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.
It’s unfortunate, but there’s simply no way around recessions. We all have to go through them. Read on as we look at some of the best choices to safeguard and grow your money during recessions, from everyday purchases to real estate.
How To Invest With a Recession On The Horizon
When 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.
This is crucial to understand as a vital part of planning for your financial future.
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.
On the other hand, some industries are more than recession-proof. They’re practically recession-friendly! When people are struggling financially, their behavior and buying patterns often change. They may opt for more bargain brands at the supermarket or shop at stores with a focus on low price rather than quality.
They may also look for stress relief from entertainment or chemical sources. All of these types of industries can see notable growth during recessionary times.
The Best Recession-Proof Industries For Investing
So 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 Food
We’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.
Naturally, higher-end supermarkets like Whole Foods may see more of a dip than budget-focused ones like Aldi. Still, grocery and food stores and suppliers overall are one of the most stable sectors of the economy as we munch our way back toward good economic conditions.
Makeup and Cosmetics
This 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.
But, contrary to what you might expect, the research didn’t find that women opted for a discount or store-brand versions of products, sticking to popular brands instead.
Alcohol, Tobacco, and Drugs
Obviously, 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.
Regardless of your personal feelings about these industries, it’s clear they maintain strong economic standing. This is true no matter if we’re in a recession or boom times. Unlike many past recessions, legal marijuana is also available as an investment industry. Many states have legalized it for recreational or medical use since the last major recession in the late 2000s.
Your 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.
Most offer solid dividends that can provide income as well. Utilities can also benefit from tougher economic times because, as interest rates generally drop, they can borrow for cheaper to expand or maintain their systems. They also tend to be highly regulated, preventing the most significant new competition.
Healthcare 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.
Part of the reason healthcare is so recession-proof has to do with the way most Americans pay for it, with insurance picking up most of the bill. Therefore, they’re insulated from the real overall cost, whether the economy is booming or busting.
Wholesale Real Estate
Wholesale 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.
Wholesale real estate can thrive in good times (when people still need to sell older, rundown houses) and in bad ones, where distressed homeowners may need a quick, no-questions-asked way to get some cash in exchange for a home that might not sell quickly on the traditional market. Therefore, wholesalers and those who invest in them can be confident that they can make money in all economic conditions with hard work and good systems.
Insurance 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.
From another perspective, you can also invest in insurance products tailored directly for you and your investments. Experienced companies like Hamilton Insurance Agency can work with you to size up your financial situation and manage your risk. Not only will you improve your portfolio, but you’ll also sleep better at night.
Recession-Proof Industries: The Best Places For Your Money in Rocky Economic Times
We 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.
Article by Deanna Ritchie, Due
About the Author
Deanna Ritchie is a financial editor at Due. She has a degree in English Literature. She has written 1000+ articles on getting out of debt and mastering your finances. She has edited over 40,000 articles in her life. She has a passion for helping writers inspire others through their words. Deanna has also been an editor at Entrepreneur Magazine and ReadWrite.