6 Things to Invest in When a Recession Hits

When the market is soaring, it’s easy to forget that what goes up can also come down. But economic slowdowns tend to be cyclical, which means that another recession is in the future. Whether it’s fast approaching or still a ways off, it’s wise to prepare for its eventuality. This way, you won’t join the panicking stampede out of stocks and into cash. Some stocks may hold up better during a recession, but identifying winners in advance is difficult. Here are the types of stocks and strategies to consider as you prepare for a recession.

A financial advisor can help you build a dynamic investment plan that makes the most of any market.

1. Seek Out Core Sector Stocks

During a recession, you might be inclined to give up on stocks, but experts say it’s best not to flee equities completely. When the rest of the economy is on shaky ground, there are often a handful of sectors that continue to forge ahead and provide investors with steady returns.

If you want to insulate yourself during a recession partly with stocks, consider investing in the healthcare, utilities and consumer staples. People are still going to spend money on medical care, household items, electricity and food, regardless of the state of the economy. These sectors may be more resilient during economic downturns, although their stocks can still lose value.

2. Focus on Reliable Dividend Stocks

Investing in dividend stocks can be a great way to generate portfolio income. When you’re comparing dividend stocks, some experts say it’s a good idea to look for companies with low debt-to-equity ratios and strong balance sheets. If you don’t know where to start, you may want to consider S&P 500 Dividend Aristocrats, which are companies in the S&P 500 that have increased their dividends annually for at least 25 consecutive years.

3. Consider Buying Real Estate

The 2008 housing market collapse was a nightmare for many homeowners. However, it turned out to be a boon for some real estate investors. When a recession hits and home values drop, it may be a buying opportunity for investment properties. Rental property may provide income, but vacancies, maintenance costs and missed rent payments can strain cash flow. A later sale could produce a profit if the property’s value rises enough to cover your purchase and ownership costs.

4. Add Precious Metals to Your Portfolio

Precious metals, like gold and silver, tend to perform well during market slowdowns. The most straightforward route is buying coins or bars from a seller or coin dealer. While this is different than buying a security, it’s technically as good as any other option.

Exchange-traded products can provide exposure to precious metals through physical holdings, futures or mining-company securities. Their risks and costs depend on the product’s structure. You could also open a self-directed IRA that holds eligible precious metals.

See how different rates of return could affect your investment balance over time with our Investment Calculator.

5. Increase Cash and Short-Term Cash Equivalents

Building a cash position or adding short-term cash equivalents can be useful during a recession. These assets tend to be more stable and liquid than stocks, which means they can help you cover expenses or handle unexpected events without selling long-term investments at unfavorable prices. Cash also gives you the ability to make timely decisions if opportunities arise, such as buying undervalued assets once markets begin to stabilize.

Short-term Treasury bills, money market funds and high-yield savings accounts are common options for this type of allocation. They generally offer modest returns but carry low principal risk, which can help balance the more unpredictable movements of equities during an economic decline. Investors often use these assets to support near-term spending or to preserve a portion of their portfolio while the broader market experiences volatility.

Cash reserves can also help reduce emotional decision-making. When market swings are large, having liquid assets available may lessen the pressure to exit long-term positions. This can help keep a portfolio aligned with its intended strategy rather than reacting to short-term shifts in the economy. These reserves can also serve as a buffer if job loss, reduced income, or unexpected expenses occur during a downturn.

Short-term cash equivalents allow you to stay invested in the financial system while maintaining flexibility. Treasury bills mature relatively quickly, while savings accounts and money market funds generally provide ready access to cash. This can help you stay positioned for both stability and potential future growth.

While cash alone is not an investment strategy for long-term wealth-building, incorporating an appropriate amount into your recession plan can strengthen your overall approach. It supports liquidity, reduces portfolio risk during uncertain periods, and provides options when the market environment becomes more favorable again.

6. Invest in Yourself

If you lose your job and income during a recession, you can rebound by “investing in yourself.” You could go back to school to gain additional knowledge or skills that could help you get a better job.

Paying down debt is another option if you worry that your job situation might go south at some point. The less money you have to spend on bills, the less stressed you’ll feel during an economic crisis.

What Does a Recession Entail?

A recession marks a significant slowdown in economic activity, often following periods of growth or economic expansion. While the causes of recessions can vary, they typically stem from a combination of factors such as rising inflation, geopolitical tensions, reduced consumer spending, or financial market disruptions.

The National Bureau of Economic Research (NBER), the official authority on U.S. recessions, defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” ¹

Unlike the commonly referenced definition of two consecutive quarters of negative GDP growth, the NBER takes a broader view, considering a variety of economic indicators, including personal income (excluding government benefits), employment levels, industrial production, and wholesale-retail sales. This comprehensive approach provides a more nuanced assessment of when a recession begins and how long a recession lasts.

The most recent official U.S. recession, triggered by the COVID-19 pandemic, occurred in early 2020 and was unprecedentedly short due to aggressive government interventions and recovery efforts. However, not all recessions are alike. Some are relatively mild, like the early 2000s dot-com bust, while others, such as the Great Recession of 2007-2009, have far-reaching and prolonged impacts.

Key Characteristics of Recessions

1. Job loss and rising unemployment: One of the most immediate and visible effects of a recession is a decline in employment. Businesses often respond to declining revenues and reduced consumer demand by cutting jobs or freezing hiring. As the unemployment rate rises, it means households face financial strain, leading to a reduction in spending, a key driver of economic growth.
2. Decline in industrial production: Companies scale back manufacturing and production to align with lower consumer and business demand. This often results in reduced factory utilization, supply chain disruptions, and slower innovation.
3. Reduced consumer and business spending: Economic uncertainty during a recession prompts consumers to save more and spend less, while businesses may delay investments in new projects or expansions. This cyclical reduction in spending can exacerbate the downturn.
4. Financial market volatility: Stock markets typically experience increased volatility during recessions as investors react to negative economic news and declining corporate profits. Some sectors, like technology or discretionary goods, may suffer more, while others, like healthcare or utilities, tend to be more resilient.
5. Inflation or deflation: Depending on the root causes of the recession, prices may either rise (inflation) or fall (deflation). For instance, a supply-side shock can lead to inflation, while widespread demand destruction might result in deflation, further complicating recovery efforts.

Long-Term Impacts and Recovery

The effects of a recession can linger even after the economy starts to recover. Businesses may take time to rebuild confidence and rehire workers, while households may continue to prioritize saving over spending. Policymakers often play a critical role in mitigating the damage through fiscal stimulus, monetary easing or targeted interventions aimed at stabilizing markets and supporting economic growth.

Although recessions are challenging, they also serve as a reset for overheated economies, correcting imbalances and laying the groundwork for future growth. For individuals, businesses and investors, understanding the dynamics of a recession can help mitigate risks and identify opportunities during periods of economic uncertainty.

Are We Currently in a Recession?

As of October 2026, the National Bureau of Economic Research (NBER) has not declared that the U.S. is in a recession. In fact, the latest GDP data continue to show economic growth. Real U.S. GDP increased at an annual rate of 2.2% in the second quarter of 2026, following a revised 2.5% increase in the first quarter. ² However, Americans have grown increasingly pessimistic about the economy.

Trade policy has also remained a source of economic uncertainty. The broad set of tariffs President Trump imposed beginning in 2025 has undergone significant legal and policy changes. In February 2026, the Supreme Court struck down the administration’s tariffs imposed under the International Emergency Economic Powers Act. The administration subsequently imposed a temporary 10% global import surcharge under a different trade law, which expired in July, and replaced it in part with tariffs of 10% or 12.5% on goods from dozens of trading partners under Section 301 of the Trade Act.

As of August 2026, Yale’s Budget Lab estimated that the average U.S. statutory tariff rate stood at about 11%, with additional scheduled increases potentially pushing it to 11.8% by year-end. ³ Federal Reserve research indicates that tariffs have contributed to higher consumer prices, although other factors are also driving inflation.

Adjusting Your Portfolio Before and During a Recession

Making smart adjustments before a recession can help preserve your capital and position you to recover faster. Rather than trying to time the market, the goal is to reduce exposure to high-volatility assets and increase holdings in stable or income-producing investments. This might include shifting from speculative growth stocks to value-oriented companies, increasing your cash reserves, or allocating more to defensive sectors.

Asset allocation is also critical. A recession-resilient portfolio might include a larger share of bonds, dividend-paying stocks, and cash equivalents like Treasury bills or money market funds. These can offer lower returns, but they also help limit downside risk and give you liquidity if opportunities arise.

Once a recession begins, avoid panic selling. Market volatility often triggers emotional decisions that can lock in losses. Instead, stay focused on long-term goals and rebalance only when necessary. Recessions can also offer an opportunity for value investing; if your financial situation is stable, consider investing in undervalued assets while prices are down.

How Moving to Bonds Can Affect Long-Term Growth

Shifting a larger portion of a 401(k) into bonds during a downturn can limit short-term swings in the account value. Bonds tend to fluctuate less than stocks, so the portfolio may feel more stable when markets fall. This shift changes the account’s behavior during volatile periods and can reduce the immediate impact of declining equity prices.

A heavier bond allocation also alters how the portfolio participates in market recoveries. Stock rebounds often contribute a significant share of long-term growth, and moving out of equities during a downturn can reduce exposure to those rebounds. When a shift occurs after losses, the  investment portfolio may miss part of the recovery that follows, which affects its overall growth path.

Bonds can reduce volatility, but their sensitivity to interest rates and issuer credit quality matters. Long-term bonds and high-yield bonds can carry substantial risk

Compounding differences between stocks and bonds influence long-range outcomes. Equities have produced higher average returns over extended horizons, while fixed-income assets generally grow at lower rates. When a 401(k) compounds at a lower average return for many years, the cumulative effect can lead to a smaller ending balance even when volatility is lower along the way.

The timing of the shift matters. Investors who are decades away from retirement typically have more years to absorb market cycles, and their savings rely more on equity-driven growth. A large move into bonds early in a career may reduce the potential for gains that would otherwise accumulate over long periods.

For investors closer to retirement, reallocating toward bonds may align more closely with their shorter time horizon and need for greater stability. In these cases, the priority may be reducing large swings rather than maximizing long-term growth. A shift into bonds later in the accumulation period can change how the portfolio responds to market movements without reshaping decades of compounding.

Bottom Line

Preparing for a recession doesn’t mean abandoning investments or making drastic financial decisions out of fear. Instead, it involves strategic planning and selecting assets that tend to perform well during economic downturns, such as core sector stocks, reliable dividend stocks, real estate and precious metals. Diversifying your approach, while also focusing on self-improvement and financial security, can help you develop investing strategies for a volatile market more confidently.

Investing Tips

• If you’re unsure of how to build a portfolio that accounts for a recession, a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• A recession has the potential to bring serious losses. That’s why any investing plan starts with understanding how much risk you can tolerate. SmartAsset’s asset allocation calculator considers your risk tolerance to guide you to the optimal portfolio.

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