7 Best Investments During a Recession: Strategies Recommended by Financial Advisors
As concerns about a possible recession grow, investors are increasingly reviewing their portfolios to minimize risk and protect their assets. Leading financial advisors and experts suggest several investments that tend to perform better or provide a hedge during economic downturns. Here is an in-depth look at seven investment options that could help investors weather a recession successfully.
1. Gold: A Time-Tested Safe Haven
Gold has long been favored by investors as a hedge against economic uncertainty and stock market volatility. The SPDR Gold Shares ETF (GLD), for example, has delivered a return of 10.3% year-to-date compared to a slight loss of 0.42% in the S&P 500 as of early April 2026. Jon Lapp, a Certified Financial Planner at Haven Financial Advisors, notes that global central banks are purchasing gold in record amounts amid geopolitical tensions. Since gold is not directly tied to corporate earnings or economic growth, it typically holds its value well during recessions. However, Lapp advises caution, warning that precious metals may currently be trading at elevated prices, which could affect future returns.
2. Short-Duration U.S. Treasurys: Stability and Liquidity
Short-duration Treasury securities, those maturing within one month to two years, are considered among the safest investments. Their short maturities reduce exposure to interest rate risks that often affect long-term bonds. Backed by the full faith and credit of the U.S. government, these Treasurys carry minimal credit risk.
Trevor Gunter, CFP and founder of Four Pines Financial, emphasizes that while short-duration Treasurys may not be exciting, their stability and liquidity make them ideal for uncertain times. They provide a reasonable return and serve as a portfolio anchor during economic downturns.
3. Defensive Sector ETFs: Consistent Demand in Any Economy
Certain sectors such as consumer staples, utilities, and healthcare are considered defensive because demand for their products and services remains steady regardless of economic conditions. Exchange-traded funds (ETFs) focusing on these industries offer diversified exposure and tend to experience less volatility in recessions.
Dan O’Rourke, CFP at Strathmore Capital Advisors, points out that everyday essentials like food, medicine, and utilities keep selling even when the economy contracts. Investing in these sectors helps reduce portfolio drawdowns and can prevent emotional reactionary selling by investors.
4. Cash and Money Market Funds: Enhanced Yield and Flexibility
Holding cash or cash equivalents has regained appeal thanks to rising interest rates. Money market funds and high-yield savings accounts offered by online banks are now providing yields near 4%, making cash a viable income-producing asset for short-term needs.
O’Rourke describes cash as "no longer dead money," highlighting its role in enhancing portfolio flexibility without exposing investors to market losses during corrections.
5. Investment-Grade Corporate Bonds: Quality Matters
High-quality bonds—especially investment-grade corporates, U.S. Treasurys, and municipal bonds—are valuable for steady income and risk mitigation during uncertain markets. Despite the rise in Treasury yields, financial experts remain optimistic about bonds as a portfolio anchor.
Lucas Fender, wealth advisor at Proper Planning & Wealth Management, cautions against chasing yield by investing in high-yield or "junk" bonds in a recession. Instead, investors should focus on creditworthy issuers since credit spreads tend to widen rapidly when the economy slows.
6. Income-Producing Real Estate and REITs: Durable Income and Inflation Protection
Real estate and Real Estate Investment Trusts (REITs) have demonstrated resilience during economic slowdowns, often providing steady income through dividends. For instance, the Vanguard Real Estate Index Fund ETF (VNQ) yielded a 6.2% return year-to-date, outperforming the S&P 500’s slight decline of 0.1%.
Jon Lapp notes that high home prices and elevated mortgage rates can keep potential buyers renting longer, supporting rental demand even during a recession. REIT ETFs like VNQ also offer inflation protection and tend to be tax-efficient when held in retirement accounts.
7. Dividend Aristocrats™: Reliable Income from Quality Stocks
Dividend Aristocrats™ are companies that have consistently increased their dividends for at least 25 consecutive years. These firms usually operate in stable industries and can offer dependable income streams during recessions, helping investors maintain cash flow despite market storms.
Their resilience tends to stem from strong balance sheets and the ability to generate steady earnings even in challenging economic conditions.
Conclusion
With the probability of recession on the rise and fixed-income investments like long-term U.S. Treasurys losing some of their traditional appeal, investors are advised to consider these seven investment types. Balancing portfolios with a combination of gold, short-duration government bonds, defensive sector ETFs, cash equivalents, quality corporate bonds, income-producing real estate, and reliable dividend-paying stocks can provide stability and income amidst uncertainty.
As always, it is crucial for investors to review their portfolios regularly and align their strategies with their risk tolerance and long-term financial objectives. Rather than reacting to short-term market noise, adopting a measured approach with diversified defensive assets will better position investors to manage recessions effectively.
Featured Financial Advisors:
- Kate Stalter, CFP
- Rachel McVearry, Financial Reviewer
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