Investing In A Down Market


A recession is imminent, and most Americans aren’t prepared for one.

Recession Is Imminent, Economist Who Called 2008 Downturn Says.

Ultra-High-Net-Worth investors (UHNWIs) think one is coming, but it hasn’t changed their investing habits because they always invest as if a recession is coming – with precautions built in for inflation. That’s why the economic turmoil of the past few years brought on by the pandemic, inflation, and war haven’t fazed these savvy investors. That’s because they’re allocated to the right investment assets.

Before discussing the right assets, let’s talk about the wrong assets to be allocated to during a downturn. More specifically, what industries suffer the most during a downturn?

  • Retail.
  • Restaurants.
  • Hotels.
  • Travel.
  • Transportation.
  • Automotive.
  • Oil and Gas.
  • Sports.
  • Single-Family Housing.

Most industries negatively impacted by a recession have to do with non-essential goods and services. As pocketbooks stretch, luxuries like shopping, eating out, and vacations get cut out of the budget. Moreover, in the face of job loss, it makes sense that home and car sales would also suffer.

A recession is not good for many industries and for the stock market as well. In the aftermath of the subprime mortgage-induced housing crash in 2008, the stock market shed more than 50%. In the early days of the pandemic-induced recession in 2020, the stock market shed around a third of its value. That makes sense since during a downturn, when consumers spend less; profits slow – hitting the bottom lines of public companies. Businesses and consumers cut costs and become more mindful of their expenditures – focusing on essential goods and services.

It’s not all bad news for all industries. For some industries, consumers will continue to spend because there will always be goods and services that are essential and will be needed. Some businesses are not only sheltered from harm by a recession but may also thrive.

There’s no reason to sit on the sidelines during a recession. It’s a good idea to keep your money working for you but be mindful of the businesses, assets, and industries that provide goods and services people need.

There are numerous lists of businesses that thrive during a recession, but one I found by Bank of America was both informative and amusing. According to Bank of America, here are eight industries that thrive during a recession:

Candy – People who can’t afford larger luxuries turn to cheap treats like candy.

Repairs – Instead of buying new, consumers will repair what they have to save money. For example, while car sales historically decreased during a recession, automotive repairs increased. The same can be said for computers, and furniture.

Childcare – When one household’s income becomes two, childcare services grow in demand.

Niche Food Stores – Niche food stores thrive during a recession for the same reason candy does. When someone loves something (like candy!), seeking refuge through these places or items becomes more common.

Freelance and Temp Work – Among the first casualties of a recession is the full-time employee. Many businesses switch to hiring freelance and temp workers to fill the gaps.

Static Businesses – The boring, the mundane, or downright dirty. Some may call them these names, but others call them recession-proof. Affordable housing, tax preparation, junk hauling, senior care, funeral homes, and senior care are all services that will always be necessary, even during an economic downturn. People will always need places to live, pay taxes, throw away garbage, and die.

Health and Fitness – In 2008, businesses that helped people remain healthy and fit maintained steady growth during the Financial Crisis.

Vices – Like candy, people turn to cigarettes, alcohol, and gambling for comfort in hard times.

There is no reason to retreat from investing in a down market – especially in an inflationary environment where shelving money can mean a deterioration of buying power as the days and weeks pass.

Go against the grain.

As the business slows and the stock market retreats, and investors sideline their case, that is the time to go against the grain and put your money to work. Obviously, many industries, businesses, and assets thrive during a downturn. Why not put your money to work in these segments?

My advice?  Allocate to assets that can compensate for job loss.

We know that the stock market retreats during a recession. Where are the UHNWIs allocated so that they’re shielded from downturns? First of all, understand that UHNWIs are always shielded from downturns. The sudden pandemic-induced recession of 2020 didn’t faze them because they are always allocated to assets that protect their portfolios.
What do the recession-resistant assets favored by UHNWIs have in common?

  • Private Alternatives. Private alternative assets are not traded on the public markets and are, therefore, not correlated to the broader market and market volatility. The right private investments not only outperform traditional stocks but do so at less risk.
  • Tangible Assets. Tangible assets have an underlying value that appreciates over time that doesn’t depend on investor sentiment. Tangible assets also make it so you can never lose your entire investment.
  • Cash Flow. Cash-flowing passive investments can compensate for job loss or loss of income. Passive cash flow has always been the key to wealth for smart investors. Putting your money to work for you 24-7 can create multiple streams of income that don’t depend on the hours in a day as a job does.
  • Essential Good or Service. Assets tied to essential goods or services will always be in demand, even during downturns and inflation. Income from these assets that can keep pace with or even exceed inflation is an ideal buffer from reduced buying power.
  • Tax Benefits. Investments offering significant tax benefits can mean more money for spending or reinvesting. Tax benefits are even more important during a downturn in the case of job loss or income reduction.

In a down market, don’t shy away from investing. You can still thrive and even get rich during a recession with the right assets.

Contact us today about investing in stable assets shielded from the volatility that can even thrive during a recession and in a high inflation environment.