The UK economy experienced a technical recession in the third and fourth quarters of 2023, which saw its GDP contracting by 0.3% by the end of its fourth quarter.

As an investor, you may be wondering how to navigate these uncertain times. The key is to take a long-term perspective and invest in assets that historically perform well during a decline in economic growth.

In this guide, we’ll explore what to invest in during a recession in the UK. The goal is to build a diversified portfolio that can weather volatility. With the right strategy, you can not only survive but thrive financially during economic recessions.

Recession Investing: Should You Invest During Economic Downturns?

Yes, recessions can be an opportune time for investment. Property values and stock prices often decline during recessions, meaning your money goes further. However, you should choose investments wisely and consider partnering with an expert.

Invest in the right asset class.

Not every asset type qualifies as a recession investment. When investing in property, for example, certain types of properties tend to withstand recessions better.

Residential property developments, in particular, remain in demand even during downturns. People will always need places to live, so residential rentals are a stable option. Commercial properties with long leases and high-quality tenants are also good recession-resistant investments.

We recommend avoiding speculative commercial sectors like retail, as tenants in these properties may struggle to pay rent.

Work with a professional.

Navigating recessions and choosing suitable investments is challenging for novice and experienced investors alike. If you’re looking to invest in real estate, consider seeking advice from a property investment expert like Baron & Cabot. We have the knowledge and experience to guide you through economic downturns and help build a robust property investment portfolio.

While recessions create uncertainty, they also breed opportunity. With the right strategy and guidance, investing during economic downturns can lead to substantial returns as markets recover. Although we have briefly touched on property investment, there are many more asset classes and investments that are suitable for recession — continue reading to learn more.

5 Best Investments During A Recession

If you’re looking to explore passive income investments that make your money work for you, even during a recession, then consider investing in the following:

1. Real estate/property
2. Stocks
3. Bonds
4. Gold
5. Small businesses

1. Real Estate/Property

Based on past performance, property is one of the best investments during an economic downturn. House prices often decrease in value during a recession, allowing investors to purchase at a discount. Once the economy recovers, property values historically rise again, allowing investors to sell at a profit.

The buy-low, sell-high strategy works well for real estate. Our research at Baron & Cabot shows the average UK property values increased by over 40% in the 10 years following the 2008 financial crisis. In essence, if you’re looking for how to make money in a recession in the UK, property is a top option!

2. Stocks

When stock markets decline significantly during a recession, it can be an optimal time to invest in this asset class. As Warren Buffett quipped, “Be fearful when others are greedy and greedy when others are fearful.”

Consumer-discretionary stocks with stable business models are good options in comparison to highly speculative or cyclical stocks. Businesses not tied to the economic cycle, like healthcare, consumer staples, and utility sectors, tend to be more resilient during downturns. Growth stocks also become more attractively valued.

For example, between 2009—after the financial crisis—and 2018, the FTSE 100 has returned a 7.38% gain annually.

Tip: Check out our guide to know whether now is a good time to invest in stocks.

3. Bonds

Bonds, especially investment-grade corporate bonds, are a popular investment during recessions. The reason for this is that as interest rates decrease, bond prices increase.

Central banks’ bonds provide fixed income and low volatility. They are essentially an IOU (I owe you) from the bond issuer, so they focus on high-quality investment-grade bonds.

Longer-duration bonds tend to provide higher returns. While the UK 10-year British government bonds fell to 3.44% during the 2008 financial crisis, it is still a relatively safe way to hedge your portfolio.

4. Gold

Gold is a hedge against inflation and market turmoil. Its price often rises during economic and geopolitical instability. For example, gold returned over 25% in the 18 months following the 2008 stock market crash.

Gold also provides portfolio diversification due to its low correlation to traditional assets like stocks and bonds. You can invest in gold bullion, gold ETFs, gold mining stocks, or gold futures.

5. Small Businesses

While many small businesses struggle during recessions, others thrive. Focus on businesses providing essential products and services, as well as innovative companies able to gain market share from weak competitors.

Small business stocks and private equity investments can generate high returns coming out of a recession. Many successful companies like Microsoft, FedEx, and Starbucks launched or grew rapidly during economic downturns. With high risk comes high reward.

Overall, while you have many options for investment during a recession, it’s always essential to make an informed decision by working with an expert before making a decision. Also, while it’s possible to profit from any asset class and investment options we’ve covered, real estate has historically performed better, with over 75% post-recession gain — a stark difference from bonds and stocks’ volatile markets. We’ll explore more about property investment in the next section, covering its opportunities and risks.

Investing In Real Estate During Recession: Opportunities And Risks

While recessions can negatively impact the housing market, they also present opportunities for investors to acquire distressed properties at lower prices.

Opportunities in Real Estate Investing

During a recession, property owners face difficulties repaying mortgages, triggering foreclosures and short sales increases. This results in a rise of distressed properties in the market, allowing investors to purchase properties at significantly lower prices, which can be up to 20% below market value. Investors can then profit from these properties once the economy and housing market recover.

Working with property investment experts can help identify these opportunities. At Baron & Cabot, we use advanced analytics to determine properties with strong potential for price appreciation and healthy rental yields post-recession. Our local knowledge and expertise ensure that the properties recommended match investors’ goals. You can reach out to us now to learn more.

Risks to Consider

While the prospect of buying cheap properties is appealing, real estate investing during recessions also poses risks. Economic uncertainty makes it difficult to determine how long a recession may last and the timescale for market recovery. This could impact your ability to sell or rent the property for a profit.

Financing property purchases may also prove challenging as lenders tighten their lending criteria during downturns. Stricter regulations on mortgages reduce the number of people who can obtain them, impacting property sales and demand for rentals.

To mitigate risks, work with property investment experts and conduct extensive due diligence on any property before purchasing to determine its potential and ensure it aligns with your investment goals.

With careful research and the right guidance, real estate investing during recessions can be extremely rewarding. However, if you’re more business savvy, you might consider starting up a small-scale business or investing in a startup in addition to investing in property. Let’s explore the options available for small businesses and startup investment during a recession in the next section.

Startups And Small Businesses: Smart Bets In A Recessionary Economy

The United Kingdom’s small and medium-sized enterprises make up an astounding 99.9% of businesses and account for 61% of all private-sector employment. While talks of an economic downturn can negatively impact confidence, certain industries—such as technology, healthcare, and essential goods and services—continue to thrive during recessions. Focusing investment efforts in these resilient sectors can yield solid returns.