- Assets, companies, industries, and other organizations that are recession-proof do not lose value during a downturn.
- Gold, US Treasury bonds, and cash are examples of recession-proof assets, whereas alcohol and utilities are examples of recession-proof industries.
- The phrase is relative since even the most recession-proof assets or enterprises might suffer losses in the event of a prolonged downturn.
What investments perform well during a downturn?
During a recession, you might be tempted to sell all of your investments, but experts advise against doing so. When the rest of the economy is fragile, there are usually a few sectors that continue to grow and provide investors with consistent returns.
Consider investing in the healthcare, utilities, and consumer goods sectors if you wish to protect yourself in part with equities during a recession. Regardless of the health of the economy, people will continue to spend money on medical care, household items, electricity, and food. As a result, during busts, these stocks tend to fare well (and underperform during booms).
What types of equities are recession-resistant?
Any well-diversified portfolio should include a mix of fast-growing companies and financially sound blue-chip stocks that can weather a downturn. During recessions, blue-chip stocks appeal to investors because they often pay dividends, offering a measurable return in the form of income. Blue-chip stocks in recession-resistant industries are particularly steady, which can help mitigate the impact of a market downturn or recession.
What are the recession-proof investments?
A number of vital services in the home restoration and repair business are recession-proof. With annual spending on home improvements in the United States exceeding $400 billion, it is an industry with a lot of room for growth.
Here are a few good business ideas that are still in demand even during economic downturns.
Plumbing: When a plumbing issue arises at home or at work, it is simply not possible to wait until a more financially secure time to have it repaired.
Auto Repair Services: Because many individuals rely on their vehicles and trucks to commute from home to work and cannot afford to be without one, auto technicians will be in high demand throughout a downturn.
What should I buy before the financial crisis?
Having a strong quantity of food storage is one of the best strategies to protect your household from economic volatility. In Venezuela, prices doubled every 19 days on average. It doesn’t take long for a loaf of bread to become unattainable at that pace of inflation. According to a BBC News report,
“Venezuelans are starving. Eight out of ten people polled in the country’s annual living conditions survey (Encovi 2017) stated they were eating less because they didn’t have enough food at home. Six out of ten people claimed they went to bed hungry because they couldn’t afford to eat.”
Shelf Stable Everyday Foods
When you are unable to purchase at the grocery store as you regularly do, having a supply of short-term shelf stable goods that you use every day will help reduce the impact. This is referred to as short-term food storage because, while these items are shelf-stable, they will not last as long as long-term staples. To successfully protect against hunger, you must have both.
Canned foods, boxed mixtures, prepared entrees, cold cereal, ketchup, and other similar things are suitable for short-term food preservation. Depending on the food, packaging, and storage circumstances, these foods will last anywhere from 1 to 7 years. Here’s where you can learn more about putting together a short-term supply of everyday meals.
Food takes up a lot of room, and finding a place to store it all while yet allowing for proper organization and rotation can be difficult. Check out some of our friends’ suggestions here.
Investing in food storage is a fantastic idea. Consider the case of hyperinflation in Venezuela, where goods prices have doubled every 19 days on average. That means that a case of six #10 cans of rolled oats purchased today for $24 would cost $12,582,912 in a year…amazing, huh? Above all, you’d have that case of rolled oats on hand to feed your family when food is scarce or costs are exorbitant.
Basic Non-Food Staples
Stock up on toilet paper, feminine hygiene products, shampoo, soaps, contact solution, and other items that you use on a daily basis. What kinds of non-food goods do you buy on a regular basis? This article on personal sanitation may provide you with some ideas for products to include on your shopping list.
Medication and First Aid Supplies
Do you have a chronic medical condition that requires you to take prescription medication? You might want to discuss your options with your doctor to see if you can come up with a plan to keep a little extra cash on hand. Most insurance policies will renew after 25 days. Use the 5-day buffer to your advantage and refill as soon as you’re eligible to build up a backup supply. Your doctor may also be ready to provide you with samples to aid in the development of your supply.
What over-the-counter drugs do you take on a regular basis? Make a back-up supply of over-the-counter pain pills, allergy drugs, cold and flu cures, or whatever other medications you think your family might need. It’s also a good idea to keep a supply of vitamin supplements on hand.
Prepare to treat minor injuries without the assistance of medical personnel. Maintain a well-stocked first-aid kit with all of the necessary equipment.
Make a point of prioritizing your health. Venezuelans are suffering significantly as a result of a lack of medical treatment. Exercise on a regular basis and eat a healthy diet. Get enough rest, fresh air, and sunlight. Keep up with your medical and dental appointments, as well as the other activities that promote health and resilience.
Who profited during the Great Recession of 2008?
Warren Buffett declared in an op-ed piece in the New York Times in October 2008 that he was buying American stocks during the equity downturn brought on by the credit crisis. “Be scared when others are greedy, and greedy when others are fearful,” he says, explaining why he buys when there is blood on the streets.
During the credit crisis, Mr. Buffett was particularly adept. His purchases included $5 billion in perpetual preferred shares in Goldman Sachs (NYSE:GS), which earned him a 10% interest rate and contained warrants to buy more Goldman shares. Goldman also had the option of repurchasing the securities at a 10% premium, which it recently revealed. He did the same with General Electric (NYSE:GE), purchasing $3 billion in perpetual preferred stock with a 10% interest rate and a three-year redemption option at a 10% premium. He also bought billions of dollars in convertible preferred stock in Swiss Re and Dow Chemical (NYSE:DOW), which all needed financing to get through the credit crisis. As a result, he has amassed billions of dollars while guiding these and other American businesses through a challenging moment. (Learn how he moved from selling soft drinks to acquiring businesses and amassing billions of dollars.) Warren Buffett: The Road to Riches is a good place to start.)
What are two items that are recession-proof?
At least one of two main concepts governs recession-resistant enterprises. Both are used by some of the most stable and profitable industries.
- The given product or service is a less expensive alternative to another product or service.
- The product or service given is a necessity that cannot be avoided.
Let’s take a closer look at the two elements that make certain sectors recession-resistant.
Low-Cost Alternatives
In a circumstance when consumers must spend less moneyeither because it is difficult to obtain work, their income is stagnant, or other prices are risingconsumers will seek out low-cost alternatives to save money. This is why organizations and sectors that have a low-cost competitive edge fare better during a downturn.
Discount Stores
Only 25 equities in the S&P 500 achieved positive returns during the Great Recession of 2008, with Dollar General at the top. While there are other factors at play, Dollar General did well during this period in large part because these stores offer low-cost alternatives to core commodities like food, detergent, and basic apparel.
Low-Cost Products
Few products are as well-known as Campbell’s Soup when it comes to the ability to weather a recession on an individual level. Campbell’s Soup did well during the 2008 recession, as it has done in the previous 28 recessions in its 139-year history. Campbell’s Soup, like Dollar General, benefits from both recession-proof principles: food is a staple, and a can of soup is about as cheap as it gets.
Repair Shops and Consignment Stores
Buying new is generally not an option during a recession. Repairing an existing item or replacing it with a used one is a low-cost option to this. As a result, thrift stores, pawn shops, and repair shops are recession-resistant enterprises that typically do better during downturns. When money is tight, auto repair firms thrive because mending a big-ticket item like a car is far more realistic than buying a new one. Large resale marketplaces like Ebay offer a diverse range of things at low rates, which might satisfy a specific need or provide some relief and pleasure when circumstances are rough.
Needs
It’s simple to see why necessities create recession-proof industries. There are some things and services that are hard, or nearly impossible, to live without, even when times are tough. Businesses that meet a demand remain steady or perform better during recessions.
Food, water, and shelter are typically the first things that come to mind. Medical treatment and pharmaceuticals, hygiene goods such as soap and toothpaste, and basic services such as power and garbage pickup are all examples of necessities. Some businesses, as previously indicated, combine needs with low-cost alternatives, resulting in low-cost items that meet needs.
Medical Services
Medical services were three of the top ten best-performing equities during the 2008 crisis. This includes, for example, hospitals, pharmaceutical companies, and medical equipment makers. The necessity for medical services during a recession is obvious, as recessions increase stress and make maintaining a healthy lifestyle more difficult.
Logistics
Trucking is certainly not the first thing that springs to mind when you think of a need, but it is an important service that takes place behind the scenes. Whether it’s trucks, railcars, ships, or planes, every product that makes its way into stores or between production facilities passes via logistics. Despite the fact that demand for commodities is declining as the economy slows, logistics services remain stable.
Packaged Food and Bottled Water
Food and water are important even in the most desperate of circumstances. Consumers stock up on nonperishable food and clean water during recessions because they are worried about the future. Affordable commodities having a lengthy shelf life, such as Campbell’s Soup, and bottled water, encounter spikes in demand, especially during unpredictably occurring events. In reaction to COVID-19, bottled water sales jumped 52 percent during the initial lockdown period, while ice and water vending sales increased 10 and 30 percent, respectively, over the same period last year.
There are a few other issues to consider during the COVID-19 pandemic-induced recession. Soap and sanitizer sales have surged more than would be expected in prior recessions due to the demand for cleaning and sanitation. In reaction to health difficulties, medical services are anticipated to increase much more than usual. As a result of the closure of many public places such as restaurants and bars, sales in grocery shops and liquor stores have skyrocketed. Despite this, all of these enterprises are based on the concepts that make a sector recession-proof.
Is luxury merchandise recession-proof?
Regardless of the state of their underlying economies, all corporations seek for growth and excellent earnings. Some, however, fail owing to a lack of understanding of actual customer loyalty, product/service positioning, and/or the contagion that can spread from elsewhere. During a recession, three-quarters of businesses see a drop in sales, but just 14% see an increase in revenue and profitability.
Stocks that are recession-proof are classified as such by institutional investors “Defensive”: enterprises that have been shown to be impervious to economic shocks, with the proviso that their performance during good times is not as stellar as others. In the year leading up to September 2019, Goldman Sachs’ defensive stock index returned 11 percent, while the S&P 500 returned only 1.9 percent.
To be recession-proof, however, a firm must either provide something that is a high enough priority that even the most frugal consumer will buy, or conversely, see demand surge owing to the difficult economic conditions.
The graph below shows the growth of a number of industries throughout the 2008/09 crisis, and it’s evident that a number of them performed well due to their recession-proof properties.
Here are some instances of industries that have shown to be recession-proof. Pay special attention to the behavior that surrounds the product/service, rather than the product/service itself “protection.”
Household Staples: Sustenance
The term “staples” is important since it refers to the basic, everyday products that we require for nourishment and personal hygiene. So, instead of caviar, choose bread and soap over false tan.
To maintain their weight, an adult man and woman need 2,500 and 2,000 calories per day, respectively. This does not change during a recession, and businesses that offer the basic necessities of life will remain unaffected. To overcome a TAM ceiling of population * calories, food firms have decreased the nutritional content of their products over time in order to induce more snacking.
When you look at a consumer goods company like Proctor & Gamble or Unilever, you’ll see that their portfolio is full of household staples and brands that cater to a variety of budgets. Such a strategy assures that they are malleable enough to deal with demand spikes, and that their performance during a recession can fluctuate between consumer preferences while still maintaining overall sales levels.
The same approach applies to businesses that provide personal or household hygiene goods, as well as pet supply stores.
Heritage Luxury Brands: Respected Quality
Despite their high cost, luxury items are remarkably resistant to recessions. A recession can actually lead to more consumers choosing to heritage companies with generations of expertise and brand cache, as their tastes become more sophisticated. The intangible promise of quality, distinction, and long-term worth accounts for a significant portion of the price of a luxury item. For example, luxury timepieces are marketed as heirlooms to be passed down down the generations.
Inflation does not always coincide with recessions, but when it does, demand for luxury items soars since the item retains its worth and does not devalue. Inflation is a problem in Argentina, and businesses are spending every dollar on high-quality inventory to build up large runways as an inflation hedge. This is because they are purchasing products that will not depreciate in value.
Vices: Addictive Pleasures
The easiest approach to define what binds this section together in terms of an economic concept is to put addictive activities together. Because addiction is inelastic, alcohol, nicotine, and gambling are pleasures that can withstand economic hardships. Sugar and caffeine could potentially be included in this category. There’s also the more abstract notion that these hobbies might serve as “escapes,” which can provide much-needed relief to stressed customers during difficult times. Alcohol sales increased by 9% during the US recession of 2008.
Addiction is a difficult topic, but many corporations try to instill euphoria in their customers about their products in the hopes of inducing inflexibility. Consumer intelligence and behavior monitoring have been pushed up to highly complex levels by Internet enterprises. As a way to create addictive loyalty, consider items like social media, the infinite scroll, and in-app purchases in games.
Healthcare: Necessity
Businesses that focus on providing healthcare are generally stable enterprises that are unaffected by economic downturns. This is owing to the fact that health is a mortal problem that must be taken care of and will take precedence over all other expenditures.
This industry has numerous sub-sections, one of which is resident care. The aging demographics of the wealthy baby-boomer group approaching retirement suggest that healthcare spending will remain stable in the future.
Budget Travel: Value
For the past 45 years, Southwest Airlines has been profitable. Low-cost airlines had the effect of fundamentally disrupting the notion of air travel, extending its market reach to previously unreachable lower-income groups; the cost of a trip has decreased by 50% in real terms in the 50 years leading up to 2013.
Budget travel, which includes long-distance bus travel, staycations, and public transportation, is a dependable industry. During upturns, it performs well because to its necessity (those relatives can’t come to see you) and value, which breeds loyalty and greater frequency from frugal flyers. Its popularity grows during downturns as a result of its cost advantages.
Budget airlines’ operational management is critical to their success since they operate on razor-thin profit margins and hence need to have effective and streamlined business procedures. Ryanair, for example, has a fleet of 419 planes, all but one of which are Boeing 737-800s. By using only one plane model, it is possible to keep parts, repairs, maintenance personnel, and all other necessary operations as simple as possible.
Utilities: Protection
Infrastructure that transports goods into our lives is not the most glamorous of industries, but it is one that can withstand any storm due to its necessity. During a recession, the needs for gas, water, electricity, and telephone service do not vary. These industries also benefit from their ties to government regulation, which can either give subsidies or hinder outside competition, providing a cloak of recession-proof protection.
Which businesses prospered during the Great Depression?
Chrysler responded to the financial crisis by slashing costs, increasing economy, and improving passenger comfort in its vehicles. While sales of higher-priced vehicles fell, those of Chrysler’s lower-cost Plymouth brand soared. According to Automotive News, Chrysler’s market share increased from 9% in 1929 to 24% in 1933, surpassing Ford as America’s second largest automobile manufacturer.
During the Great Depression, the following Americans benefited from clever investments, lucky timing, and entrepreneurial vision.
Before the market crashes, where should I deposit my money?
The best way to protect yourself from a market meltdown is to invest in a varied portfolio of stocks, bonds, and other asset classes. You may reduce the impact of assets falling in value by spreading your money across a number of asset classes, company sizes, and regions. This also increases your chances of holding assets that rise in value. When the stock market falls, other assets usually rise to compensate for the losses.
Bet on Basics: Consumer cyclicals and essentials
Consumer cyclicals occur when the economy begins to weaken and consumers continue to buy critical products and services. They still go to the doctor, pay their bills, and shop for groceries and toiletries at the supermarket. While some industries may suffer along with the rest of the market, their losses are usually less severe. Furthermore, many of these companies pay out high dividends, which can help offset a drop in stock prices.
Boost Your Wealth’s Stability: Cash and Equivalents
When the market corrects, cash reigns supreme. You won’t lose value as the market falls as long as inflation stays low and you’ll be able to take advantage of deals before they rebound. Just keep in mind that interest rates are near all-time lows, and inflation depreciates cash, so you don’t want to keep your money in cash for too long. To earn the best interest rates, consider investing in a money market fund or a high-yield savings account.
Go for Safety: Government Bonds
Investing in US Treasury notes yields high returns on low-risk investments. The federal government has never missed a payment, despite coming close in the past. As investors get concerned about other segments of the market, Treasuries give stability. Consider placing some of your money into Treasury Inflation-Protected Securities now that inflation is at generational highs and interest rates are approaching all-time lows. After a year, they provide significant returns and liquidity. Don’t forget about Series I Savings Bonds.
Go for Gold, or Other Precious Metals
Gold is seen as a store of value, and demand for the precious metal rises during times of uncertainty. Other precious metals have similar properties and may be more appealing. Physical precious metals can be purchased and held by investors, but storage and insurance costs may apply. Precious metal funds and ETFs, options, futures, and mining corporations are among the other investing choices.
Lock in Guaranteed Returns
The issuers of annuities and bank certificates of deposit (CDs) guarantee their returns. Fixed-rate, variable-rate, and equity-indexed annuities are only some of the options. CDs pay a fixed rate of interest for a set period of time, usually between 30 days and five years. When the CD expires, you have the option of taking the money out without penalty or reinvesting it at current rates. If you need to access your money, both annuities and CDs are liquid, although you will usually be charged a fee if you withdraw before the maturity date.
Invest in Real Estate
Even when the stock market is in freefall, real estate provides a tangible asset that can generate positive returns. Property owners might profit by flipping homes or purchasing properties to rent out. Consider real estate investment trusts, real estate funds, tax liens, or mortgage notes if you don’t want the obligation of owning a specific property.
Convert Traditional IRAs to Roth IRAs
In a market fall, the cost of converting traditional IRA funds to Roth IRA funds, which is a taxable event, is drastically lowered. In other words, if you’ve been putting off a conversion because of the upfront taxes you’ll have to pay, a market crash or bear market could make it much less expensive.
Roll the Dice: Profit off the Downturn
A put option allows investors to bet against a company’s or index’s future performance. It allows the owner of an option contract the ability to sell at a certain price at any time prior to a specified date. Put options are a terrific way to protect against market falls, but they do come with some risk, as do all investments.
Use the Tax Code Tactically
When making modifications to your portfolio to shield yourself from a market crash, it’s important to understand how those changes will affect your taxes. Selling an investment could result in a tax burden so big that it causes more issues than it solves. In a market crash, bear market, or even a downturn, tax-loss harvesting can be a prudent strategy.