Best and Worst Investment Options During a Recession

The IMF and countless analysts are predicting a deep recession over the coming months. During such turbulent times, few investors leave out the option of re-evaluating their portfolios. In this environment, what could be the best investment options to protect your position?

Here are our top suggestions when it comes to weathering a market winter:

Option 1 in a recession: Managed financial instruments, such as index funds, ETFs, and mutual funds.

When recession hits, the diversity and more conservative nature of these funds can prove to be a great hedge against it.

Option 2 in a recession: Low-risk instruments such as short-term fixed income funds.

Money markets are likely to generate good yields in precisely the kind of environment this recession will feature – high inflation and high interest rates.

Option 3 in a recession: Investments in recession-proof industries.

Industries focused on providing critical services and products should weather the recession better than others. Consider stocks in food, healthcare, energy supply, and even critical technology sectors.

Option 4 in a recession: Investments in precious metals.

While Gold’s status as a safe haven during recessions has been doubted on many occasions, it has done well during protracted bear markets more often than not. Don’t discount silver and platinum either.

Option 5 in a recession: Hunt for discounted blue chips.

Recessions may be a perfect time to find blue-chip stocks of companies with solid fundamentals. These are companies that might not have the glamour of TSLA et al., but they will represent great bargains.

What about cash/cash equivalents for the recession? Cash and cash equivalents are not necessarily options for paranoids. Cash might be a legitimate recession hedge. Not during this one, however, as the recession will be in the loving hands of high interest rates and high inflation.

What should you probably avoid investing in during a recession?

Recession red flag #1: Highly leveraged businesses. As recession hits hard, companies carrying heavy repayment burdens turn into real epitomes of risk.

Recession red flag #2: Cyclic industries.

Classic examples of these are the tourism and hospitality sectors. With their dependence on consumer spending, these sectors might get hammered by the looming recession.

Recession red flag #3: Manufacturing companies that experience dips in demand for their goods or rising production costs during protracted downturns.

An example of these are car manufacturers (and yes, that might include electric car manufacturers like TSLA).

What else can you do to protect yourself in the recession?

1. Diversify, but avoid over-diversification by shifting your funds around in a panicky preparation.

2. Stay focused on your long-term investment strategy. No recession lasts forever, and this one doesn’t have the signs of a marathon bear market.