Recession resistance is a term that describes entities that will not get a significant effect from the recession. The term can apply to companies, products, jobs, and even the entire industry.
The example of recession resistance products is gasoline and basic food. People will still purchase these products even during the recession.
How does the Recession Resistance Work?
Recession is an economic downtown. This condition is an essential factor that should be considered in investing. Most investors choose the asset that will perform well, even during hard economic times in their portfolio.
The industries that are considered recession resistance are consumer staples, discount retailers, alcoholic beverage manufacturers, and funeral services.
Besides, these recession-resistant industries also have a tendency to have strong balance sheets. Especially, if those companies have a little amount of debt and healthy cash flows. That way, the companies will maintain their operations and further take the benefits from a depressed market. Consequently, they can offer a cheap new investment.
On the contrary, companies with a huge amount of debt may fall behind. That happens since the growing shares of those companies will be absorbed by their debt payments.
The Alternative Asset during Recession
The other good place to put your capital during the tough economy is dividend-paying stocks. The companies paying dividends to their shareholders are usually in a mature industry. Besides, the dividends can also keep your return when the stock prices fall.
If you want to choose these companies, you have to find the ones that maintained or even expended their dividend. Besides, try to also find companies with large resources to keep paying the dividend.
Other than that, a fixed income instrument, like government or corporate bonds also perform relatively well during a recession. That occurs wince investors usually turn into a more conservative and predictable investment in that period.
The interest rates that tend to fall in that period, also become the factor that increases the value of the existing bond.
