7 Best Investments to Buy in a Recession

Changes in the economic cycle shouldn't be a cue to shuffle portfolio holdings. It may feel like a prudent move, but if done in a panic or as a reaction to the fast-moving news of the day, it could result in long-term damage.

According to a 2023 article from Dimensional Fund Advisors, "Long-Term Investors, Don't Let a Recession Faze You," recessions understandably trigger worries over market performance.

"But a history of positive average performance following a recession can be a comfort for investors wondering whether or not they should move out of stocks," Dimensional analysts wrote.

They noted that instead of dropping sharply as the economy retreats, equity markets tend to incorporate expectations "and generally fall in value before a recession even begins."

There's No Perfect Investment

Regular rebalancing is a way of preventing an overweighting in risky assets, which can hurt performance in a downturn.

In particular, investors may face sequence of returns risk. When stocks tank in the early years of retirement, forcing withdrawals at lower valuations, investors lock in losses and shrink the base that future growth depends on. That means their remaining assets have to work even harder just to get back to even.

A portfolio designed to generate the income an investor needs is preferable to hopping in and out of assets.

"In a recession, it's not about finding the one perfect investment. It's about building a mix that lets you sleep at night, stay invested and be ready when things turn around," says Dan Pascone, founder and CEO of Tailored Wealth in Fairfield, Connecticut.

"A blend of dividend stocks, Treasurys, quality bonds, some defensive exposure, a little TIPS and a reasonable cash cushion will do a lot more for long-term wealth than trying to perfectly time the next downturn," he adds.

Here's a look at some of those investments, along with some others that could mitigate the effects of a recession:

• Gold.
• Dividend stocks.
• U.S. Treasury bonds.
• Defensive sector ETFs.
• High-quality corporate bonds.
• Cash or cash equivalents.
• Treasury inflation-protected securities (TIPS).

Gold

A good place to start with an overview of recession investments is with the yellow metal. Investors look to gold as a way of offsetting losses in the stock market.

To gauge the performance of gold versus U.S. stocks, just look at the returns of exchange-traded funds (ETFs) that track each asset. In 2025, SPDR Gold Shares (GLD) has returned 61%, far outpacing SPDR S&P 500 ETF (SPY), which has returned 18%. While the large-cap index has clearly had a good year, a confluence of factors, including geopolitical tensions, economic uncertainty, robust central bank purchases, a weakening U.S. dollar and persistent inflation have contributed to the rise.

But investors can't rely on that outperformance to continue.

"Gold is the drama friend of your recession portfolio: great to have around in a crisis, not the one you build your whole life with," says Prudence Zhu, founder of Enso Financial in Phoenix, and author of "A Couple's Guide to Money."

"A small slice in a low-cost gold ETF can hedge ugly markets and inflation scares, while you keep most of your money compounding in productive assets," she adds.

Dividend Stocks

"Dividend stocks can act as a nice cushion during a recession, especially if you're looking at stable sectors like utilities, health care or consumer staples with solid balance sheets," Pascone says.

He adds that dividend stocks have historically held up better than the broader market in most downturns. However, they're still stocks, meaning they are riskier than other types of investments.

"For my high-income clients, I think of quality dividend stocks as part of the core stock allocation," Pascone says. "They throw off cash flow and can smooth out some of the bumps, but they're not a magic bullet. The trick is focusing on companies with reliable cash flow and a steady dividend track record, not just chasing the highest yield you can find."

U.S. Treasury Bonds

The 30-year Treasury bond offers a hedge against long-term inflation and economic shifts but carries more interest rate risk than the 10-year Treasury note. The long bond is suitable for capital preservation over time, rather than for the immediate future. However, duration risk is higher with the 30-year bond.

"Treasury yields typically fall during recessions, a pattern that boosts bond prices and supports positive returns," says Dominic Ceci, chief investment officer at Johnson Financial Group in Milwaukee.

"Yields tend to decline when economic growth slips into negative territory without a corresponding rise in inflation, and when the Federal Reserve is actively cutting interest rates with more easing likely ahead," he adds.

The 30-year instrument recently rallied to a three-month high of 4.8%.

Defensive Sector ETFs

When the economy turns sour, people don't stop buying shampoo, toothpaste and medications, nor do they shut off the electricity to save a few bucks.

That's what makes sectors like consumer staples, health care and utilities more reliable than others in a recession.

Defensive sector ETFs that track components of the S&P 500 include the Utilities Select Sector SPDR Fund (XLU), the Health Care Select Sector SPDR Fund (XLV) and the Consumer Staples Select Sector SPDR Fund (XLP).

"For busy professionals who don't have time to pick individual stocks, a low-cost defensive ETF is an easy way to dial back risk a little," Pascone says.

"Just know that these sectors can get overcrowded and pricey, so they should add to a diversified portfolio, not replace it," he adds.

High-Quality Corporate Bonds

A high-quality bond is debt that's issued by a financially strong government or corporation and carries a high credit rating from one of the bond rating agencies. That good rating indicates a low risk of default.

Not all bonds are created equal. Those with lower credit quality are often more volatile, as are those with longer terms to maturity. Fund managers and financial planners use duration as a measure of how sensitive a bond's price is to changes in interest rates. And that rate sensitivity is one reason some bonds fare better when the economy slows.

"High-quality, investment-grade corporate bonds generally hold up well during a recession, because they are considered a safer asset in comparison to stocks, and their prices can actually increase while investors seek safety," says Farrell Liger, CEO of New York-based financial education firm Farrell Liger Inc.

Cash or Cash Equivalents

It doesn't get more basic than this. Investments to hold cash offer safety, liquidity and modest returns. These include high-yield savings accounts, money market accounts or funds, and certificates of deposit.

"Cash is comfort food when the market's falling apart," Pascone says. "It gives you liquidity for emergencies, short-term needs and the ability to buy when everything's on sale."

He notes that money market funds and high-yield savings accounts have been paying attractive rates, although those can drop fast when the Federal Reserve starts cutting the federal funds rate.

Cash has other potential risks.

"The big mistake I see is people piling into cash and then just staying there long after things settle down," Pascone adds. "Cash is great for what you need in the next six to 16 months, but beyond that, inflation and missing out on the recovery can quietly eat away at your wealth." 

Treasury Inflation-Protected Securities (TIPS)

These instruments, issued by the U.S. Treasury, are designed to protect purchasing power. Their principal adjusts with inflation, as determined by the consumer price index.

"They're particularly useful in the weird scenario where you get a recession with stubborn inflation, or when people suddenly worry inflation's going to stick around longer than expected," Pascone says.

However, he adds, "The downside is that TIPS still move with real interest rates, so they're not totally risk-free, and the tax treatment can get messy in taxable accounts."

For higher earners, Pascone says he uses a TIPS fund as a slice of the bond allocation alongside standard Treasurys and quality corporate bonds to account for various economic outcomes. Some examples of TIPS ETFs include iShares 0-5 Year TIPS Bond ETF (STIP) and Vanguard Short-Term Inflation-Protected Securities Index Fund (VTAPX).

As seen in U.S. News & World Report.