We can all agree that there hasn’t been a ton of great economic news lately. And if you’ve lost your job or watched your investment portfolio fall, you might be wondering what’s next. The good news is that there are some industries and sectors that tend to do better than others in a recession.
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First, let’s take a look at the state of the economy and then see where you might want to put your focus as you contemplate a job hunt or new investment opportunities.
What industries are historically recession proof?
As mentioned, not everyone feels the pain equally in a recession, and some industries and jobs are better positioned than others to survive this unprecedented economic situation—and even thrive. It’s important to note that the 2020 recession is different from previous ones like the Great Recession of 2008 because of the nature of its abrupt onset and the shelter-in-place rules that followed the coronavirus pandemic and have wiped out traditional commerce.
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Therefore, no one can precisely predict the impact on specific sectors. But there are some industries that are traditionally recession proof given their “defensive nature.” In other words, they offer more conservative products and services that people tend to seek no matter what the circumstances. Those can be good places to look for jobs and/or park your investments if you’re looking for individual stocks. Here are a few to consider.
Consumer packaged goods
While wallets have been walloped, people still need consumer staples, and there have been a number of CPG companies that have flourished as consumers stock up on basics and return to the comfort of brands and products they trust. That could spell good news for large, established companies that sell products that consumers continue to buy in a downturn and pandemic, from food to cleaning products to, yes, toilet paper.
Health and beauty products
While these often fall under the umbrella of CPG, it’s likely to be a stand-out industry in its own right. Companies that make affordable luxuries tend to prosper in a downturn, given that consumers still want to feel good about themselves, even if they can’t spend the big bucks. So this sector tends to be recession resilient.
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During the recession in the early 2000s, one beauty products company called it the “lipstick index,” referring to the fact that women may forgo extravagances but still want economical indulgences. Given recent innovations in this sector, self-care continues to be an important part of our regimen, expanding far past lipstick, and today, this movement encompasses all genders, providing an even bigger potential market. (And, let’s not overlook the possibility that this focus could be spurred in part by the omnipresence of social media channels and our desire to look good at all times, even if it’s just for Zoom.)
Technology
Computer- and technology-related jobs are likely to hold steady. Look for jobs in areas that support vital business activity, such as a computer support specialist, programmer or information security analyst, and investments that provide necessary hardware and software.
Pet products
Fur babies rarely get short shrift, even if consumers are economizing in other areas. That means in addition to affection, they are likely to continue getting lavished with treats, toys, top-notch medical care, even gourmet food.
How to invest in a recession?
The most important thing to remember about markets is that they have always recovered, despite the severity of past downturns. That’s why it’s vital to take a long-term view, rather than dwell on today’s stomach-churning ups and downs.
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In addition, you want to avoid locking in losses by selling when your portfolio is at a low point. By maintaining your investment discipline, you can allow yourself to be in a position to profit from a market rebound. After all, market drops represent the “buy low” part of the tried-and-true “buy low, sell high” investment ideal.
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It’s always wise to maintain a diversified portfolio, by making investments in different asset classes, and that is especially great advice in an uncertain market. Investing in mutual funds and exchange-traded funds (ETFs) is one way to gain access to a broad array of investment products.
Saving money in a recession?
While we can all look forward to emerging on the other side, there is likely to be additional short-term pain attached to this recession, so bolstering your emergency savings is a wise step right now.
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Take a look at your budget over the past few weeks to identify areas where you’ve experienced unexpected savings, such as commuting expenses, clothing, personal services and almost certainly travel and entertainment. If your situation allows, take those savings and sock them away into a high-yield savings account to help protect your finances in case of a job loss. Or, if you already have adequate savings, consider investing that money.
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The best way to navigate these tough times is to focus on the bright spots you can find today. Identify ways to maximize opportunities that align with your own personal circumstances, time horizon and financial goals and set yourself up for success as we eventually emerge from this tunnel.
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This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
