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Kate Stalter
Feb 20, 2025
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In a recession, prioritizing liquidity and safety ensures access to funds while maintaining steady, low-risk returns.
GoldÂ
Gold has long been considered a hedge against stock market volatility and inflation.
If a recession has caused excessive growth in the money supply and inflation is a chief concern, gold is often an attractive investment opportunity, says Stephen Akin, registered investment advisor at Akin Investments in Charleston, South Carolina.
There are several ways an investor can own gold.
"For true safekeeping, bullion and coins are preferred," Akin says. "Mining stocks can leverage the market moves and will be winners in an up market."
Akin says he favors using these stocks as they can outperform an index. Investors may also consider gold ETFs, he adds.
Recessions come and go but that doesn't mean your investments have to.
Training for a road race, whether you're walking a 5K or running a marathon, won't stop the hills from coming, but it will build up your strength and ability to climb them.
Although economists and analysts say the chances of a recession in 2025 are low, it's still a great time to review your holdings.
Fortifying your portfolio for a recession isn't code for panicking. It just means carefully evaluating what's lurking in your retirement accounts or taxable brokerage accounts.
Key takeaways:
Dividend stocks and bonds provide steady income during market downturns.
REITs and utilities stocks can offer stability when the economy slows.
Cash and short-term bonds help preserve capital and liquidity.
Dividend-paying stocks, defensive sectors and fixed income are some assets that give you stability and cash flow when markets decline. Without some planning, you may be forced to sell investments at a loss if you need to withdraw retirement income.
That's something nobody wants to do.
Here are some asset classes that can generate income to ride out a potential recession and keep your retirement on track:
Dividend-Paying Stocks
Dividend stocks provide steady income even when markets decline. That can help investors, particularly retirees, cover living expenses without selling stocks at a loss. Companies with strong dividend histories tend to be more stable, making them a reliable source of cash flow and downside protection.
It's important to look for those stable companies, says Justin Zacks, vice president of strategy at Moomoo Technologies, an investing and trading platform in Jersey City, New Jersey.
"Look for stocks that can sustain their dividend payments and have a long history of doing so," Zacks says. "There are some stocks out there that have been paying dividends for over 100 years."
High dividend rates may look attractive at first glance, but investors should do their research, he adds.
"Stocks that have recently fallen precipitously and that have businesses in distress may have a high current dividend yield, but the underlying business may not support such payouts into the future," Zacks says.
U.S. Treasury Bonds
U.S. Treasury bonds are frequently a go-to investment as they are backed by the U.S. government and offer safety and stability, which can help a portfolio weather a recession. They provide steady interest income, often gain value when stocks decline and play a role as a hedge against equity market volatility.
U.S. Treasury bonds are typically great investments during a recession for two reasons, says Craig Kirsner, president at Kirsner Wealth Management in Coconut Creek, Florida.
"Historically, people buy U.S. Treasury bonds for their safety," he says. "The second reason is that typically in a recession, interest rates are lowered, which means bond values should go up."
Defensive Sector ETFs
Certain types of companies are, at least to a degree, recession-proof. That means these stocks often outperform others whose business models rely on consumer spending in a healthy economy.
Rather than picking individual stocks, investors can easily access these sectors through several exchange-traded funds, both actively managed and index-based.
"Defensive sector ETFs such as ones focused on utilities, health care or consumer staples may offer an opportunity for outperformance during a recession as electricity, prescription medicine or toilet paper are some of the products consumers may not cut back on, even during a downturn," Zacks says.
However, he notes that many of these companies offer consistency but not explosive growth. That stability can make them attractive during economic downturns, but investors should be cognizant of how market conditions affect their pricing.
"It is important to pay attention to valuations of the companies in these sectors as investors may bid up prices going into a recession," Zacks says.
Popular defensive sector ETFs include the iShares U.S. Consumer Staples ETF (ticker: IYK) and the Utilities Select Sector SPDR Fund (XLU).
High-Quality Corporate Bonds
High-quality corporate bonds, also called investment-grade bonds, are usually considered safe investments during recessions. Bond raters deem these issuers able to service their debt.
As stocks tumble, investors often shift toward investment-grade bonds, which helps preserve portfolio capital. Their predictable income can help offset stock market losses.
High-quality corporate bonds may be a place to gain a little extra yield above cash or cash equivalents, says Richard McWhorter, private wealth advisor and managing partner at SRM Private Wealth in Beverly Hills, California.
"If the recession is prolonged and extensive, then rates may drop, and therefore not only is an investor getting a yield in excess of other alternative investments of the same quality but may also have the potential for capital gains," McWhorter adds.
However, he says, if a recession is short and shallow, this investment may not have the same impact.
GoldÂ
Gold has long been considered a hedge against stock market volatility and inflation.
If a recession has caused excessive growth in the money supply and inflation is a chief concern, gold is often an attractive investment opportunity, says Stephen Akin, registered investment advisor at Akin Investments in Charleston, South Carolina.
There are several ways an investor can own gold.
"For true safekeeping, bullion and coins are preferred," Akin says. "Mining stocks can leverage the market moves and will be winners in an up market."
Akin says he favors using these stocks as they can outperform an index. Investors may also consider gold ETFs, he adds.
Cash or Cash Equivalents
When investors refer to cash, they usually don't mean dollar bills stuffed under the mattress or buried in a coffee can in the backyard.
As the name suggests, cash and cash equivalents are highly liquid assets that carry minimal risk and are available at a moment's notice. They include physical cash, money market funds and Treasury bills.
Short-term certificates of deposit are also safe, but investors incur a penalty if they withdraw funds before a specified period of time. CDs with a term of a year or less are categorized as short term.
"Due to the short term and liquidity offered by cash and cash equivalents, investors would have the opportunity to weather a storm or use the monies to purchase opportunities as they arise," McWhorter says.
REITs
Real estate investment trusts provide steady income through high dividend payouts. To maintain their tax structure, REITs are required to distribute at least 90% of taxable income to shareholders.
In a recession, essential property sectors tend to remain stable, ensuring consistent cash flow. REITs also offer inflation protection, as property values and rents usually rise over time.
Those characteristics draw some investors to REITs during a recession, Zacks says.
"Not all REITs are created equal, though. REITs that operate in defensive sectors like health care may fare better during a downturn than office REITs, which could experience more cyclicality," he says.
Investors should also be aware of the causes of a particular recession before jumping into REITs, Zacks adds.
"The Great Recession of 2008 was accompanied by a housing and subprime mortgage crisis, and many REITs performed very poorly during this period," he says.
Tags: money, investing, recession, gold, money market funds, dividends, income investing, bonds, Treasury Department, financial advisors, Advisor's Corner