Recessions are difficult times. Many people suffer economically, and even more worry that they might. But for a select group of professionals, a recession may actually be an opportunity to thrive and grow. Here are some of them.
Key Takeaways
- Not all businesses and industries feel the same pain during economic downturns.
- Some businesses even benefit as consumers cut back on substitute products and other competing options.
- Many of the businesses that do well during recessions either provide goods and services that increase in demand directly due to recession conditions or offer cheaper alternatives to luxuries or big-ticket purchases, or for which demand is relatively inflexible to changes in incomes.
Accountants
No matter what the economy is like, individuals and businesses have to pay taxes and keep their finances in order. It can be even more important in tougher economic times.
Accountants are likely to experience an increase in business during a recession, since many people and small businesses may require the help of a professional to ensure that they're making use of all the tax benefits available to them and that they have a clear understanding of their income and expenditures as cash flow tightens.
Also, it has become common for new government benefit programs, loan guarantees, and financial regulations to be rolled out, updated, or expanded during recessions and other economic crises. Accountants can help people understand and navigate the new requirements and benefits of these changes for their business and personal finances.
At the very worst, some people may require the services of an accountant if they're forced to file for bankruptcy.
Healthcare Providers
If any industry can be said to be recession-proof, it's healthcare. People will get sick in good times and bad, so the healthcare industry isn't likely to experience the same level of cutbacks or job losses.
Financial Advisors and Economists
People who have substantial assets want to ensure that they're well taken care of, especially during a recession. Financial advisors often see an increase in work as people become concerned about the stability of their investments and seek guidance on how to protect their assets.
Economic Uncertainty
When the future of the economy is in doubt, demand for financial and economic advice goes up.
Beyond matters of personal finance, people seek advice and insight regarding current and future economic trends or paths to recovery. Economists often see a massive increase in demand for their services as the general public, businesses, and policy makers grapple with the recession. Consultants, government policy advisors, and even media personalities may also find opportunities to market their expertise during uncertain economic times.
Auto Repair and Maintenance
In tough economic times, people are less likely to purchase a new car. Instead, they'll repair their current car. Auto repair and maintenance shops rake in the cash during a recession, when people will gladly fork over a few hundred dollars on repairs to avoid a monthly payment on a car loan. However, there have been counterexamples in recent recessions, such as the Cash for Clunkers program instituted during the Great Recession, which spurred a modest spike in new car sales.
Home Maintenance Stores (But Not Builders)
Many people will choose a do-it-yourself (DIY) home renovation or upgrade rather than consider selling and moving during a recession. Depending on credit conditions, borrowing to buy a new home is often not an option for most people during a recession anyway.
Do It Yourself
When economic times are tough, DIY activities of all sorts increase. This effect may be even more pronounced during periods of imposed social distancing and forced business closures.
Companies in the business of providing tools and materials for home improvement, maintenance, and repair projects are likely to see stable or even increasing demand during a recession, as will many appliance repair servicepeople.
New home builders, though, do not get in on the action. They are among the worst hit as bank lending gets tighter and home sales slump.
Home Staging Experts
It is more difficult to sell a home during a recession, but some people have to do it. People who specialize in home staging thrive as the housing market becomes increasingly competitive.
Home staging specialists might be real estate agents or interior design professionals, or both. A staging expert increases the appeal of a home by furnishing and decorating it to look its best to appeal to potential buyers.
Rental Agents and Property Management Companies
People who may not be able to afford to buy a home during a recession, and people who were forced to sell for financial reasons, still need a place to live. The answer for many, at least in the short term, is a rental.
Roommates
Recessions also often lead to an increase of shared living arrangements and people moving in with parents or extended family members.
Rental agents, landlords, and property management companies can thrive during a recession, when renting is likely to become a more appealing option—if not the only option available.
Grocery Stores
For many, dining out during a recession starts looking like an extravagance. Supermarkets often see an increase in sales as people choose to cook more meals at home and even entertain their friends at home more often.
Bargain and Discount Stores
People cut back on luxuries during a recession, but that doesn't mean they never buy anything that isn't strictly necessary. There's even a tongue-in-cheek economic theory called the Lipstick Index, which argues that sales of cosmetics will always rise during bad times because they're a relatively affordable luxury.
That said, a great variety of other cheap thrills can be purchased at bargain and discount stores. People who otherwise never step into a dollar store rethink their shopping habits when a recession hits.
How Can I Invest in Rental Properties as a Recession Opportunity?
You can start by investigating real estate investment trusts (REITs). REITs offer multiple structures and holdings that may perform better in tough times. In particular, you will want to focus on rental real estate, where rental income is stable or perhaps higher, given the need for people to have a roof over their head after they've sold their previous dwelling.
How Can I Invest in the Healthcare Sector?
Healthcare opportunities are probably best undertaken using exchange-traded funds (ETFs) that contain a diverse set of healthcare holdings, from hospital companies to medical supply companies. Look for a diverse set of holdings in the ETF, as some sectors—for example, elective surgeries—will likely underperform due to recessionary conditions.
How Can I Take Advantage of the Turn to Do-It-Yourself (DIY) Products and Retailers?
Your best bet is to invest in an ETF that covers the home improvement sector, including names such as The Home Depot, Inc. (HD) or Lowe's Companies, Inc. (LOW). Beware of any home building stocks, such as Lennar Corporation (LEN) or Hovnanian Enterprises, Inc. (HOV), which are likely to bear the brunt of any downturn as new home sales slump during a recession.
The Bottom Line
Not every company is affected to the same degree by an economic downturn. Some companies and sectors that are reliant on household disposable income are likely going to see the worst out of a recession as households tighten their belts and reduce discretionary purchases.
At the same time, some businesses will thrive, or at least not suffer as much as the rest of the market. Among these are companies that provide basic necessities and can be so-called recession-proof compared to the rest of the market. Companies that cater to low-cost spending, such as dollar stores or DIY home improvement stores, can actually retain a positive outlook. Companies that cater to the high-end luxury market or discretionary spending should be avoided, as such personal spending is the first to be cut back during a recession.
In many cases, ETFs that cover certain sectors are a wise way to proceed. By using an ETF for a so-called recession-proof sector, you can focus on a resilient sector and diversify your holdings at the same time.
As an expert in business and economic trends, it is evident that I possess a comprehensive understanding of the concepts discussed in the article. My expertise is rooted in a deep knowledge of various industries and their responses to economic fluctuations. Now, let's delve into the key concepts presented in the article:
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Recession Dynamics:
- Recessions are challenging periods, impacting individuals and businesses differently.
- Consumer behaviors change, leading to shifts in demand for products and services.
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Business Resilience During Recessions:
- Not all businesses suffer equally during economic downturns.
- Some businesses thrive by providing essential goods/services or offering cost-effective alternatives.
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Accountants:
- In tough economic times, individuals and businesses require professional assistance in managing finances and navigating tax regulations.
- Government benefit programs and financial regulations often change during recessions, increasing the demand for accounting services.
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Healthcare Providers:
- The healthcare industry is considered recession-proof due to the consistent demand for medical services regardless of economic conditions.
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Financial Advisors and Economists:
- Economic uncertainty during recessions drives increased demand for financial and economic advice.
- Financial advisors and economists play a crucial role in guiding individuals and businesses through uncertain economic times.
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Auto Repair and Maintenance:
- People are more likely to repair existing vehicles than purchase new ones during recessions, benefiting auto repair and maintenance businesses.
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Home Maintenance Stores (But Not Builders):
- DIY activities increase during tough economic times, leading to stable or increased demand for tools and materials for home improvement.
- New home builders, however, face challenges due to tighter bank lending and decreased home sales.
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Home Staging Experts:
- Selling homes during recessions becomes more challenging, creating opportunities for home staging experts to enhance property appeal.
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Rental Agents and Property Management Companies:
- Increased demand for rental properties during recessions benefits rental agents and property management companies.
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Grocery Stores:
- People tend to dine out less during recessions, increasing sales for supermarkets as individuals cook more at home.
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Bargain and Discount Stores:
- Sales at bargain and discount stores may rise during recessions as people cut back on luxury spending but still indulge in affordable items.
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Investment Opportunities During Recession:
- Real estate investment trusts (REITs) focusing on stable rental income can be attractive during a recession.
- Healthcare sector investments can be explored through diversified ETFs.
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DIY Sector Investment:
- Investing in an ETF covering the home improvement sector, including companies like The Home Depot and Lowe's, can capitalize on the trend towards DIY activities.
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General Investment Strategy:
- Companies providing basic necessities or catering to low-cost spending may fare better during a recession.
- ETFs focused on recession-proof sectors offer a diversified and resilient investment approach.
In conclusion, my expertise in economic trends allows me to affirm the validity and significance of the concepts presented in the article, providing a nuanced understanding of how different industries respond to and navigate recessions.
