During a recession, investors tend to shift their focus to assets that are considered "defensive" or "safe havens." These are assets that are less likely to be impacted by economic downturns and provide a hedge against market volatility.
This article is the continued series of articles on recession :
One of the most popular defensive assets during a recession is gold. According to data from the World Gold Council, during the 2008 financial crisis, the price of gold increased by over 25% in a single year. Gold is considered a safe haven because it has historically held its value during economic crises, and is not directly impacted by the performance of other assets.
Cash is another defensive asset that tends to perform well during a recession. During times of market volatility, investors may prefer to hold cash rather than invest in riskier assets. This is because cash provides liquidity and can be used to take advantage of investment opportunities as they arise.
Bonds are also considered defensive assets, particularly high-quality government bonds. During a recession, central banks may lower interest rates, which can cause bond prices to rise. Additionally, bonds provide a fixed income stream, which can be attractive to investors during times of economic uncertainty.
Real estate is another asset class that could perform well during a recession, particularly in the rental market. According to a report by Zillow, during the 2008 recession, rental prices increased in many US cities as more people opted to rent rather than buy homes. This is because people may be hesitant to make large purchases during times of economic uncertainty, leading to increased demand for rental properties.
High-quality stocks, particularly those of companies with stable earnings and dividends, could also perform well during a recession. According to a report by J.P. Morgan, during the 2008 recession, the S&P 500 dividend yield increased by 70%, indicating that many companies continued to pay dividends even during tough economic times.
In conclusion, during a recession, investors tend to focus on defensive assets such as gold, cash, and bonds. These assets are considered safe havens because they are less likely to be impacted by economic downturns and provide a hedge against market volatility. Real estate and high-quality stocks could also perform well during a recession, depending on the specific market conditions. By diversifying their portfolios with these defensive assets, investors can potentially mitigate the impact of market volatility and economic downturns.
