For many investors who are not positively leveraged, hedged or otherwise financially positioned, a recession can mean large drawdowns in capital gains and serious reductions in or even complete cessation of dividend income. Unless you pay constant attention to markets, price data and other economic indicators, a recession could also take you by surprise. This is because, while signs appear long before the onset, they are subtle and easy to miss while onset is often rapid and chaotic. The Great Recession of 2008 is a perfect example.
However, there are ways to insulate your portfolio against recession risk by dedicating a sizeable amount of it towards industries that do well in recessions or those that aren’t significantly affected by them. With the last recession in the US now almost 12 years behind us, it’s important to prepare for the next one as they do historically tend to occur every 7 to 10 years.
So, if you feel we’re in for the next recession shortly or if you simply want to insulate your portfolio against the risk of recession, here are some “recession resilient” industries to put your money into.
The Industries for All Seasons
There are some industries that, as a result of their very nature, tend to carry on business as usual, even if the world is collapsing around them; because their products and services are “essential”, they tend to continue to maintain profitability and revenue during a recession with little to no adverse effects. These industries include:
Pharmaceuticals & Healthcare: People require medicines and medical care even if the economy is collapsing.
Waste Disposal: Waste disposal businesses and recyclers will continue to operate normally even during a recession.
Tax Service Companies: Surely, even in the event of an apocalypse, governments will find a way to still collect taxes.
Funeral Service Providers: Funeral service providers and associated industries will continue business as usual even during a recession, for obvious reasons.
Most of these industries aren’t high profit or high growth, but while others suffer in a recession, they will most likely continue to operate normally.
Good Time Industries
In bad times, people need something to take their mind off things and relax. During a recession, instead of shopping and big-ticket spending, people will look to make life a little better with small, easily and cheaply accessible pleasures like a beer or a bar of chocolate.
Good Time Industries include:
Alcohol and Beverage Producers
Chocolates and Confectionary Producers
Tobacco Companies
Streaming Services
Keep in mind though, that not all good time industries will do well during a recession. For example, restaurants and casinos tend to see significant declines as people feel less lucky and have fewer things to “celebrate”.
Selected Services & Discount Retail Industries
While most service industries will face hardships during a recession, some services like repair and maintenance will thrive. This is simply because people will be more interested in keeping what they have working, rather than buying new things or making large investments.
Another sector that actually does well during a recession is the discount retail sector. Large retailers that supply everyday items at cheap or discounted prices will see an upswing in business during a recession as people strive to stretch their limited resources as far as possible.
Why a Recession Can Be Good for Investors
Whether or not your portfolio is insulated against a recession, a recession can be a boon to investors in the long run. This is because, during a recession, companies that are inefficient or not competitive enough will be weeded out of various industries. This will ultimately leave only the highest quality companies remaining and also open up space for genuine, innovative new entrants once the recession ends. Ironically, strong companies are much easier to spot during a recession.
