What to Invest in During a Recession: Smart Strategies for Tough Times

During a recession, it’s natural to want to choose risk-free ways to protect — and grow — your money. But while no investment is ever truly without risk, there are ways to help you weather economic downturns.

Learn more about what to invest in during a recession so you can bolster your portfolio, as well as tips to reduce risk.

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Safe Investments for a Recession

The chances of a recession happening in 2025 are low — estimated at 20% according to experts at J.P. Morgan. Still, it never hurts to choose a few safe investments for your portfolio. This means picking ones that can balance the risks and rewards of investing while allowing your money to grow — even if at a slower rate.

These are some of the safest investments for a recession:

• Government bonds: When you purchase a bond, you’re essentially lending money to a municipality, company or government to help them finance major projects. In exchange, your investment earns interest, which you receive periodically (usually twice a year) as a fixed income. When the bond matures, you also receive the original amount back. Government bonds are considered a safe option during recessions.

• High-yield savings accounts (HYSAs): HYSAs are a low-risk option with stable returns. You can use them to safely store and grow your money. HYSAs have much higher yields than traditional savings accounts — currently capped at 5.08% APY. Choose an FDIC-insured account to safeguard your money.

• Money market accounts: These accounts generally offer more features than savings accounts, including check writing and bill pay. Like HYSAs, they usually have higher rates than traditional savings accounts. They’re a more stable, liquid investment option — a major plus when you need quick access to your money.

Defensive Stocks to Consider

Defensive stocks are another low-risk investment option to help weather economic downturns. They sometimes outperform other stocks, particularly during those downturns, and are best for long-term investors seeking steady income through dividends. Options include:

• Consumer staples: These are companies that provide essential goods (like food or cleaning products). Examples include McDonald’s, PepsiCo, Walmart and Procter & Gamble.

• Utilities: There’s a steady demand for water, electricity, etc. — even in a recession. Stocks from companies that offer these services, like General Electric or Duke Energy, tend to do better during such times than other options.

• Healthcare: Even when the economy takes a dip, healthcare services are always necessary. After all, there’s a continuous need for medical services and products. Examples include Pfizer, Johnson & Johnson and Moderna.

• Communication: Companies that provide communication services (like Nokia, Comcast, AT&T and Verizon) are also considered more “defensive.”

Dividend Stocks: Reliable Income Streams

Dividend-yielding stocks give investors a steady source of income during uncertain times. The dividends can be reinvested for continuous growth over the long term.

The market can be unpredictable, but if you’re trying to choose dividend stocks, look at a company’s dividend income and price gains over time. This can help you determine the total average returns.

Top industries for dividend-paying stocks include:

• Real Estate Investment Trusts (REITs): REITs can provide a steady income stream (in the form of dividends) to investors. Some REITs are in defensive sectors (like healthcare), but most are in real estate. They can help protect against inflation and economic downturns since rent prices and property values usually increase over time. Due to their structure, REITs must pay out 90% of their income to shareholders.

• Telecom companies: Companies like AT&T, T-Mobile and Comcast offer stocks that pay out in regular dividends.

• Large, stable companies: Companies that have been around for a long time (and have handled economic downturns before) and have regularly increased their dividends tend to be a safer investment. Procter & Gamble, for example, has seen 68 years of dividend increases.

Precious Metals: A Hedge Against Inflation

Another investment option to consider during a recession is precious metals – like gold or silver – as they often hold their value during economic downturns. Be aware that precious metal prices usually rise and fall with demand. Be cautious when investing and be prepared to hold onto your investments for the long term.

Depending on your risk tolerance and existing portfolio, you may want to dedicate only a small percentage of your portfolio to them. Speaking with an investment advisor could help you make an informed decision.

Here are a few ways to invest in precious metals:

• Physical metals: You can purchase coins or bullion (precious metals valued by weight) and hold onto them. You’ll need a secure place to store them. Compare the current price (plus the markup or premium) from different sellers to get the best value.

• Stocks: While still impacted by the current economy, mining stocks are another way to invest. They also carry their share of risks, though they sometimes outperform the market during recessions.

• Futures contracts: You can invest in precious metals by purchasing contracts on margin — meaning you control a large portion of your investment but at a fraction of its normal value. Market swings can result in major gains or losses.

• ETFs: Some exchange-traded funds let you purchase physical precious metals or trade metal futures contracts. Be aware that these come with their own fees and risks.

Exchange-Traded Funds (ETFs) for Stability

With exchange-traded funds (ETFs), investors can pool their money into a larger fund of stocks, bonds and other assets. They can then earn interest or dividends off that investment.

ETFs offer diversification with lower risk during a recession, but are still subject to market risk. On the flipside, if an ETF shuts down, it will be liquidated and you — as an investor — will be paid in cash. This could result in capital gains, which can impact your tax liability, so be aware of this before investing.

Types of recession-resistant ETFs to consider include:

• Sector ETFs: These give investors access to a small percentage of the overall market. Common sectors include healthcare, utilities, real estate and energy. Diversifying your portfolio can help mitigate recession-related risks.

• Bonds ETFs: For a more conservative approach, consider bond ETFs instead. Investing in these still gives you the chance to earn interest, which can supplement your regular income. Bond ETFs often include hundreds or thousands of individual bonds, which further reduces risk and boosts portfolio stability.

Real Estate Investments: Opportunities During a Downturn

Real estate can be a solid investment during a recession. Depending on how you go about it, you could see some real long-term growth.

Types of real estate investments include:

• Rental properties: Purchasing rental properties gives you the opportunity for steady income, but you’ll need to manage things like maintenance, property taxes and insurance yourself (or charge your tenants accordingly). You may be able to deduct some of these expenses when you file taxes.

• REITs: If you don’t want to own and manage entire properties, REITs give you a more hands-off approach to commercial real estate. Note that REITs are often illiquid (specifically non-traded ones), meaning you can’t necessarily sell them for quick cash. You can invest in publicly-traded REITs on a major stock exchange or purchase non-traded REITs shares via a broker. Or you can buy shares in a REIT ETF or REIT mutual fund.

Building an Emergency Fund: A Smart First Step

Having an emergency fund is critical for weathering financial stability — and recessions. Whether you have a flat tire, your rent suddenly goes up or you lose your job, an emergency fund can help keep you afloat.

According to many financial experts, you should have between 3 and 6 months’ worth of expenses in an emergency fund. Ideally, you’ll keep this money separate from your regular checking and savings so you don’t accidentally spend it.

Your fund should still be easily accessible, though. Putting it in a high-yield savings account could be a good option. That way, you can still reach it if need be. Plus, your money can earn more interest the longer it sits untouched. Choose an FDIC-insured account for added security.

Strategies for Minimizing Risk During a Recession

You might not be able to fully eliminate risk. But you can absolutely minimize it.

Recession-proof investing starts with determining your short- and long-term financial goals. Ask yourself:

• What are your current financial needs?

• How much cash do I need quick access to?

• Is my current line of work (and income) stable?

• Do I anticipate an uptick in expenses (perhaps because of a new addition to the family or property taxes coming due)?

Here are a few tips to minimize risk:

• Portfolio diversification: Diversifying your portfolio means spreading investments across asset classes. You’ll want to prioritize liquid, easy-to-access investments during uncertain times, while ensuring steady returns.

• Dollar-cost averaging: Dollar-cost averaging entails putting a fixed amount of cash periodically (often once a month or quarter) in an investment. The idea is to purchase more company shares when the market is low, thus spreading out overall risk — and ideally boosting your overall investments.

• Avoid panic selling: Market downturns happen, but don’t panic. Stay calm and focused on your long-term goals. This is often easier when you have a diversified portfolio and an emergency fund to fall back on.

The Bottom Line

When it comes to knowing what to invest in during a recession, the answer is highly subjective. After all, every investor’s goals, needs and risk tolerance is different.

Some of the safest options include government bonds, high-yield savings accounts and money market accounts. Defensive stocks, such as utilities or healthcare, can also help reduce risk while allowing for long-term growth. You can also diversify your portfolio with dividend-yielding stocks, precious metals, ETFs and real estate.

Start small and focus on the long-term. When in doubt, speak with an investment professional who has your best interests in mind and can help guide you along the way.

FAQ

• What are the safest investments during a recession?

  • Some of the safest investments during a recession include defensive stocks — like consumer staples, communication services and healthcare — and government bonds. Having an emergency fund can also help you weather any financial downturns.

• Should I invest in stocks during a recession?

  • Investing in stocks can help diversify your portfolio, which can reduce overall risk. For a low-risk option, consider defensive stocks or index funds, which often include stocks and low-risk bonds.

• Can real estate be a good investment during a recession?

  • Yes, but be prepared for upfront costs like the initial property purchase, interest (if financing), taxes and maintenance. You may be able to deduct some of these expenses from your taxes.

• How can I protect my investments from market volatility during a recession?

  • One of the best ways to protect your investments is to diversify your portfolio. This means having a balance of high-, medium- and low-risk investments. It also means keeping some of your money liquid for easy access.

• What is dollar-cost averaging, and how can it help during a recession?

• • With dollar-cost averaging, you regularly contribute a set amount of money into an investment over a period of time — say, a year or more. The idea behind it is that, by splitting your investments evenly, your portfolio will better handle any market ups and downs. This can be especially helpful during a recession as it minimizes risk while allowing for overall growth.

This article originally appeared on GOBankingRates.com: What to Invest in During a Recession: Smart Strategies for Tough Times