Do you want to invest in an asset that is immune to economic downturn? If YES, here are 20 best recession proof investments and asset classes for 2020.

No matter how we see it, recessions are a crucial part of the economic cycle. Aside from a contracting economy, recessions produce results and corrections, market crashes and bear markets. It can also establish some of the best opportunities in the investments market. Effectively investing during a recession can result in smaller losses, leaving more capital to reinvest at lower prices.

Recession simply means that the total amount of economic growth is falling. Some sectors may continue to grow, while others contract – but the overall level of activity falls during a recession. Consumers can become over indebted, company valuations can be too high, or available capital can run out.

20 Best Recession Proof Assets & Investments for 2020

1. Federal Bond Funds
Many types of bond funds are particularly popular with risk-averse investors. Investors face no credit risk especially since the government has the ability to levy taxes and print money, which eliminates the risk of default and provides principal protection. Bond funds investing in mortgages securitized by the Government National Mortgage Association (Ginnie Mae) are also backed by the full faith and credit of the U.S. government.

Most of the mortgages (typically, mortgages for first-time homebuyers and low-income borrowers) securitized as Ginnie Mae mortgage-backed securities (MBS) are those guaranteed by the Federal Housing Administration (FHA), Veterans Affairs or other federal housing agencies.

2. Health Care Stocks & Funds
Irrespective of the state of the economy, people still get sick and injured. Diabetes doesn’t go away at a specific GDP contraction rate. Agreeably, if you lose your job, you’ll postpone that elective surgery you’ve been considering. But by and large, the medical industry continues chugging along in good, bad, or indifferent economies.

Under the umbrella of the health care industry fall hospitals, day surgery centres, pharmaceutical companies, medical device companies, and companies that produce health care products such as bandages. You can pick individual stocks, or you can diversify by investing in an index fund through a broker like Ally Invest.

3. Municipal Bond Funds
This is issued by state and local governments; these investments leverage local taxing authority to provide a high degree of safety and security to investors. They carry a greater risk than funds that invest in securities backed by the federal government but are still considered to be relatively safe.

4. Utility Stocks & Funds
People still need electricity, even when the economy shrinks. Indeed, when money is tight, you look for ways to lower your heating bill. But while patients have the option not to pay their medical bills, if you don’t pay your utility bill, you lose your electricity and gas.

That’s why utilities are among the last bills people default on when they’re low on cash. Another benefit of utility stocks is their high dividends, as one glance at Sure Dividend’s list of high dividend stocks makes clear. These tend to be steady income-producing stocks, rather than erratic growth-oriented stocks. They’re steady to the point of being downright boring.

5. ESG Strategies
A growing body of evidence suggests environmental, social and governance factors affect the long-term value of a company. ESG investing is rapidly becoming a viable compliment to factor investing. Reports have it that management teams that take ESG issues seriously remove risk from their companies.

Since investing during a recession entails moving to assets with lower risk, these companies tend to outperform. Thus, stocks with high ESG scores may prove to be more recession-proof investments.

6. Military & Defence Contractors
No matter what you think about the military industrial complex, it’s the ultimate survivor. Crime and terrorism rates increase during recessions and there are constant needs to ensure peace and safety. Other types of subsidies come and go with the politicians in office, but the military industrial complex is a machine that rarely slows.

The money keeps flowing, never mind that it’s the private contractors who see the profits and benefits, not necessarily military service members. And when the economy tumbles, the government tends to spend more money, not less. Never underestimate the U.S. government’s desire to spend money, especially on the military industrial complex.

7. Cash
You should always have some cash in savings accounts. There are several reasons for this, especially in year 2020. Cash will still generate a small return as compound interest accumulates. It will also lower the volatility of your portfolio, giving you peace of mind and preventing irrational decision making. Most importantly, having cash available will allow you to pick up bargains when the correction slows.

8. Low-Cost Retailers & Chains
Although people may stop buying shoes at Gucci stores during recessions, but they don’t stop buying clothes at Wal-Mart. In fact, they suddenly start flocking to discount retailers for more of their needs.

For instance, during the Great Recession, Wal-Mart’s sales drove up, not down; they rose by 11% from late 2007 to late 2010. Investors noticed too, and their stock returned 21% including dividends. The same goes for restaurants. Middle-Class Mike might stop eating at steakhouses when the economy tightens, but he won’t shun McDonald’s.

See it from a habit perspective: It’s easier to change where you shop or eat than it is to stop shopping or eating out entirely. To go from eating half your dinners out to cooking every single night takes an enormous shift in behaviour. But eating at Red Lobster instead of the upscale seafood restaurant across the street? That’s an easy migration.

9. Taxable Corporate Funds
Taxable bond funds issued by corporations are also a consideration in 2020. They provide higher yields than government-backed issues but carry significantly more risk. Choosing a fund that invests in high-quality bond issues will help lower your risk. While corporate bond funds are riskier than funds that only hold government-issued bonds, they are still less risky than stock funds.

10. Tobacco & Low-Cost Alcohol Stocks
Note that tobacco and alcohol are discretionary expenses, and discretionary expenses are meant to theoretically plummet during recessions. If people can barely afford their rent and utilities, how can they possibly go out and spend money on tobacco and booze?

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