Key takeaways
- The possibility of a recession seems to be hanging over our economy like a dark cloud.
- Although most stocks are more volatile during a recession, some industries tend to perform better than others in recessionary times (see list below).
- Prepare for the possibility of a recession by investing in resilient industries.
As we head towards 2023, many experts are predicting a recession on the horizon. Even though the experts can’t agree on whether or not we will see a recession, many are predicting at least a slowdown in economic growth.
When a recession is on the horizon, investors can’t help but wonder about the best options for their funds. After all, an economic downturn doesn’t impact all investment opportunities in the same way.
But knowing what to invest in during a recession is easier said than done. Luckily, we’ve got you covered with a breakdown of solid investment opportunities that tend to be recession-resistant.
MORE FROMFORBES ADVISOR
Are we in a recession?
Before we dive into resilient industries, let’s talk about the question on every investor’s mind.
When the economy sees a decline in the gross domestic product (GDP) in two consecutive quarters, that’s generally considered a recession. However, the federal government allows the National Bureau of Economic Research (NBER) to make the final determination of whether or not the country is in a recession.
Although we’ve seen a decline in GDP for the last two quarters, the NBER hasn’t declared this economic climate as a recession yet. But if things continue in this trajectory, with the economy feeling the pinch of rising interest rates directed by the Federal Reserve, it’s quite possible that we will see a recession in the coming months.
The idea of a recession brings some dark images to mind. Instead of simply waiting for this inevitable part of the business cycle to occur, it’s better to take action and prepare your finances. If you already have an emergency fund in place, you might decide that the next order of business is to adjust your investment portfolio for the possibility of a deepening decline.
Defensive stocks in resilient industries
When a recession, not all industries are effected in the same way. Let’s explore some of the top defensive industries that tend to stay ahead of the major downfalls.
Alcohol
When a recession is happening, that doesn’t mean people give up their vices. Instead, demand for some of these industries remains fairly stable regardless of the economic clime.
For example, long-term research from the U.S. indicates that demand for alcohol is relatively resilient, even during hard economic times. And with that relatively unchanged demand, companies can continue to do well during a recession.
If you want to harness the power of guilty pleasures during a recession, Q.ai makes it easy with its Guilty Pleasures Kit. With the power of AI, the company keeps track of what is happening in the market to make adjustments for your long-term investment goals within this industry.
Consumer goods with inelastic demand
Not all consumer goods are good bets during a recession. Non-essential items that people can do without during tough economic times are usually something to avoid. But companies that sell consumer goods with inelastic demand (an unchanging demand regardless of the times) are usually a good option.
Consumers cannot avoid purchasing food or basic hygiene products during a recession, so companies that sell grocery store staples often weather a recession just fine.
For example, investing in a company like Procter & Gamble
Beyond the companies that sell these basic products, look for companies that provide the link to consumers. Discount stores with regularly low prices on in-demand products draw a crowd during recessions. Walmart
Healthcare
People get sick no matter where the country is in the business cycle. If someone is sick or injured, they aren’t going to wait for the economic storm clouds to clear before heading to the doctor.
When looking for stocks in the healthcare industry, look for companies that make or offer necessary products that consumers can’t do without. For example, Johnson & Johnson
Utilities
The basics of human living don’t change during a recession. After all, we cannot easily live without the electricity and water that power our lives.
As an investor, you can choose to invest in standard utility companies, or you could invest in the future of energy. After all, clean tech is growing in popularity to create cost-effective solutions for consumers seeking a greener source of energy.
One way to jump into the clean technology industry is to work with Q.ai’s Clean Tech Investment Kit. Within this Investment Kit, Q.ai uses artificial intelligence to track trends within the industry and make necessary portfolio adjustments along the way.
Utilitarian transportation
When a recession hits household budgets, utilitarian transportation is one thing that many people cannot give up. After all, income earners still need to get to work. Based on that reality, most employees find a way to keep paying their transportation costs.
However, demand for unnecessary air travel tends to decrease during a recession. For example, many households will opt out of flying to a new destination for a vacation when the funds are simply not in the budget. As an investor, these trends will point you toward companies helping people get to work.
What to keep in mind while investing during a recession
Before you prepare your portfolio for a recession, there are a few overarching principles to keep in mind. Here are a few major concepts to think about:
- Volatility will happen. The stock market is inherently volatile. As a recession approaches, it’s common for the market to see some wild swings. Instead of being caught off guard, prepare your mind for the ups and downs.
- Think about your long-term goals. A recession is a normal part of the business cycle. Although it’s painful to see the stock market plummet, it’s important to keep your long-term goals in mind. With a long-term outlook, it’s easier to weather the storm.
- Stick to your plan. A commitment to your portfolio strategy throughout the market cycle is key to long-term success. When things look bleak, do your best to stick with a plan.
- Be realistic. It’s natural for your worries to spike as the market goes on a rollercoaster ride. Stick to investments that suit your comfort level.
- Outsource and automate. If you don’t want to deal with the almost unavoidable stress that comes with monitoring your portfolio to maximize your returns, then consider automation. The advent of technology means you can outsource some of your portfolio management to artificial intelligence. This minimizes the risk that you’ll change course out of fear.
Of course, an investment portfolio is never completely protected from risk. That’s just the nature of the stock market. But by building a balanced portfolio with your long-term goals in mind, you’ll be in a reasonably good position to weather whatever the economy throws your way.
The bottom line
When the tumultuous times make it seem like the economic sky is falling, it’s tempting to sell out of the market altogether. But doing this during a downturn means that you could miss the rebound. Instead, build a diversified portfolio that suits your long-term investment goals.
If you’re seeking institutional grade ideas as a modern investor, consider working with Q.ai. By harnessing the power of AI through Investment Kits tailored to your interests and risk tolerance, you can put technology to work for your portfolio during any economic climate.
Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.
