Looking for Recession-Proof Stocks? Find the Outperformers
Some tried-and-true recession stocks earned their stripes during the coronavirus downturn, and a few newcomers could be here to stay.
Chris Davis June 24, 2020
Financial planners and advisors have a reliable playbook during periods of market volatility and recessions. But you’d be hard-pressed to find a financial expert who claims there’s a completely recession-proof stock out there.
“I think there are stocks that tend to do better in a recession and certain sectors that tend to do better,” says Robert M. Wyrick Jr., managing member and chief investment officer of Post Oak Private Wealth Advisors in Houston, Texas. “But I don’t know if I would call any of them ‘recession-proof.’”
A better strategy for buying stocks may be to examine the characteristics of stocks that tend to perform better than others during a recession, and use this information to build a portfolio that’s ready for anything — recessions and all.
Historically recession-resistant sectors
The stock market comprises 11 sectors, each made up of businesses that operate in similar industries. Xerox, Apple and Microsoft, for example, are all in the technology sector, while Boeing, General Electric and Caterpillar are all in the industrials sector.
“Usually if a stock is acting in a resilient manner during a recession, then it’s going to be part of a larger group of stocks that have similar characteristics,” says David McInnis, a certified financial planner and co-founder of East Paces Group in Atlanta.
Creating a diversified portfolio
While many entrenched beliefs about investing in a recession have recently been reinforced, advisors stress that this is by no means a normal recession, and there’s a chance it won’t play by normal rules.
Still, a well-diversified portfolio is one of the best ways to ensure you’re prepared for whatever turns the market takes. That means including some of the sectors mentioned above, but it also means making sure your portfolio is broadly diversified across industries.
“You generally want to think about investing in longer time periods than pre- and post-recession,” says McInnis.
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