The SPDR Gold Shares ETF (GLD) has outperformed major stock indices in 2026, delivering a 10.3% return year to date compared to a slight loss on the S&P 500. Jon Lapp, CFP, points out that gold’s appeal is buoyed by record central bank purchases and geopolitical tensions. Gold is not tied to corporate earnings or GDP growth, so it often holds value in recessions. However, investors should approach precious metals cautiously given elevated prices.
2. Short-Duration Treasury Securities
Short-term U.S. Treasury securities—those maturing in one month to two years—offer safety, liquidity, and modest returns without the interest rate sensitivity of longer bonds. Being backed by the U.S. government, these instruments carry virtually no credit risk.
Trevor Gunter, CFP, emphasizes that while short-duration Treasurys may seem unexciting, they fulfill a vital role during recessions by preserving capital and providing flexibility in uncertain markets.
3. Defensive Sector ETFs
Certain sectors traditionally resist economic downturns better than others. Utilities, consumer staples, and healthcare offer products and services that remain in demand regardless of economic conditions. Defensive sector ETFs allow investors to capture this resilience with diversification within these industries.
Dan O’Rourke, CFP, explains that people still need to eat, take medicine, and use electricity during recessions, helping these sectors’ stocks to experience smaller losses than the broader market.
4. Cash and Money Market Funds
While cash is often viewed as “dead money,” the current environment has changed that narrative. Money market funds and online bank accounts are offering yields around 4%, providing a safe place to park funds with immediate liquidity.
Cash holdings offer peace of mind and flexibility amid market corrections, helping investors avoid forced selling of riskier assets.
5. Investment-Grade Corporate Bonds
High-quality corporate bonds tend to perform better than lower-rated debt during downturns. Though Treasury yields have risen recently, investment-grade bonds still offer attractive yields above historical averages.
Lucas Fender of Proper Planning warns against chasing high-yield bonds in recessions because credit spreads tend to widen, increasing the risk of defaults. Focusing on investment-grade corporate bonds can provide steady income with a lower risk profile.
6. Income-Producing Real Estate and REITs
Real estate investment trusts (REITs) and income-producing real estate often provide regular income and potential inflation protection. For example, the Vanguard Real Estate Index ETF (VNQ) has posted a 6.2% return year to date, outperforming the overall stock market and offering a yield of 3.6%.
High home prices and elevated mortgage rates have led many potential homebuyers to rent longer, sustaining demand for rental properties and supporting real estate values during economic downturns.
Investors are advised to hold these real estate investments within tax-advantaged accounts to reduce the impact of taxable income generated by property earnings.
7. Dividend Aristocrats™
Companies known as Dividend Aristocrats have maintained and grown their dividend payouts for decades, demonstrating strong financial health and resilience. These stocks tend to offer steady income and often outperform during market downturns due to their stable earnings and commitment to returning cash to shareholders.
Final Thoughts
A recession can unsettle markets, but a diversified portfolio incorporating these seven investment types can help reduce risk and protect wealth. Financial advisors emphasize that holding steady and avoiding panic-selling during market corrections is critical.
Regularly reviewing your portfolio with an eye toward defensive assets—such as gold, short-duration Treasurys, defensive sector ETFs, cash, high-quality bonds, income-producing real estate, and Dividend Aristocrats—can enhance resilience and position you to navigate recessionary headwinds with greater confidence.
Sources:
- Interview insights from certified financial planners Jon Lapp, Trevor Gunter, Dan O’Rourke, and Lucas Fender
- Market data from SPDR Gold Shares ETF (GLD), Vanguard Real Estate Index ETF (VNQ), and Vanguard S&P 500 ETF (VOO)
- Commentary from Goldman Sachs and BlackRock strategists
For ongoing updates and personalized advice, consider consulting a certified financial planner to tailor recession-resistant investments to your financial goals.