Recessions are part of the business cycle. However, this doesn’t mean they must be painful or destructive to our finances. Many industries hold their own and even thrive during economic downturns. The secret is finding these recession-proof industries.
How To Invest With a Recession On The HorizonWhen you think about it, a recession is always approaching, even in the strongest of economies.
However, in times like these, even average investors can recognize recession is coming sooner rather than later. Exactly how you should invest with a recession approaching will depend on your age, risk tolerance, capital, and other factors.
However, just about all investors can benefit from shifting out of the highest-risk industries and ones that do the best in thriving economies. Their money can wait out rough times in tried-and-true sectors of the economy that may not grow as fast in the good times but hold more of their value in bad ones.
What Makes an Industry Recession-Proof?There’s no one simple definition for a recession-proof industry. But these economic sectors tend to share one primary thing in common—their demand isn’t a function of growing businesses or consumers with plenty of spending money. Instead, they make their mark by their integral roles in American life and our economy.
Simply, their value comes from the fact that we all need to use them in good times and bad.
This stability may not be the most exciting thing when stocks are roaring and innovative new companies are hitting the market every week. But it’s invaluable when massive swings are rocking many portfolios.
The Best Recession-Proof Industries For InvestingSo now that you know what makes a good recession-proof industry, you may be wondering which sectors of the economy fit the bill. Listed below are the best choices to help preserve and grow your capital during rough times so you’ll be set when retirement time rolls around.
Grocery and FoodWe’ve all got to eat, whether the economy is booming or shrinking.
While many people may change the exact kind of food they buy, their overall spending at the supermarket or grocery store won’t change too much in most cases. However, some folks may even increase their grocery spending as they cut back on expensive meals out and fast food.
Makeup and CosmeticsThis one is so well-known there’s even a term for it—The Lipstick Effect.
This pop economic concept refers to a spike in lipstick, makeup, and other cosmetic purchases during times of economic and financial stress. The reasoning is that women worried about their finances but still looking to treat themselves to a low-cost purchase will often opt for makeup as a way to feel somewhat better about being felt hostage by finances. Some say the makeup purchase is to “scratch the buying itch.”
A person looking their best can often be a healthy way to feel good during otherwise worrisome times.
Alcohol, Tobacco, and DrugsObviously, this represents the darker side of recession-resistant investing.
There’s no way around the fact that recessions lead to lost jobs, foreclosed homes, struggles to pay the bills, and other economic stress. These can be difficult to deal with for many people already struggling to get by. Many turn to chemical aids to relax and cope.
Recessions often see boosts or comparatively small decreases in demand for alcohol, tobacco, and legal drugs. Anyone who’s had a beer after a tough day knows why. It can feel good to escape from problems for a bit.
UtilitiesYour utilities may not be the sexiest or most exciting sector to think about investing in, but utilities are a great choice for weathering recessions.
However, they’re about as stable as things come, as we usually don’t adjust our electric, water, or other utility usages too much—no matter what the economy is doing. This means fewer surprises, which can be exactly what many investors are looking for.
HealthcareHealthcare is one of the most commonly cited recession-proof industries.
The thinking goes that people will always get sick, and rarely will they avoid necessary treatment. When it comes down to it, health is one of, if not the single most important thing to many folks.
Wholesale Real EstateWholesale real estate may not seem like an obvious recession-resistant industry. But in reality, it can be one of the best! This is due to its low-risk, high-reward nature.
A real estate wholesaler helps connect motivated buyers and interested sellers.
First, wholesalers reach out to homeowners who frequently don’t even have their house on the market, looking to purchase typically older homes or those needing renovation. Then, once they’ve found a willing seller, they contact a previously assembled list of buyers who are interested in these types of properties, typically real estate investors.
For connecting these two sides of the transaction, wholesalers generally take a small spread. This can range from a few thousand dollars to the tens of thousands. In many states, they’re never required to take possession of the house themselves.
InsuranceInsurance can be a good investment in recessionary times in two ways.
First, much like many other industries mentioned above, the demand for insurance doesn’t drop as sharply during bad economic periods. Some insurance is legally required, like car insurance.
Products like life insurance may seem more important than ever with the economy unsettled. Much like utilities, regulations also prevent upstart companies from quickly coming in to disrupt the sector.
Recession-Proof Industries: The Best Places For Your Money in Rocky Economic TimesWe can’t avoid recessions. But with a bit of planning and some knowledge, you can weather the storm and potentially even come out stronger than ever.
It’s all thanks to the magic of recession-proof and recession-resistant industries. It might be consumer staples like food and cosmetics or more outside-the-box options like wholesale real estate or insurance. Regardless, there are plenty of options for portfolios and risk tolerances of all varieties.
It’s worthwhile to spend some time figuring out your plan for the next recession. That way, you’ll be prepared no matter what the economy throws at you.