A recession conjures up thoughts of stagnant business activity, high unemployment and stocks eroded of their value. However, it doesn't leave investors with no opportunity to maintain or grow wealth. Businesses in certain sectors can survive and even thrive because of a sluggish economy; other types of assets become more affordable and can provide cash flow and protection if you take a patient, long-term view to investing.
Household Products Sector
Even in a downturn, everyone wants and needs nourishment, personal hygiene and clean homes. In the 2008 recession, one maker of household cleaning and personal care products experienced an 11 percent increase in earnings per share over a 12-month period, thanks in part to an 8 percent rise in sales, Forbes reports.
Discount and Warehouse Retailers
Shoppers seeking to save money in a recession often turn to discount and warehouse retailers. Many of these outlets sell groceries and household and personal care products for which demand remains high – even in recessions. Some customers stock up on these staples for fear that a recession will hinder their ability to afford them in the future or to make the most of discounts and coupons. These consumers have led to membership-based stores increasing sales by more than 16 percent in one quarter; another warehouse store grew its membership by 25 percent over a five-year period, says a report by the University of Pennsylvania's Wharton School of Business.
Investors buy gold to protect themselves against inflation, falling values of other investments and other bad economic consequences often wrought by a recession or the threat thereof. Signs of a sluggish economic and investors’ desire for stability during such times drive the demand for gold upward. The price of gold doubled between 2008 and 2012, with increases of more than 27 percent in 2010 and 32 percent in 2011, the Department of Labor reports.
Art and Antiques
Recessions do not necessarily quash the demand for fine art and antiques, especially among high-wealth collectors and international customers from emerging economies. In slow economic times, these collectors can readily find sellers seeking cash in case of unemployment or other loss of income. Art and antiques can also hedge against inflation and declining values in stock. Since 1968, the yearly Antiques Furniture Price Index has yielded higher values than the stocks and homes. Domestic and international art and antique auctions set 1,000 new records in 2008, reports the Illinois CPA Society.
Real estate can be attractive in a recession if you are not looking for a quick return or pay day. In a sluggish economy, prices are low because fewer buyers can get loans for homes, but those with means to purchase real property can invest at bargain prices. A depressed home buyer's market means more people are renters; you can generate income from these renters. Real estate investment trusts operate income-producing property, such as shopping centers and residential rentals; by law, the investment trusts must each year pay out at least 90 percent of their earnings as dividends to investors.
- Illinois CPA Society: Insight Magazine -- Recession-Proof Investments
- Forbes: Best Recession Stocks
- University of Pennsylvania Wharton School of Business: Brand Disloyalty -- Recession-Weary Consumers Take Discounts to the Extreme
- U.S. Department of Labor: Bureau of Labor Statistics -- Beyond the Numbers -- Gold Prices During and After the Great Recession
- REIT.com: Reasons for REIT Investment
Christopher Raines enjoys sharing his knowledge of business, financial matters and the law. He earned his business administration and law degrees from the University of North Carolina at Chapel Hill. As a lawyer since August 1996, Raines has handled cases involving business, consumer and other areas of the law.