Investments That Are Recession-Proof
Pharmaceutical stocks, a subset of the healthcare industry, are traditionally considered “defensive,” along with other industries like utilities. This is because even in the midst of an economic crisis, people need medication and to be treated for illnesses. As an example, if you are on a blood pressure medication, you’re not likely to stop taking that when a recession comes. More likely, you’re going to stay on your medication even if it means that you have to find a new way to pay for it. This and countless other examples demonstrate why healthcare stocks can still be a good play even in an economic downdraft.
High-Yield Savings Account
A high-yield savings account might not be the best long-term investment for your money, but it can be a great place to ride out uncertain economic times. Even in an era of near-zero interest rates, accounts like the PenFed Premium Online Savings Account still pay a high 1.25% annual percentage yield1 with no monthly maintenance fees and a low $5 minimum. That’s a pretty good deal for an insured account that will keep your funds safe during a recession when you might need emergency funds to get you through tough times.
1APY (annual percentage yield) is accurate as of May 8, 2020, and is subject to change at any time. Fees may reduce earnings. Federally insured by NCUA.
Technology stocks are not always considered a classic defensive play during a recession. However, the COVID-19 recession might be different. With so much of the globe under “stay-at-home” orders, technology has proven to be a vital and thriving link thus far. Between binge-watching Netflix at home, ordering packages from Amazon or connecting with friends, relatives and workers via Zoom, many tech stocks are holding up quite well during this recession. The trend may continue for as long as social distancing is required.
Grocery stores run on thin margins, which can make them tricky investments. During recessions, however, grocery stores often have an uptick in sales and profitability. As consumers trim their spending on eating out at restaurants, they tend to buy more groceries and eat at home. Even during the bleakest of recessions, people still need to eat, and grocery stores provide this necessary service in a more affordable package than restaurants. During the COVID-19 pandemic, this is particularly true, as sitting down to eat inside a restaurant is currently not an option and may not be for some time.
Utility stocks fall into the same defensive, necessary category as grocery stores. Even when consumers trim back their spending, they still need water coming in through their pipes and power coming in through their lines. There will always be a demand for the product utilities provide, even during a recession. Utility stocks also tend to pay high and consistent dividends, which makes them more appealing to investors looking to get defensive.
Precious metals like gold and silver are often in demand during stock market sell-offs and times of overall economic unease. The reason is that precious metals are seen as a “store of value,” something tangible that investors can physically hold onto while their intangible assets, like stocks, go down in value. Gold also tends to rise during low-interest-rate environments; since gold doesn’t pay a dividend, it becomes more attractive when other instruments are not paying much income either. Early in the COVID-19 sell-off, precious metals also dropped in value as investors had to raise cash any way they could. However, since then gold has rebounded nicely.