Recession-resistant stocks and ETFs can help safeguard your portfolio against (or even profit from) economic declines. They often share similar traits, like serving essential needs, having a healthy balance sheet or paying regular dividends.

What makes a stock or ETF recession-resistant?

In every recession, certain stocks and ETFs perform better than average. Below, we explore common factors that can make stocks and ETFs recession-resistant.

They’re in defensive or essential industries

Companies with in-demand goods and services typically perform better during recessions. Often, these in-demand goodies are sold by companies in defensive or essential industries, like:

• Consumer staples (supermarkets, membership warehouses)
• Healthcare (hospitals, pharmaceuticals)
• Utilities (energy, water)
• Logistics and shipping (transportation)

That said, since many defensive industries command just a small portion of consumer spending, they offer limited recession-proofing.

They fit consumer budgets

People don’t stop spending during recession, but they often shift where they spend.

Instead of buying name-brand products or going to name-brand restaurants, you buy store-brand pasta and McDonald’s. Rather than paying a professional, you might learn to do basic mechanical and home improvement work yourself.

Companies that serve these “budget” niches (everything from McDonald’s to Home Depot) may see greater stock price growth during recessions.

They sell high-value items

Some companies sell products that people can go without…but they won’t.

Think “Sin Stocks” like alcohol, tobacco, gambling or marijuana businesses. Items that are some combination of addictive and stress-relieving may see steady or even increased sales during tough times.

And by the way, Q.ai offers our very own Guilty Pleasures Kit, so you can invest in the addictions, vices and – let’s face it – fun that make you feel good.

They pay regular dividends

In addition to recession-resistant business models, some stocks enjoy defensive abilities thanks to their dividends.

High-paying dividend stocks and “dividend aristocrats” help investors weather recessions by paying income to reduce portfolio losses.

These stocks may also be more fiscally conservative with consistent cash flows, which may be desirable compared to aggressive alternatives.

They offer recession-specific benefits 

Some companies perform better in specific recessions because they fit the prevailing needs. For instance, tech stocks boomed during the April 2020 recession amid the emerging work-from-home economy. In later months, streaming entertainment services, video games and home exercise guru Peloton enjoyed their own giant gains, while they’re struggling in the current choppy economic climate.

Overall: they’d make a suitable long-term investment

There’s a lot of overlap between companies that perform well during recessions and companies that fit long-term strategies. That’s why long-term investors shouldn’t fret too much about recession-driven downdrafts. Most of the time, waiting it out (and picking up a few quality discounted stocks) is the right move when the economy sours.

Guard against recession with AI at your side

There’s no such thing as a fully recession-proof stock. Some market sectors, like consumer staples and healthcare, have historically performed better than others during recession. But ultimately, the best move is to diversify your portfolio to capture fewer losses and more profits.

Q.ai offers tons of unique diversification opportunities with our one-of-a-kind Investment Kits, all backed by our very own AI. Start with our Recession Resistance Kit, which is there to see you through tough times. And don’t forget to diversify into other niches, like Clean Tech or Smarter Beta, too.