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5 Recession-Friendly Investment Options

Published August 6, 2020

4 minute read

By Heather Fishel

Whether you’re new to investing or an experienced investor, no one wants to see a recession on the horizon. No matter how carefully you’ve prepared and balanced your portfolio, a recession can wipe out your gains, cause your investments to lose value, and pose serious financial risks. And financial uncertainty can also make it difficult to invest further – you don’t know how the market, or different investment opportunities, will behave.

But there are some money moves you can make that’ll actually set you up for success during a recession or economic downturn. If you know which investments, which stocks, tend to perform well when all others are volatile, you can minimize your losses and potentially make gains.

The following are five great recession-friendly investment options that everyone should consider.

1. Health Care

If there’s one industry that the world will always need, it’s the health care industry. It’s a pretty recession-proof industry – people need health care in order to live. And even when the economy is in decline, people are still going to visit the doctor, head to the hospital, and seek out medical care. Even during a recession, people will get sick and injured.

You can invest in health care in a number of different ways. One option is investing in individual stocks of pharmaceutical companies, medical device companies, or companies that make healthcare products. You can also invest in hospitals, surgery centers, and health care index funds through an investment broker.

2. Discount Retailers

When a recession hits, people hang onto their money. That leads to a decrease in spending on nonessential items, like trendy new clothes, the latest electronics, and brand-new goods across the board. But surprisingly, many people don’t stop shopping or spending money altogether – they just start shopping at discount retailers.

During recessions, discount retailers and low-cost retailers typically see a boom. This is because consumers typically start buying cheaper alternatives when they shop. They’ll look to save money and cut costs by shopping for discounted groceries, discounted clothes, and discounted necessities.

So, it’s a smart idea to put your money into discount retailers when a recession occurs. For example, during the Great Recession, Dollar General stock rose by more than 60 percent in 2008 alone. During that same recession, Walmart saw its sales increase by 11 percent, and stockholder dividends returned about 21 percent.

3. Tobacco and Alcohol

It might be surprising, but two of the most reliable industries you can invest in during a recession are tobacco and alcohol. Although they’re discretionary items that you’d expect people to stop purchasing during a downturn, these two industries actually become a kind of comfort during stressful times. People smoke and drink more than they normally would.

So, during a recession, people turn to tobacco and alcohol, and these businesses see gains. For example, during the Great Recession, the tobacco company Altria saw an impressive 28 percent gain in its stock. While other stocks were in freefall, Altria’s stock was on a significant upswing. 

You can cash in on the potential gains that can happen during a recession by investing in individual tobacco or alcohol stocks. Look for smaller alcohol companies instead of big names like Coors or Jim Beam. Tobacco stocks in general are a good option.

4. Freight and Logistics

If there’s another industry that people absolutely can’t go without, even during a recession, it’s freight and logistics. You probably don’t think much about freight companies or logistics organizations, but these industries handle the movement of goods across the country and around the world. Without them, everything from groceries to online purchases wouldn’t be delivered.

And during a recession, goods still need to be moved. Freight and logistics companies can be a solid choice for investors, as they likely won’t see the same dramatic losses as other companies or industries. For example, in 2008, Old Dominion Freight, Westinghouse Air Brake Technologies, and C.H. Robinson Worldwide all saw positive returns. Consider investing in individual stocks like these a safe option during the uncertainty of a recession.

5. Military and Defense Contractors

Another industry that won’t suffer from the uncertainty of a recession is military and defense. If you’re searching for a “safe bet” investment, you really can’t beat the consistency and reliability that military and defense contractors can offer. 

The military and defense industry can survive just about anything. It’s consistent and stable when there are political changes, economic ups and down, and in times of both war and peace. And the government is always willing to spend money on the military. Even when you least expect it, military and defense contractors are working to create more military equipment. And during a recession, that’s reliability that you need in an investment.

Invest in companies that contract with the military or Department of Defense, like Boeing, Lockheed Martin, Raytheon, or Honeywell. You can also invest in smaller contractors, like General Atomics or Bechtel. These companies should stay relatively stable as investments in a volatile market. 

Prepare, Don’t Panic

The key to making smart, recession-friendly investments is to know which industries are stable even in the most unpredictable of times. You don’t want to panic and chase after stocks that are seeing quick, short-term gains. Remember, investing for the long-term means waiting, holding, and making smart decisions.

Although it’s tempting to sell immediately when prices fall, you’ll want to assess your overall investment portfolio. It’s impossible to determine when the market or a specific stock has hit its bottom. So, stay calm and hang on for the long haul. Make moves that will offer stability in the long-term, like investing in the industries mentioned here. Long established companies and industries can thrive even in uncertain market conditions.

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