According to a recent survey of American economists, there is a 39% chance that we will enter a recession within the year. While this figure makes a recession far from certain, it does represent an elevated risk.
It’s important to remember that a possible recession is no cause for panic. Recessions are a normal part of the real estate cycle and the greater economic cycle. In fact, recessions can present opportunities to those looking for them.
This article will explain how to invest during a recession, including:
What to invest in during a recession,
What not to invest in during a recession, and
Tips for protecting your wealth in a slow economy.
So, whether a recession is coming in 2026 or delayed to a future year, bookmark this page so you have a how-to guide ready to implement wherever the next recession hits.
What Is a Recession?
First, let’s quickly define recession to avoid ambiguity.
A recession is a temporary period of economic decline, generally identified when GDP falls for two successive quarters. So by definition, by the time a recession is identified, we’ve already been in it for at least six months.
Recessions are often characterized by:
Rising unemployment: Businesses cut jobs as demand slows.
Declining consumer spending: Households tighten budgets and delay big purchases.
Lower business investment: Companies scale back expansion and hiring plans.
Tighter credit requirements in lending: Banks become more cautious with loaning funds.
Reduced inflation (or even deflation): Prices stabilize or fall as demand weakens.
Eventual government intervention: Stimulus measures or rate cuts to spur recovery.
5 Ways to Invest During a Recession
With the characteristics of a recession in mind, let’s explore the asset classes more likely to perform well in a recession.
1. Real Estate
Real estate is one of the rare assets that can be a solid investment under any and all market conditions.
In other articles, we’ve explained how property values and rental income tend to rise during periods of economic growth, making real estate investments an effective hedge against inflation. So we know investing in real estate during inflation is wise. How can it also be a smart recession-era investment?
Simply put, when a recession hits, property values tend to dip, which allows you to buy them for less than you would at the peak of the market. Just as importantly, interest rates tend to be lower during a recession, making debt leveragemore affordable for those who can qualify for financing.
Example of Investing in Real Estate During a Recession
Now, what if a recession causes home prices to dip by 5% and interest rates to fall by 1.5%? This would allow you to buy the same property for $390,260, with a 4.75% interest rate, making your principal and interest just $1,610 per month.
You would save $377 per month, totaling over $135,000 in savings over the course of the 30-year loan!
Different Ways to Invest in Real Estate During a Recession
One of the many benefits of investing in real estate is the flexibility. There are just so many ways to invest in property, giving everyone access to recession-friendly real estate investments.
Here are a few of the best real estate investment methods for slow markets:
In areas of perpetual housing shortages (like Los Angeles, Seattle, and Phoenix), new construction multi-family developments are highly lucrative. During periods of recession, rental demand may even increase, as would-be buyers are nervous about making long-term financial commitments. Plus, labor and materials may be more accessible and less costly, increasing the return potential for new development.
Rather than selling the building immediately upon completion, while property values are still low, you could stabilize the property and sell once the market rebounds.
Affordable Housing
Affordable living space is always in demand, but never more so than in recessions, when personal budgets are extra tight. You can help ease the housing burden for households in need while simultaneously earning good returns through different forms of affordable housing.
Take Section 8 housing, for example. Because the rent is government subsidized, it’s more reliable. And the strict program requirements often result in low turnover. Or consider TIC (tenancy-in-common), in which multiple parties share legal rights to a single property, greatly reducing the cost of ownership for each party.
REITs
REITs (Real Estate Investment Trusts) are companies that invest in income-generating real estate, sharing the profits with investors in the form of dividends. REIT shares are often affordable, making this investment strategy available to investors with any budget. And because the portfolio is professionally managed, your returns are completely passive.
A word of caution: some REITs specialize in commercial and/or industrial space, which may perform worse during a recession. Invest some time in finding REITs that specialize in residential properties during slow markets.
Real Estate Crowdfunding and Syndication
With real estate crowdfunding and syndication, you pool funds with other investors to finance a specific real estate project. The project could be nearly anything, including the recession-proof rentals, developments, and affordable housing discussed so far.
Because funds are pooled, you can buy into a deal with comparatively low investment minimums. And, since the project is professionally managed by a real estate sponsor, you don’t need any prior experience, nor do you need to invest your own time and energy into the property.
Plus, unlike with REITs (in which you have no control over which assets are held in the portfolio), crowdfunding and syndication often offer deal-by-deal investing, allowing you to handpick the projects you want in on. Just make sure you choose a crowdfunding/syndication platform that allows deal-by-deal investing if this is important to you.
2. Defensive Stocks
Defensive stocks are shares in companies that provide necessities, such as:
Communication services
Consumer staples
Energy and utilities
Health care
No matter how slow the economy gets, people still need these goods and services. So the companies that provide these essentials are likely to weather any recession with comparative ease.
3. Dividend-Yield Stocks
Dividend-yield stocks are those that pay out regular dividends to investors. They’re more focused on these payouts than on stock price growth, providing ongoing cash flow and less concern about stock price volatility.
Plus, you have the option to reinvest dividends. So, if the stock price happens to drop, you can purchase more of the stock at a lower cost, setting yourself up for greater compounding as the market recovers.
4. Treasury Bills
Treasury bills (T-bills) are one of the best low-risk investments, particularly during a recession. They are backed by the full faith and credit of the US government and offer predictable returns, which can bring peace of mind when stock market performance is less reliable.
Because this investment is so low-risk, the rewards are typically low as well. Therefore, it’s important to consider the opportunity cost of investing in treasury bills over investments with higher return potential. You might opt to keep some capital in T-bills for reliable low-yield returns while investing some in another asset class, like real estate, for greater growth.
5. Index Funds
Like real estate, index funds are a sound investment under any market conditions. Yes, the price ebbs and flows, but over time, the value always trends up.
Each share of this packaged security represents stock in dozens, or potentially hundreds of companies. So, when you buy a share of an index fund, you’re getting exposure to a wide range of companies, effectively diversifying your risk of any single company underperforming. Index funds passively follow a market index (like the S&P 500, as an example). This eliminates the need for active management and the higher fees that accompany actively managed assets like mutual funds.
You can also seek out index funds that specialize in a specific sector (like the defensive stocks mentioned earlier) to further reduce your market risk while investing in a recession.
Investments to Avoid During a Recession
Now, what should you not invest in during a recession?
Stock in highly leveraged companies. Companies that operate with excessive debt pay have a harder time weathering the recession.
Stock in companies that specialize in discretionary goods. With lower demand for luxury items like expensive cars, handbags, and jewelry, companies that specialize in these high-end consumer goods tend to struggle in a recession.
High-yield bonds. While bonds are typically a lower-risk alternative to stocks, high-yield bonds, with their credit ratings below investment grade, are more susceptible to market downturns, making them a riskier option during a recession.
Speculative gambles. Speculative assets are high-risk, high-reward. During periods of strong growth, people are more willing to take a gamble on these risky investments. But during a recession, investors tend to pull back on these first, making values more likely to plummet.
How to Protect Your Wealth During a Recession
Here are a few general dos and don’ts to help you financially protect yourself during a recession.
DO ensure you have an emergency fund. It’s generally a good idea to keep enough cash on hand to cover at least 3-6 months of living expenses. Not only can this cover unexpected expenses (helping you avoid high-interest credit card debt), but it can also provide a cushion in case of job loss.
DON’T panic sell. In many cases, it makes more financial sense to ride out the downturn than to sell at a loss.
DO rebalance your portfolio as values shift. If you have a strategic allocation target based on your risk tolerance, age, and goals, you may want to sell off some assets and/or invest more heavily in others to retain your target asset mix.
DON’T try to “catch the bottom.” Trying to time the market never works because it’s only possible to recognize peaks and bottoms in hindsight. Rather than waiting and waiting for the market to bottom out before investing, invest now, even if that means absorbing short-term losses for long-term gains.
DO look for undervalued assets. The financial uncertainty of a recession causes many investors to liquidate and/or hold off on new investments. This often results in assets being temporarily undervalued, which creates an opportunity for you to purchase them at below-market prices.
Invest in Recession-Friendly Real Estate with Gatsby Investment
Gatsby Investment is a leading real estate syndication company, specializing in high-return potential deals in Los Angeles. Our agile business model allows us to quickly pivot to capitalize on changing market conditions. Smart investment strategies, combined with local industry connections and well-honed systems, have helped us achieve average annualized returns of 22.3% for our investors since the company’s inception.
We handle every aspect of each project for you so you can focus on your other ventures and passions. And with investment minimums as low as $25k, accessing unique deals in the high-value LA market has never been easier!
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