How to Invest in a Recession

The most important thing to remember about markets is that they have always recovered, despite the severity of past downturns. That’s why it’s vital to take a long-term view, rather than dwell on today’s stomach-churning ups and downs.

In addition, you want to avoid locking in losses by selling when your portfolio is at a low point. By maintaining your investment discipline, you can allow yourself to be in a position to profit from a market rebound. After all, market drops represent the “buy low” part of the tried-and-true “buy low, sell high” investment ideal.

It’s always wise to maintain a diversified portfolio, by making investments in different asset classes, and that is especially great advice in an uncertain market. Investing in mutual funds and exchange-traded funds (ETFs) is one way to gain access to a broad array of investment products. (For example, Acorns portfolios include a mix of ETFs offering exposure to thousands of stocks and bonds.)

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Saving Money in a Recession

While we can all look forward to emerging on the other side, there is likely to be additional short-term pain attached to this recession, so bolstering your emergency savings is a wise step right now.

Take a look at your budget over the past few weeks to identify areas where you’ve experienced unexpected savings, such as commuting expenses, clothing, personal services and almost certainly travel and entertainment. If your situation allows, take those savings and sock them away into a high-yield savings account to help protect your finances in case of a job loss. Or, if you already have adequate savings, consider investing that money.

The best way to navigate these tough times is to focus on the bright spots you can find today. Identify ways to maximize opportunities that align with your own personal circumstances, time horizon and financial goals and set yourself up for success as we eventually emerge from this tunnel.

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What Industries are Historically Recession Proof?

As mentioned, not everyone feels the pain equally in a recession, and some industries and jobs are better positioned than others to survive this unprecedented economic situation and even thrive. It’s important to note that the 2020 recession is different from previous ones like the Great Recession of 2008 because of the nature of its abrupt onset and the shelter-in-place rules that followed the coronavirus pandemic and have wiped out traditional commerce.

Therefore, no one can precisely predict the impact on specific sectors. But there are some industries that are traditionally recession proof given their “defensive nature.” In other words, they offer more conservative products and services that people tend to seek no matter what the circumstances. Those can be good places to look for jobs and/or park your investments if you’re looking for individual stocks. Here are a few to consider.

Consumer packaged goods (CPG)

While Americans’ wallets have been walloped, they still need consumer staples, and there have been a number of CPG companies that have flourished as consumers stock up on basics and return to the comfort of brands and products they trust. That could spell good news for large, established companies that sell products that consumers continue to buy in a downturn and pandemic, from food to cleaning products to, yes, toilet paper.

Health and beauty products

While these often fall under the umbrella of CPG, it’s likely to be a stand-out industry in its own right. Companies that make affordable luxuries tend to prosper in a downturn, given that consumers still want to feel good about themselves, even if they can’t spend the big bucks. So this sector tends to be recession resilient.


If you’re job hunting, government jobs usually provide resilient opportunities. They aren’t entirely immune, especially as municipal revenues plunge. However, statistically, these are relatively safe and the government sector encompasses a wide swath of jobs of all types and levels. In fact, almost any job that one would do in the private sector has a counterpart in the government. While salaries might not quite match up, you might find more job security pursuing your existing job in a governmental capacity.


With elective procedures on hold, some healthcare jobs may have been lost, but that should even out as governments lift those orders. Healthcare jobs are typically spared in a recession—from home health aides to physical therapists. And of course the healthcare industry can be a great place to invest, especially in sectors like life sciences that are helping develop tests, vaccines and pharmaceuticals.


Construction jobs are largely insulated, although that could change if the real estate sector continues to dip. But, other positions that should withstand most crises are those related to necessary infrastructure-related functions, such as plumbers and electricians.


Computer- and technology-related jobs are likely to hold steady. Look for jobs in areas that support vital business activity, such as a computer support specialist, programmer or information security analyst, and investments that provide necessary hardware and software.


You may initially scoff, but while brick-and-mortar stores, particularly in malls, have been decimated, there are other areas that are thriving. Grocery stores have seen an uptick in jobs and sales, as have big-box stores. In a recession, discount outlets and DIY-focused stores should continue to do well as thrifty consumers reel in their spending. And large e-commerce players that sell basic goods and at-home products are doing particularly well.

Pet products

Fur babies rarely get short shrift, even if consumers are economizing in other areas. That means in addition to affection, they are likely to continue getting lavished with treats, toys, top-notch medical care, even gourmet food.

(This article written by: Cathie Ericson)

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What can I do to prepare for a recession?

Is a recession imminent? Well, we haven’t experienced two quarters of economic contraction yet, but it certainly appears that we’ve entered recession territory. Indeed, Goldman Sachs, JPMorgan Chase, Bank of America and others say the U.S. is already in a recession and predict GDP will be down for the first and second quarters of this year.

So, what can you do? The best strategy is to maintain sound financial habits that you should adhere to all year long, such as carefully budgeting and watching spending, building an emergency fund and saving aggressively. (And if you don’t already do these things, there’s no time like the present to start cultivating these habits!)

Here are three additional suggestions:

1. Don’t panic, but be cautious

This is the time to be more mindful than ever about your spending. Focus on covering the essentials and look at what purchases you can put off or skip entirely, so that you can shore up your savings in case you do lose your income. With travel on hold, and many bars and restaurants closed except for take-out, there are opportunities to trim spending in those categories. You can also save by buying key items—like paper goods and pantry items—in bulk.

2. Have a back-up plan

What would happen if you lost your job? Do you have a skill that you could put to use in a side gig? And could you start using it today to improve your marketability and/or build up an extra cushion in your emergency fund? Being prepared is always the best antidote to a surprise job misfortune.

3. Consider bolstering cash reserves

In addition to bulking up your emergency fund, you might want to have an extra stash of cash on hand so that you don’t have to sell stocks when they’re down or incur penalties by taking funds out of your retirement accounts to stay afloat if you hit rough water.

It’s natural to be fearful in the face of a recession. But taking steps now to safeguard your finances can help keep you on more solid financial footing.

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What’s the impact of a recession?

An economic downturn can be devastating for both business and personal lives, and of course, the two are intertwined.

Say a company makes widgets, and starts seeing its sales and profits decline. It will likely decide to make fewer widgets, which means it needs fewer employees running the assembly line and selling the widgets to stores. From there, the effects ripple to many tangential businesses adjacent to the primary widget-maker. If they are manufacturing fewer widgets, they need less machinery, so it affects the machine makers and repair people. Retailers have fewer widgets on their shelves, so their sales decline. And the widget-maker might decide that it doesn’t want to start a second line of widgets after all, so it stops investing in research, design and marketing.

The livelihoods of all those associated employees are then affected, which can shake their confidence. They, in turn, buy less of other companies’ widgets, and all the widget-makers are suddenly in the soup. People are also less inclined to dine out, travel, upgrade their homes, etc. They might even stop paying their bills, causing even further distress for providers of goods and series. It’s easy to see how the cycle feeds on itself. As everyone pulls back, a recession begins.

As this spending decline deepens, the stock market is likely to fall since companies are making and selling fewer widgets. Consumers might lose their jobs, or have their hours or wages reduced. At that point, they can have trouble paying their bills, which leads to credit troubles, and in extreme cases, bankruptcy.

We’re seeing some of these effects already as a result of the coronavirus outbreak. Businesses are shutting down (some temporarily), millions of workers are being laid off from full-time work or losing contract work. So they have less money to spend and may also have trouble covering their bills. The government has been stepping in to try to mitigate the effects with a $2-trillion stimulus plan that would send cash payments to Americans, create a fund to lend to small businesses, and increase (and expand eligibility for) unemployment benefits.

What’s the average length of a recession?

The good news (if we can call it that) is that on average, a recession lasts about 11 months, says the NBER. But they can be shorter and milder, or longer and more severe, as we know from the Great Recession of 2008, or even catastrophic, like the Great Depression of 1929.

But when considering history as a whole, we can assume the next recession will be of the milder and shorter variety.

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What causes a recession?

While the signals cited above can set off those warning bells, they don’t actually cause a recession. It’s often the following economic situations that can precipitate a recession:

Inflation/deflation cycle

When the cost of goods and services rise, this is known as “inflation.” These rising prices mean that consumers have to spend more of their money to buy the same things they did before, and can lead to spending cutbacks as they aim to stretch their budgets. But then deflation can occur, which reduces the value of things and can cause consumers to wonder where the bottom is. They stop spending while they wait, which leads to a decrease in demand, which means companies need fewer people to produce their goods and services. Fortunately, the Federal Reserve Board is on the job, tweaking interest rates in an effort to sustain equilibrium.

An asset bubble

What happens when you blow a bubble and it gets too big? It pops. All at once. That’s what can happen when consumers are too enthusiastically snapping up a certain item—such as real estate or stocks—expecting it to keep expanding, as in getting more valuable. When it becomes clear that specific asset isn’t going to continue to rise in price, a huge sell-off can follow—think a stock market crash or plummet in the housing market. The ripple effect is that the whole stock of that “item” is effectively devalued, which can send the economy into a recession.

Loss of consumer confidence

When consumers are worried about their economic future—their job seems uncertain or their investments have lost value—they tend to go into hibernation mode and stop spending. Of course, when consumers stop spending, businesses need to produce fewer goods and services. So they employ fewer people, making everyone feel less secure about their jobs. And the cycle continues.

Slowing manufacturing

One closely watched report is the Institute for Supply Management’s “Report on Business” that tracks elements such as new orders, production, inventory, supplier deliveries and prices. As mentioned above, keeping the machine of industry humming is a key factor of a healthy economy so it can be worrisome when things slow.


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What Is A Recession?

While recessions are hard to quantify, typically economists peg a recession as two or more consecutive quarters of a negative growth rate of gross domestic product (GDP)—which is the total value of everything that the country produces, as assessed by the Bureau of Economic Analysis (BEA).

That can be an easy, measurable way to determine if you’re in a recession—which is why it’s a popular definition. However, the National Bureau of Economic Research (NBER) chooses to be a bit less precise and more inclusive of various economic factors. It defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in GDP, real income, employment, industrial production and wholesale-retail sales.”

This is what we began to see in March 2020, in large part as a result of the coronavirus outbreak.

What to look for: the signals of a recession

Here are some of the indicators that raise warning bells a recession might be imminent:


As mentioned, for some, this is “the” number, but it should just be one closely watched number among many as an indicator that the economy is wavering.

Yield curve

The “inverted yield curve” was the metric that threw everyone into a panic in 2019. It sounds very economist-y but a “yield” is just the interest rate on a bond. Typically the yield curve slopes up, indicating that investors want a higher interest rate on bonds they are holding for a longer time. But when it “inverts,” it indicates that investors are asking for a higher interest rate on shorter-term bonds, which means that they are feeling more confident about the long term than the short term. Historically, this inverted yield curve has come before a recession.

Employment data

The Department of Labor publishes a monthly report on the job market, which summarizes factors such as how many jobs were created in each sector, what percentage of the population was unemployed and how many hours were worked, both full-time and part-time. This last part is important because when businesses are worried, they are more apt to hire part-time labor and are liable to cut hours.

In the wake of the coronovirus outbreak, thousands of businesses were forced to shut down, at least temporarily. Unemployment claims surged as a result, and economists predict that the March jobs report will reflect that.

Confidence level

While economics appears to be cold, hard math, it’s also influenced by how people are feeling. There are a number of organizations that take a pulse on current sentiment, including The Conference Board, University of Michigan and the National Federation of Independent Businesses. When consumers feel unsteady, they are apt to pull back their spending, which causes sales to fall.

Leading Economic Index

The Leading Economic Index, another report from The Conference Board, is comprised of 10 components that include jobs data, building permits, stock prices and manufacturer orders, among other factors, to indicate how healthy the economy is and how buoyant businesses feel.



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How Long Do Downturns Last?

As you may have heard, the market has been experiencing a downturn. But what does that really mean and how might it affect you?

When you hear “downturn,” it most often refers to an economic downturn, a period of slowing or negative growth in the economy. It may be characterized by higher unemployment, increased foreclosures and greater levels of debt. It may also mean your investments don’t perform as robustly as they have during stronger market conditions.

A market downturn isn’t the same as a downturn in the overall economy, but they often accompany each other. Seven out of the past 11 bear markets have been associated with a recession, according to an analysis by Don’t Quit Your Day Job.

While stock market downturns can be deep, they can also happen erratically and the market can bounce back rather quickly. That’s because the stock market is solely focused on stock prices and the buying and selling of stocks—and the economy is much larger and considers much more than how shares of publicly traded companies are doing.

How do we know when we’re in an economic downturn?

The total value of all goods and services produced in the country during a period of time, also known as gross domestic product (GDP), is the basic measure of how well the economy is doing. When the GDP drops from one quarter to the next, that’s known as negative GDP—and it signals an economic downturn.

If there are two back-to-back quarters of negative GDP, this is defined as a recession, says David Geibel, senior vice president and managing director of relationship management at Girard, a wealth advisory firm based out of King of Prussia, Penn. Other indicators are rising unemployment, negative consumer sentiment and a pullback in productivity, he says.

So how long do downturns last?

A recession can’t be declared until it’s already been going on for at least six months because it is, by definition, at least two consecutive quarters of economic decline. It’s possible that the economy could be in a recession before a market downturn occurs, or could slip into one after, but nobody really knows until after the fact.

Generally, economic recessions don’t last as long as expansions do. Since 1900, the average recession has lasted 15 months while the average expansion has lasted 48 months, Geibel says. The Great Recession of 2008 and 2009, which lasted for 18 months, was the longest period of economic decline since World War II.

Stock market downturns vary in length, but they’re also typically much shorter than periods of growth. From 1926 to 2019, the U.S. market has experienced eight bear markets, which happens when the major market indexes drop 20 percent or more. These ranged in length from six months to 2.8 years, according to data analysis by First Trust Advisors. The severity of the bear markets has ranged from a drop of 21.8 percent to 83.4 percent in the S&P 500-stock index. But the market has recovered from all of them and continued to grow.

What makes the economy decline?

Economies are cyclical by nature with times of growth and times of decline, so downturns are expected. But usually, there are a few “nuanced reasons and chains of events” that lead to an eventual economic downturn, Geibel says. (Written by Nancy Mann Jackson)

He points to three broad factors in the last 11 recessions in the United States:

A spike in commodities

Usually, the commodity in question is oil. For instance, in 1973 and 1974, OPEC raised oil prices and embargoed oil exports to the United States, which led to skyrocketing gas prices and a lengthy recession. The U.S. has since established a Strategic Petroleum Reserve, which contains 644.8 million barrels of emergency crude oil, to mitigate the risk.

An overly aggressive Federal Reserve Board

The Federal Reserve, the country’s Central Bank, is focused on stabilizing prices and moderating long-term interest rates, but sometimes they make mistakes. From 1980 to 1982, the Fed significantly raised interest rates, which has been blamed as a cause of the 1981-1982 recession. (At one point, the federal funds rate, which banks use to lend to each other, rose to more than 19 percent!)

Extreme valuations

Housing prices in many areas of the country were extremely overvalued in 2007, leading to the housing crisis and subsequent Great Recession. Similarly, stocks were overvalued in 1999, leading to a recession in the early 2000s.

Each of these events has corresponded with a steep sell-off in stocks. Over the last 11 recessions, stocks have averaged a decline of 30 percent.

How often do recessions happen?

Since 1900, we’ve averaged a recession about every four years—but that doesn’t mean they occur like clockwork. In the early part of last century, there was a boom and bust cycle with recessions and expansions almost equal in length. But that’s changing. Right now, for example, we are in the longest expansion period on record.

“Since 1980, expansions have become longer, averaging almost 100 months,” says Geibel. “Modern advances in economic policy and data analysis could be a factor, as Fed officials can access tools faster and make more accurate predictions.”

What should I do in a downturn?

It’s difficult to predict when the next downturn is going to occur. The best way to prepare is simply to live by solid financial principles: avoid debt, build savings, invest for the long term.

The most successful investors tend to view the stock market as a long-term investment and avoid buying and selling based on cyclical changes in the economy. Instead, it’s wise to have an investment plan that’s based on your needs and risk tolerance and to stick to it through the ups and downs.

“Trying to time the market based on economic predictions is something we would not recommend,” Geibel says. “Even some of the smartest hedge fund managers have failed at trying to do so.”

Do downturns always end in upturns?

The simple answer is yes—every downturn in history has ended in an upturn. But the velocity of the upturn is not always the same, Geibel says.

For example, the economic recovery of 1960 lasted 100 months and the economy grew a cumulative 50 percent during that period. In the current expansion, cumulative growth across the economy has been about 20 percent over the past 10 years, according to JP Morgan’s Guide to the Markets. While the current economic expansion has lasted longer than any other on record, it has been the weakest recovery in history.

The stock market does not necessarily follow suit. It grew more than 300 percent from March 2009 to March 2019.

Bottom line: Rather than worrying about a potential downturn, spend a little time getting your financial house in order. Check your credit, boost your savings, pay off debt as much as possible. Continue contributing to your investment accounts. And remember that if a downturn does appear, it’s only a matter of time before things will start looking up again.

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