If there is a 2023 recession coming, where should I invest?

As talk of a recession hangs over our economies, many people are worried about the possibility of finding themselves out of work. During a recession, the unemployment rates tend to increase as companies have to cut back on staff due to decreased consumer spending. When a company makes less money, its shares also tend to go down. This leaves employees and investors wondering if any recession-resistant industries exist.

Many analysts believe that a recession is a real possibility for 2023, but they can’t seem to agree on where it will hit or when. The National Bureau of Economic Research makes the call on when we’re officially in a recession, which has always been defined as a decline in GDP for two consecutive quarters. Unfortunately, GDP is a lagging indicator and so far, has not been negative, so the effects of an official recession could in theory be felt long before the announcement of one.

Investors are increasingly concerned about what assets to hold during an economic downturn because many industries don’t fare well when times are tough. Therefore, we’re going to look at industries that are traditionally considered recession-proof so that you can assess how to adjust your portfolio before we’re officially in a recession.

In a Recession Cash Is King

Broadly, it refers to the importance of ample cash flow and liquidity for a business, household, or portfolio’s financial health. Keeping cash available, especially during a crisis, adds flexibility to any wallet.

For investors, “cash is king during a recession” sums up the advantages of keeping liquid assets on hand when the economy turns south. From weathering rough markets to going all-in on discounted investments, investors can leverage cash to improve their financial positions.

What Are Recession-Proof Industries?

In a recession, we look for companies with consistent cash flow limited volatility, and a history of strong business performance regardless of market conditions. During the last few years, we saw how some businesses could thrive even during complete global uncertainty. Some industries don’t get impacted as severely by a recession. I want to highlight these industries based on industry research:

Healthcare

Healthcare will always be a priority because we can’t ignore the realities of falling ill, and we’ll always have to take care of ourselves and our loved ones. We are still going to see our doctor and purchase basic medications in a recession. Healthcare ranges from medical services, long-term care, and supported living to essential over-the-counter products you pick up at your local pharmacy.

Basic Consumer Goods

Certain products are always in demand, due to their necessity for survival. Basic consumer goods will always be needed since our needs won’t suddenly vanish during a recession. For example, we will still have to shave and take care of basic personal hygiene no matter what happens in the economy.

A recession will just shift consumer spending habits. We may have less money to put towards going out for dinner, but we won’t stop eating in general. So instead of going out for dinner, families may find themselves cooking at home more often or looking for deals in the grocery store.

Utilities

Regardless of how the economy performs, we’re going to need utilities. We must continue paying for electricity, gas, water, and waste services. We will keep the heat on and have the lights on regardless of how rough the economy is.

Discount Retailers

Everyone loves a good deal, especially during a recession. Therefore, companies that offer cost-conscious retail perform better during tough economic times. As people continue to spend money on necessities, discount retailers will likely see sales increase as more shoppers find themselves on a tighter budget.

Transportation

Transportation will still be needed on two fronts: moving people around their daily lives and transporting consumer goods. While people may have less money for luxury travel, they’ll still have to get to work. This means that anything involving trucking or moving passengers should stay stable.

Infrastructure

Traditionally staid and stable, infrastructure investing has been shaken up by revolutions in energy, mobility, and digitization.

As the infrastructure investment sector matured over the last few decades, the asset class branched into funds in three categories: super core, core, and core-plus.

Super-core investments  – are the lowest risk and lowest return. Traditionally, the super core has included assets such as regulated utilities — which have regulated tariffs and little volume variation — and availability-based public-private partnership projects.

Core investments  – are relatively low risk and low return. Traditional assets in this category have included non-regulated oil pipelines and demand-risk transport-related assets such as toll roads, highways, and airports. Some assets that were of little interest to infrastructure investors a few years back, such as fiber-optic technology and telecom towers, are now considered core infrastructure.

Core-plus investments  – carry more risks and can offer returns approaching those of private-equity investments, at 15 percent or more. Such assets mimic the characteristics of traditional infrastructure investments but are not universally considered part of the asset class. Fish transport, holiday villages, and crematoria are examples of core-plus assets.