Many economists believe the US will enter a recession by the end of 2025, with JP Morgan forecasting its probability at 60%. As an investor, where should you park your capital so that it continues to grow? In this article, we’ll show you safer options to invest in during a recession, risky assets to avoid, and the best practices for growing your wealth in any market!
Summary:
If we are headed for a recession, it’s crucial to prepare by building a stable cash position and choosing smart investments. The following could occur during a downturn:
People tend to invest less (and sell more!) in a recession, and this lack of demand can cause asset prices to dip. This could allow you to buy an asset below its normal value and enjoy the appreciation once the market improves!
During a recession, the Federal Reserve will often lower the federal funds rate to encourage consumer spending. Since this makes borrowing more affordable for lenders, banks may lower mortgage rates for homebuyers and investors. This is good news if you’re looking to invest in real estate!
High unemployment is one of the main recession indicators. With the elevated risk of being laid off, you should prepare for the worst. Start saving money while you have a steady source of income!
If a downturn is coming, where should you keep your money? Here are five of the best investments during a recession:
Disclaimer: The information below is not investing advice. Be sure to do your research before investing in any asset.
Rental properties are homes you rent out to tenants for a profit. While traditional rental properties are often active investments, turnkey rentals can give you passive or semi-passive income. These recently renovated or newly built properties often come with management and tenants already in place, so you don’t need to worry about things like screening tenants and fielding maintenance requests!
In most recessions, except for the real estate-caused 2008 Great Financial Crisis, the housing market tends to stay relatively stable. What’s more, since families may downsize or sell their homes to become renters, rent prices and rental demand often remain strong.
This means you’re getting cash flow, loan paydown, tax benefits, and appreciation for a combined return that not only hedges inflation but also outperforms other “safe” assets like bonds. Investors also have more negotiating power in downturns, as many would-be buyers leave the market!
Private money lending is the process of loaning your capital to borrowers—typically real estate investors—for short-term projects such as house flips. As the investor pays back the amount with interest, you can make a sizable return!
This can be an extremely lucrative investing strategy when done correctly. With returns of 9% or higher, private money can beat inflation and outperform many assets in a recession. Unfortunately, these opportunities don’t grow on trees, and while the returns are high, you don’t get the added safety of tax benefits, loan paydown, and consistent cash flow like you do with rental properties.
Bonds—and bond indexes, which track a portion of the bond market—are essentially loans you make to the US government. As fixed-income investments, bonds provide regular interest payments and are fully repaid once they reach maturity. You can invest directly in bonds via the US Treasury, or you can use your brokerage accounts to invest in a fund like the Fidelity Total Bond Fund.
Although bonds are not as growth-heavy as recession-proof real estate, they can deliver safe, fixed returns while you’re waiting to invest. If you want a mix of growth and security for your retirement savings, bonds and turnkey rentals are a powerful investing combination—especially during recessions!
Work with the turnkey rental experts to recession-proof your retirement!
These index funds track the performance of companies in the consumer staples sector. Instead of stock picking, which can be risky and difficult for even the most seasoned investors, investing in index funds allows you to diversify, giving you a share of an entire bucket of stocks rather than one standalone stock.
There are some things people can’t live without—such as food, beverages, clothing, and personal care items—and these “essential” consumer staples tend to hold up well in or out of a recession since they are prioritized over nonessential goods. These “defensive” investments pay you regular dividends, regardless of the current economic climate.
We’re not talking about investing in educational services—we’re talking about educating yourself on investing! Whether or not you’ve got money to invest right now, you can always invest time and energy in your financial future.
During recessions, many people freeze, waiting until the downturn is over and missing out on the opportunities around them. Get ahead of the masses by educating yourself on rental property investing, using debt to build wealth, and building your financial freedom plan, so you can start acting on it when the market is nearing the bottom, at its lowest point, or beginning to recover!
Achieve financial freedom with the Rent to Retirement Academy!
While a downturn may present unique opportunities for investors, it’s also a riskier time to deploy your capital. You should be more selective when determining where to invest during a recession and avoid doing the following:
When times are tough or money is tight, the last thing you want to do is take on unnecessary risk by trying to aggressively buy low and sell high. Remember, time in the market beats timing the market!
A strong cash position is essential during economic downturns, as it protects you against an unexpected loss of income or an emergency. Keep a healthy bank account balance by investing in an asset like real estate, which allows you to use leverage (debt). Rent to Retirement’s 5%-down loans allow you to put low money down on new builds!
Picking individual stocks, going all-in on Bitcoin, or speculating on oil futures is not advised by many—especially during volatile times. Stick to foundational, time-tested investments like rental properties!
During a downturn, it’s important not to lean too far toward either wealth preservation or growth. Sit on too much cash and you’ll miss out on valuable time in the market. Invest too aggressively and your portfolio could take an enormous hit.
Instead, choose assets that balance safety and growth and perform in and out of recession, like real estate. Turnkey properties deliver predictable rental income in uncertain times and help you build wealth through long-term appreciation, loan paydown, and tax benefits!
There’s no one-size-fits-all investment during recessions, as your decision will likely depend on your risk profile, investing goals, and purchasing power. If you want a combination of safety and growth, real estate might be your best bet!
Treasuries are one investment that tends to appreciate in a recession. What’s more, rent prices may rise due to higher rental demand. As a landlord, this could allow you to charge more for rent!
Steer clear of risky and speculative investments that could easily go belly up during a downturn. You should also avoid overleveraging yourself. If your income is affected by a recession, you’ll no longer have the financial means to keep up with debt payments.