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4 Ways To Invest During a Recession

4 Ways To Invest During a Recession

In today’s challenging economic landscape, it’s harder to get ahead. But you can still become financially free. To increase your financial independence, you need to:

  1. Work harder
  2. Work smarter

If you want to increase your financial freedom, build generational wealth, or become a millionaire, keep reading.

Why is a Recession Possible?

First of all, why do you care? 

There is a growing possibility that a recession is coming.

Here are the two major reasons why a recession could happen: 

  • The Federal Reserve. Inflation is a major concern right now. Consumer inflation was at 8.5% in March, the highest since 1981. The Fed’s job right now is to combat inflation, which they do by increasing interest rates. In a perfect but unlikely scenario, they will time this magically and inflation will slowly recedes. In another likely scenario, the shock of increasing rates creates a recession. Inflation is solved by prices dropping. This will also bring a drop in economic activity and increased unemployment.
  • The Yield Curve. In late March 2022, the 2-year and 10-year Treasury yields inverted for the first time since 2019, meaning the 2-year bond paid more interest than the 10-year bond. Historically, when this happens, there is a greater than two-thirds chance of a recession within a year and a greater than 98% chance of a recession within two years.

The next thing to know is that if you invest in a recession the same way that you invest in a red-hot economy, you’re in for a bad surprise and a big loss. Since 1937, the main index for the U.S. stock market, the S&P 500, has lost 32% on average in recessions. 

S&P 500 lost 32% on average in recessionsSource: RBC Capital Markets

How to Invest in a Recession 

act now cardboard sign

Here is an investment strategy to consider in preparation for a recession:

  1. ETFs. ETFs are generally less volatile than individual stocks, so if your investments drop in value, they tend to drop less. Consider investing diversifying into ETFs to lower risk. 
  2. Value Stocks. In an economic downturn, value stocks tend to outperform growth stocks. There are generally more value stocks in the Dow Jones Industrial Average and generally more growth stocks in the NASDAQ Composite. 
  3. Strong Balance Sheets. In a recession, the best performing stocks have been well-managed companies that have low debt, good cash flow, and strong balance sheets. For example, the following companies made over $10 billion in profit in 2020:
  • Apple
  • Microsoft
  • Berkshire Hathaway
  • Alphabet
  • Facebook
  • JPMorgan Chase
  • Amazon
  • Intel 
  • Bank of America
  • Verizon
  • Johnson & Johnson
  • Walmart
  1. Recession-proof sectors. The following sectors that generally outperform others in a recession.
  • Utilities
  • Consumer Staples (includes food and beverages, household goods, hygiene products, alcohol and tobacco.)
  • Discount Retailers

What about Bitcoin?

bitcoin image

Bitcoin didn’t exist during the last major U.S. recession, so it is difficult to tell what it will do. 

Recently, it has been closely correlated to the NASDAQ Composite, as if it were a tech stock. Bitcoin also has characteristics like a commodity, and with a total supply of 21 million, I do expect it to eventually trade differently. 

However, at this time I am not considering Bitcoin as a recession trade. Additionally, I would strongly advise against other cryptocurrencies, especially any not in the Top 10 largest by market capitalization. In a recession, I would expect most of these to lose 80% of their value or worse. 

Bitcoin should be considered an asset to hold long-term. With the transformation of macroeconomics, geopolitics and digitization over the world, as well as its fixed total supply, I am very bullish on Bitcoin long-term.

For more educational content from The Latest Block, subscribe to our newsletter here.


This content is for news and educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.


Alexandre Lores is a personal finance writer from Tampa Bay, Florida, with the goal to help one million people achieve financial freedom. He has spent over five years studying markets and economics, finding Bitcoin in 2017 and never turning back. He frequently appears on TV and in online news articles and is a regular Twitter spaces host.

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