If you're investing and pondering which assets to sidestep during a recession, we’ve got insights to share. Investors have been understandably anxious over recent years. Heightened recession worries are compounded by the recent banking events: First Republic's acquisition by JPMorgan Chase and the drastic decline of PacWest’s shares by over 72% in 2023, with rumors of a potential sale. Additionally, geopolitical tensions, oil production cuts, and layoffs in tech sectors add to the uncertainty. In these times, maintaining savings and investment strategies for future challenges is increasingly critical. This leads many to ask, “Which investments should I avoid during a recession?”

This question is particularly urgent now, as inflation continues to disproportionately affect women's financial stability, especially their retirement contributions.

Statistics reveal that over 25% of women have reduced retirement savings to cope with inflation in recent years, and 13% have paused their savings altogether, based on findings from the TIAA Institute and the Global Financial Literacy Excellence Center.

“A recession combined with a market slump poses significant risks for those nearing or recently entering retirement,” warns William Thompson, a certified financial planner. “These individuals must depend on their portfolios for income rather than a paycheck, making strategic investment planning crucial to avoid severe declines in living standards and rapid asset depletion.”

During downturns, it’s vital to continue investing. “Many investors who faced substantial losses after the 2008 crisis never returned,” he adds. “This trauma response could lead to missing out on hundreds of thousands of dollars in opportunities.”

Ultimately, staying invested is more important than trying to time the market. The best strategy for wise investors is to maintain their position through various market conditions. (Discover strategies for remaining calm during market fluctuations via the InvestingFixx investing club!)

Notably, some sectors perform better in downturns, prompting us to highlight investments to avoid during a recession. Now could be a good moment to review your portfolio allocations to ensure you’re not overly concentrated in vulnerable areas. Here’s a look at several sectors to tread carefully with during economic downturns.

Global and Emerging Markets

Thompson notes a vital lesson from the 2008 recession: “International developed and emerging markets were the poorest performing asset classes.” If you’re likely to lose sleep over seeing losses in these areas, you may want to limit your exposure.

However, it doesn’t mean you should divert all your funds from them, as these markets can rebound swiftly. “Neglecting them could harm your portfolio diversification and forfeit potential opportunities,” he advises. Following the 2008 downturn, emerging markets became the top-performing asset class, with developed markets following closely behind. Keeping a long-term perspective on investments is essential, even in challenging times.

Travel and Hospitality

“The travel and hospitality sector often suffers during recessions,” explains Thompson. When Americans face job insecurity, discretionary spending tends to plummet. Luxuries like vacations and fine dining are typically among the first expenses to be cut.

Investors in upscale hotel chains or gourmet restaurants should be cautious, as families might opt for budget accommodations instead of luxury resorts. Dining out may still happen, but many might choose affordable local eateries over high-end chains. During economic hardships, air travel also declines as many prefer road trips to long-distance journeys.

One notable exception? Companies like Disney and Universal (part of Comcast). While theme park visits may drop, their diversified portfolios often yield higher profits from home entertainment and other ventures. Thus, investing in Disney remains a solid choice. As reported: “Florida needs Disney more than Disney needs Florida.”

Car Industry

“The automotive industry also faces challenges during recessions,” Thompson adds. “Consumers often prioritize repairs and keeping older vehicles longer instead of purchasing new ones.”

Families may gravitate toward sedans over SUVs and choose more cost-effective, fuel-efficient options like hybrids or electric cars. Therefore, sharp investors might want to monitor the largest producers of fuel-efficient vehicles, including Toyota, General Motors, Tesla, and Ford.

Large Retail Chains

Retail is often among the sectors hardest hit by recessions, and no one moves more products than the giant online retailer selling a vast array of goods. When consumers start to tighten their belts, those impulse buys we often make will be among the first to go. It’s also noteworthy that Qurate Retail, the parent company of QVC and HSN, typically sees sales declines during economic downturns.

The silver lining for all investors is that historically, markets often begin to recover before a recession concludes, Thompson points out. U.S. markets usually reach their lowest point approximately five to six months prior to the recession's end. For instance, during the 2008 financial crisis, the S&P 500 hit its low in March 2009, three months before the recession was officially over.

While we can’t prevent a recession or fully shield our investments from inflation, we can prepare our portfolios to weather the storm. Continuing to invest during turbulent times is crucial for securing a brighter financial future. You've got this.