The Ultimate Guide to Investing During a Recession

April 10, 2023

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There is a lot of talk of recession in the US at the moment. It’s a daunting time, with job losses on the increase and a decline in overall economic activity. Despite the unease and lack of confidence in the market, you can still find opportunities to grow your wealth during challenging times like these.

The word ‘recession’ emerging from clouds Investing
Even recessions can present opportunities for growth. Photo by D koi on Unsplash

There are decades of historical data to draw on and plenty of robust examples of approaches that have been successful in the past, and we can draw both useful information and confidence from these historical lessons.

In this ultimate guide to investing during a recession, we are going to cover strategies for navigating the economic downturn, highlighting the benefits and drawbacks of different strategies. It’s a pretty granular deep dive, but we think this is the most useful approach to such a huge and nuanced topic.

Alright, let’s dive in.

Understanding the Recession Landscape

Before diving into specific investment strategies, it’s helpful to understand the recession landscape because this sets the context for why some approaches might be more beneficial to you than others. Recessions are typically characterized by a decline in GDP for at least two consecutive quarters, increased unemployment, reduced consumer spending, and a drop in business investments.

This economic contraction can lead to lower corporate earnings, which in turn can result in stock market declines and reduced dividends as we have been seeing lately.

What we are also already beginning to see is another typical recession activity – banks reducing their lending. One result of banks tightening up their lending criteria is that businesses, especially small-to-medium-sized ones, meet with further restrictions on their ability to operate, expand, and survive the recession. Pretty bad news for them, and for the health of the economy more broadly.

However, data shows us that recessions can also present unique and profitable opportunities for investors. Walmart, Hasbro, and Amgen are just three examples of businesses in different sectors that not only survived the 2008 recession but saw significant growth and expansion. Likewise, from early November 2008 to March 6, the S&P 500 decreased by around 30%, while gold’s value increased by a similar percentage.

All of this is to say: there are opportunities for you to grow your wealth in every moment of the economic landscape. This is what our ultimate guide to recession investing hopes to teach you.

Lower asset prices, a shift in market dynamics, tightening lending criteria, and a focus on defensive sectors can provide avenues for impressive potential gains. When you understand the recession landscape and identify key trends, you can increase your chances of making informed decisions and developing a strategy that aligns with your risk tolerance and your investment goals.

We know that we mention your risk tolerance and investment goals a lot in our blogs, but that’s because you have to have a good understanding of these two factors before you can move forward to choose wisely and, hopefully, profitable investment strategies that are bespoke to you.

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There are opportunities for you to grow your wealth in every moment of the economic landscape Photo by Pete Alexopoulos on Unsplash

Alright, now we will move on to some specific tips about investing during a downturn.

Diversification and Asset Allocation

This is relevant at all times, but especially during market volatility. One of the most effective strategies for investing during a recession is to maintain a diversified portfolio. Diversification involves holding a mix of assets, like stocks, bonds, real estate, and alternative investments like MCAs, to reduce overall portfolio risk. By spreading investments across various sectors, geographical regions, markets, and asset classes, you can reduce the impact of market downturns on your portfolio.

There are no guarantees here, of course, but data shows that the more diversified a portfolio is, the less severely impacted it is by economic contraction. Diversification is so powerful that it can even increase profitability despite a recessionary climate.

During a recession, you might want to consider adjusting your asset allocation to focus on defensive sectors. This includes things like utilities, consumer staples, and healthcare. These sectors tend to be more resistant to economic downturns because demand for their products and services remains relatively stable regardless of the broader economic climate.

Example: If an investor’s pre-recession portfolio consisted of a 70% general mix of stocks and 30% bonds, they might consider adjusting the allocation to 50% general stocks, 30% bonds, and 20% specifically focused on utilities or healthcare. This allocation shift may help protect the portfolio from stock market declines while also taking advantage of the potential benefits of particular markets which may be less likely to contract as sharply as other market areas.

Identifying Undervalued Assets

This one involves a level of expertise and research that might not appeal to you personally, but we wanted to mention it just in case. Data shows that recessions correlate with a decline in asset prices, creating opportunities for investors to identify and purchase undervalued assets. An asset might be considered undervalued when it has a strong track history of performance but has seen a dip in price that overlaps with the recession.

By conducting thorough research and analysis, it is possible for you to uncover companies or investments that have been unfairly punished by the market and are trading below their established value. These undervalued assets can provide significant upside potential once the economy recovers.

Example: An investor identifies a high-quality company in the sustainable fashion sector with strong financials and a stable business model. However, due to the broader market downturn, the company’s stock price has dropped significantly. The investor recognizes the company’s long-term potential and purchases shares at a discounted price, with the expectation that the stock will rebound as the economy recovers. Again, there are no guarantees here, but there can be significant upsides if the bet pays off.

Focusing on Income Generation

During a recession, when job security becomes a little more delicate, you might want to focus on generating income through investments that provide regular cash flow. This strategy can help offset potential declines in asset prices and provide a source of stability for you and your family during more uncertain times.

An example investment option is our own MCA investment notes, which offer monthly and quarterly interest payments. These notes allow you to lend capital to businesses in need of financing through merchant cash advances, and you earn interest on their investment.

White hands counting dollar bills. Investing
Cash flow is king. Photo by Alexander Grey on Unsplash

Example: An investor allocates a portion of their portfolio to Supervest’s MCA investment notes. By doing so, they can receive regular monthly or quarterly interest payments, providing a steady stream of income during the recession. This cash flow can be used to cover living expenses, it can be reinvested to take advantage of undervalued assets, or allocated towards other investments to further diversify the portfolio.

Capitalizing on Supervest’s Self-Directed MCA Investment Notes

We want to point out another option that brings some specific potential cash flow benefits. In addition to the regular MCA investment notes, we also offer a Self Directed option that provides daily remittances, interest, and principal. This option allows you to take even greater control over your cash flow and investment strategy during a recession. By receiving daily payments, you can quickly reinvest the funds into other opportunities or use them to cover expenses.

If you want to get started with the Self Directed model you can do that here.

Dollar-Cost Averaging

Another strategy for investing during a recession is dollar-cost averaging (DCA). DCA involves investing a fixed amount of money at regular intervals, regardless of market conditions. This approach can help you avoid trying to time the market and can reduce the impact of market volatility on your investments.

It is pretty easy to automate a strategy like this, so it might be best for you if you are more of a hands-off investor. By consistently investing during a recession, you might be able to take advantage of lower asset prices and position yourself for growth when the economy recovers.

Example: An investor decides to invest $2000 per month into a diversified portfolio, regardless of market conditions. During the recession, this approach allows the investor to purchase assets at lower prices, reducing their average cost per share. As the economy recovers and asset prices rise, the investor benefits from the growth in their investments.

Maintaining a Long-Term Perspective

It can be really easy to get spooked by crashing share prices. Despite our best efforts and beliefs to the contrary, people are emotional creatures and don’t always (or often) act on a rational basis. During a recession possibly more than at any other time, it’s beneficial to maintain a long-term perspective.

While economic downturns can be challenging, history has shown that the economy does tend to recover and grow over time. Remind yourself of this, daily if you have to.

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A long-term view is key. Photo by Nick Fewings on Unsplash

Example: An investor recognizes that while the current recession may result in short-term declines in their portfolio value, their long-term goals remain unchanged. They do not knee-jerk react to news headlines or sell off assets due to momentary declines in value. By maintaining a diversified investment strategy and continuing to invest in quality assets, the investor is better equipped to weather the downturn and benefit from the eventual economic recovery.

Monitoring Portfolio Performance and Adjusting as Needed

This point is linked to keeping a long-term perspective, but it is slightly different and deserves a specific mention. Portfolio monitoring and adjusting is a foundational component of superior quality investment hygiene.

Monitoring and adjusting during a recession might involve activities like rebalancing your portfolio to maintain your pre-defined asset allocation, reallocating funds to defensive sectors or income-generating investments, or taking advantage of new opportunities that arise during the downturn.

Crucially, this is not panic selling, but maintaining a careful and deliberate balance of risk in accordance with the tolerance and allocation you have decided on. Staying proactive and making adjustments might also help you to feel more in control of your personal finances, even whilst you cannot control the broader economic environment.

Example: An investor notices that their portfolio has become heavily weighted toward high-risk assets during the recession due to market declines in defensive sectors. They decide to rebalance their portfolio by reallocating funds to more defensive investments.

Seeking Professional Advice

Finally, for investors who may feel overwhelmed or uncertain about navigating a recession, seeking professional advice can be a valuable resource. Financial advisors and investment professionals can provide guidance on portfolio management, asset allocation, and investment strategies tailored to individual needs and goals.

When you leverage professional expertise, you can make more informed decisions and feel confident in your approach to investing during a recession. If you want to go fast go alone, if you want to go far go together, etc.

Interior, two women working together at a table with a laptop and notepad. Investing
Looking for guidance and advice from professionals can be a great move. Photo by Amy Hirschi on Unsplash

Example: An investor is unsure about how to adjust their investment strategy during the recession and decides to consult with a financial advisor. The advisor helps them refine their asset allocation, incorporate income-generating investments, and maybe points out some emergent growth sectors for their consideration. Together, the advisor and the investor develop a plan for monitoring and adjusting the portfolio at regular intervals to maintain the agreed-upon allocation percentages and income goals.

Ok, we hope that has been helpful and has given you at least a jumping-off point to start taking control of your finances and putting a strategy in place for protecting your wealth during these volatile times.

For the final segment of the blog, we are going to go over what the data shows are the top 4 fears about investing during a recession. We will then offer some specific evidence-backed ways that you might go about dealing with those fears.

The top 4 fears people have about investing during a recession

  1. Loss of Capital: It’s obvious but it’s also a serious and legitimate concern. It’s a horrible feeling to be kept awake at night worrying about losing what you have. As the economy contracts, businesses may struggle, leading to falling stock prices and diminished portfolio values. Investors may be concerned that their investments will suffer significant losses, making it challenging to recover their initial capital.
  2. Market Volatility: It goes with the territory. Recessions are accompanied by increased market volatility, which is unsettling for investors. As a species, we tend to love consistency, stability, and predictability – all of the things that recessions are not. The constant fluctuations in asset prices can create anxiety and uncertainty, making it difficult for investors to make informed decisions and stick to their investment strategies.
  3. Job Security and Income Stability: During a recession, unemployment rates typically rise, and job security becomes a significant concern for a lot of people. Investors may be worried about their ability to maintain a stable income, making it difficult to continue investing or even cover living expenses. This fear can lead to a more conservative approach to investing, as people prioritize preserving their existing capital over seeking new investment opportunities.
  4. Timing the Market: Otherwise known as investment FOMO. A lot of investors are hesitant to invest during a recession because of concerns about timing the market. They worry about investing too early, only to see asset prices decline further, or waiting too long and missing out on potential gains as the economy begins to recover. This fear of mistiming the market can lead to indecision and inaction, preventing investors from taking advantage of investment opportunities during the downturn.

The best evidence-backed ways to address these fears

  1. Diversification: This is a drum we will keep banging. To address the fear of loss of capital, investors should diversify their portfolios across different asset classes, sectors, and geographical regions. Alternative assets can be extremely powerful for diversification and are worth looking into. Diversification helps reduce the impact of market volatility and lowers the risk of significant losses. Studies have shown that a well-diversified portfolio can lead to better risk-adjusted returns over time.
  2. Long-Term Perspective: So much of investing is an emotional/psychological skill. Investors will really benefit from maintaining a long-term perspective when investing during a recession. Focusing on your long-term investment goals and resisting the urge to make short-term, emotional decisions based on market fluctuations is shown to yield optimal results. Evidence suggests that staying invested through market cycles and avoiding market-timing strategies can lead to better long-term investment outcomes.
  3. Focus on Income-Generating Investments: Cash flow is king, and it never hurts to have a few more dollars coming into your bank account every month. To alleviate concerns about job security and income stability, you might want to have a look at some income-generating investments that provide a steady cash flow. There are lots of options, but our own MCA investment notes offer regular interest payments, which can help supplement your income during a recession. By focusing on investments with stable income streams, you can create a safety net that helps reduce financial stress.
  4. Stay Informed and Educated: Staying informed about the economy, market conditions, and investment opportunities can help investors address the fear of a prolonged economic downturn, but there is a limit here. Too much doom scrolling is not good for anyone’s health, but carefully curated, data-driven, expert insight can help. Educating yourself about investment strategies and financial planning can also bring the added bonus of helping you build a sense of confidence in your decision-making abilities. Our newsletter and blog content is expertly curated to do just that.


Investing during a recession can be challenging, but with the right approach and mindset, you can successfully navigate through these next few months and position yourself for future growth. By diversifying your portfolio, focusing on income generation, maintaining a long-term perspective, and seeking professional advice when needed, you can make the most of the opportunities presented during a recession.

We specialize in Merchant Cash Advances as a unique form of alternative asset.

If you want some more technical detail, we explain exactly what MCAs are here.

If you are interested in talking with an expert on how MCAs might help you diversify your portfolio and propel you through the recession, we would be very happy to hear from you. You can contact us via email here.

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