When the market is going parabolic, it can be difficult to think about it coming back down. However, economic slowdowns are typically cyclical. There's always going to be another recession. It's inevitable. While it could be five years down the road or fast approaching, you always want to be ready for it. This can keep you from panicking and pulling all of your money out of the stock market when everyone else is. Rather, you will remember that certain stocks can make for great investments during a recession. You just need to be aware of the right stocks. A professional financial advisor can help you come up with a recession-proof investing plan. Read this article for more information on ESG hard-coded diversified incomes. Here are some of the best things to sink your money into when a recession comes.
1. Core Sector Stocks
One of the most important things to do when a recession comes is to put your money into core sector stocks. It may be a natural reaction to want to pull out all of your money from the market when it's on a downswing. However, some sectors continue to outperform even during economic downturns. Learn how to invest here.
If you are looking to give yourself adequate insulation from the downward pressure of a recession on the market, you'll want to invest in stocks in the healthcare, utility, and consumer goods sectors. Everyone is going to continue to spend money on healthcare even during a recession. Everyone is going to be spending money on utilities like electricity and water. Likewise, they are going to continue to buy all of the household goods they need. That's why a lot of these stocks show relative strength during times of economic instability and they do worse during stock market booms.
2. Reliable Dividend Stocks
Whenever you are investing, you want to try to focus on stocks that are going to generate passive income. Dividend stocks can give you exactly that. When you are comparing your options, you may want to look for companies that have low debt-to-equity ratios. You want to find companies with very strong balance sheets.
If you aren't entirely certain where to start, you can start to look at dividend aristocrats. The companies on this list are the ones that have steadily increased their dividend payouts to investors throughout the last 25 years.
3. Think About Buying Real Estate
You may want to consider buying some real estate during these times. The housing crash of 2008 was an absolute nightmare for homeowners. However, it was a good thing for a lot of savvy investors. Whenever a recession hits, the values of homes tend to drop along with other asset classes. This means that it could potentially present a good buying opportunity for those with the means to do so.
If you can purchase a home and rent it out to reliable tenants, you can get yourself a steady stream of income while you continue to ride out the bad economic times. Once the real estate market gets back on its feet and starts to increase, you can sell the home at a profit.
4. Purchase Precious Metals
Precious metals have been and continue to be a good store of value for investors. However, they tend to outperform stocks and other riskier assets during economic slowdowns. The demand for precious metals usually rises significantly during recessions. Because of this, the spot price for the precious metals goes up along with it.
You can buy and invest in precious metals in several ways. One of the most straightforward is buying precious metals from a dealer. While it is different than purchasing a security, it is technically as good as other options.
If you happen to be more interested in purchasing precious metals securities, you'll want to go for a precious metals ETF. A precious metals ETF fund is a collection of investments within a respective industry. In this case, that happens to be the precious metals market. You can buy a gold IRA if you are trying to save for your retirement.
5. Invest In Yourself
If you end up losing your job in a recession, it's always a good idea to invest in yourself. You can either go to school and get a degree or learn a new skill that can help you re-enter the workforce.
You can also consider using the money to pay down your debt. This can help you avoid having to pay sky-high interest rates. The less you have to spend on bills and expenses, the less stress you have to deal with during times of recession.
If you are looking to invest over the long haul, a recession isn't something that should make you panic. While you may want to consider lightening your portfolio, you shouldn't sell when the prices are at an all-time low. Instead, you want to avoid trying to call "the bottom." Trying to time the market never ends well.
It's best to try to hold your positions and stick with your long-term investment thesis. If you do have the cash to invest, you could consider purchasing some of the stocks and assets that do well during recessions. As mentioned previously, these include consumer staples, health care, and utilities. Also, dividend stocks can be a good choice for passive income because they tend to do better in times of economic uncertainty.