Best Recession-Proof ETFs Right Now (2024)

FAQs

What ETFs are best for a recession? ›

XLP, XLV, & XLU represent top recession ETFs in 2023 in my opinion. History suggests these sectors can outperform in bear markets. Healthy dividend yields and strong underlying businesses in the funds can mean ballast for a defensive portfolio.

A stock fund, either an ETF or a mutual fund, is a great way to invest during a recession. A fund tends to be less volatile than a portfolio of a few stocks, and investors are wagering less on any single stock than they are on the economy's return and a rise in market sentiment.

Buffett has long encouraged investors to opt for an S&P 500 ETF, and he famously put his money where his mouth was in 2008 when he bet that this type of investment would outperform a group of hedge funds. He won that bet by a landslide, with the S&P 500 fund earning total returns of more than 125% over 10 years.

The threat of a U.S. recession remains alive in 2023. The consensus estimate on the probability of a meaningful downturn in the American economy in the next 12 months is at 65%, according to Goldman Sachs Research. But our own economic analysis rates that probability much lower, at 35%.

When a recession hits and home values drop, it may be a buying opportunity for investment properties. If you can rent out a property to a reliable tenant, you'll have a steady stream of income while you ride out the recession. Once real estate values start to rise again, you can sell at a profit.

How to make money in a recession? ›

ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.

Orman believes the market is in for another dip, which is good news for investors. It's during dips that investors can make the most of their investment dollars by scooping up more stock. Like a mutual fund, an ETF helps diversify a portfolio and reduce risk.

Ramsey suggested that if you do want to engage in passive investing, you're better off doing it with an index mutual fund than with an ETF that tracks a market or financial index. His reasoning: Mutual funds are meant to be invested in over the long term, while ETFs trade daily.

A strong but safe investment

Through his holding company Berkshire Hathaway, Warren Buffett only owns one type of ETF: the S&P 500 ETF -- specifically, the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY).

Dividend ETFs typically track the performance of a dividend index consisting of dividend-paying stocks of companies that pay high or stable and growing dividends. Dividend ETFs and other value-oriented ETFs generally outperform growth stocks during periods of high inflation, especially in the short term.

Investing in energy is historically one of the best ways to protect against high inflation. High energy prices and the war in Ukraine have made renewable energy assets even more valuable. They benefit from higher power prices, but subsidy elements are also inflation-linked.

Investors typically flock to fixed-income investments (such as bonds) or dividend-yielding investments (such as dividend stocks) during recessions because they offer routine cash payments.

Is cash King during a recession? ›

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.

One of those exchange-traded funds, believe it or not, is the most famous ETF of all, the SPDR S&P 500 ETF Trust (SPY). Launched on Jan. 22, 1993, SPY has risen 828.3% since its inception. The other is a close cousin, the SPDR S&P Midcap 400 ETF Trust (MDY), with a 1,131% gain since its launch in 1995.

Examples of recession-proof assets include cash and cash-equivalent investments, such as 3-month U.S. Treasury bills, while examples of recession-proof industries are consumer staples, utilities, and healthcare, among others.

Obviously, stocks did horribly during the Great Depression. But bonds did well. Interest rates and bond prices are two ends of a seesaw.

Liquidity. Your biggest risk in a recession is the loss of your job, if you're still employed or semi-employed. If you need to tap your savings for living expenses, a cash account is your best bet. Stocks tend to suffer in a recession, and you don't want to have to sell stocks in a falling market.

We know that recessions vary in severity – just how bad will the 2024 recession be? We expect the 2024 recession will be a relatively mild one for US Industrial Production. However, before breathing a sigh of relief, understand that the recession will not be mild for every industry.

“However, this downturn will be relatively mild and brief, and growth should rebound in 2024 as inflation ebbs further and the Fed begins to loosen monetary policy.”

A majority of economists forecast a recession for the U.S. in 2023 – 58 percent, according to a survey from the National Association for Business Economics (NABE) released earlier this week on March 27.

How to become a millionaire in a recession? ›

For example, you'll want to avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Workers considering quitting their jobs should prepare for a longer search if they decide to find a new one later.

Michael Burry from “The Big Short” took a big bet when he shorted the American housing market. After the housing bubble crashed in 2008, he made $100 million for himself, with investors in his fund making a further $700 million.

Bonds: Investing in bonds is a popular way to hedge stock investments. Bonds provide a steady income stream, and their prices tend to move in the opposite direction of stocks. Investing in bonds can help to protect your stock investments from drops in the stock market.

Generally, money kept in a bank account is safe—even during a recession. However, depending on factors such as your balance amount and the type of account, your money might not be completely protected. For instance, Silicon Valley Bank likely had billions of dollars in uninsured deposits at the time of its collapse.

Holding period:

If you hold ETF shares for one year or less, then gain is short-term capital gain. If you hold ETF shares for more than one year, then gain is long-term capital gain.

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification. But the number of ETFs is not what you should be looking at. Rather, you should consider the number of different sources of risk you are getting with those ETFs.

ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs." To that end, Conzo says a more sophisticated investor may have additional needs.

Can you make a living off ETFs? ›

Some exchange-traded funds, or ETFs, can provide a potential income stream that may offer more diversification than investing in just one stock. Whether you're reorganizing your portfolio for your golden years or just starting to research income-oriented funds, you might want to consider this investment type.

ETFs are less volatile than stocks, so they do not give very high returns in a short period and similarly do not fall rigorously like stocks. ETFs are only for those who want slow and steady returns in the long term. For anybody expecting good returns overnight, an ETF is not a good option for you to invest in.

Dave divides his mutual fund investments equally between four types of funds: Growth and income, growth, aggressive growth, and international. This lowers your investment risk because now you're invested in hundreds of different companies all over the world in a whole bunch of different industries.

It's a common belief that investors get rich by picking individual stocks and beating the market. While that can be true, stock picking isn't the only path for investors to build wealth. Funds -- ETFs in particular -- can also make you a millionaire, even though many of them never beat the market.

Buffett bet that over 10 years, an S&P 500 index fund would outperform five actively managed hedge funds. His investment, the Vanguard 500 Index Fund Admiral Shares (NASDAQMUTFUND:VFIAX), not only won, but it trounced the competition -- earning returns of nearly 126% while the hedge funds averaged just 36%.

Key Takeaways. Berkshire Hathaway's portfolio's five largest positions are in Apple Inc. (AAPL), Bank of America Corp (BAC), Chevron (CVX), The Coca-Cola Company (KO), and American Express Company (AXP).

Utilities. Gas and electricity that people need for transport and homes are always in demand. This makes them solid stock choices for a recession-proof portfolio.

The strongest ETF for 2008 was the ProShares UltraShort Semiconductor (SSG), which ended the year up 110.9%. The other top short ETFs this year include: ProShares UltraShort Technology (REW), 95.3%

What sectors do poorly in a recession? ›

Retail, restaurants, and hotels aren't the only businesses often hurt during a recession. Automotive, oil and gas, sports, real estate, and many others see heavy declines during times like these.

The best exchange-traded funds (ETFs) by one-year trailing total returns have dramatically outperformed the broader market over the past year. The ETFs with the best one-year trailing total returns are PXE, IEO, and FCG.

Aside from analysts' consensus, QQQ is a Buy based on the technical indicators.

What are some examples of businesses that thrive in recession? Due to the elasticity of demand, recession-proof industries are usually in essential services, like health care, senior services, grocery stores, and maintenance, such as plumbing and electrical.

The largest First Trust ETF is the First Trust Value Line Dividend Index Fund FVD with $11.93B in assets. In the last trailing year, the best-performing First Trust ETF was AIRR at 22.15%. The most recent ETF launched in the First Trust space was the FT Cboe Vest U.S. Equity Moderate Buffer ETF - May GMAY on 05/19/23.

What is the largest ETF launch in history? ›

The record-breaking fund is the Xtrackers MSCI USA Climate Action Equity ETF (ticker USCA), which debuted Tuesday with $2 billion in assets — leapfrogging the $1.35 billion launch of the Goldman Sachs MarketBeta US 1000 Equity ETF ( GUSA) to take the top spot.