How to invest during a recession — crisis strategy
Recession is a time of fear, but also opportunity. Check how to invest during a crisis, what to buy, what to avoid and how to protect your portfolio in difficult times.
10 min czytaniaWhat is a recession?
A recession is a decline in GDP for at least two consecutive quarters. In practice, this means: companies lay off workers, consumers spend less, and financial markets fall. For investors, it's a time of fear — but historically also a time of greatest opportunities.
Why is recession an opportunity?
Warren Buffett said: "Be greedy when others are fearful." This isn't an empty slogan. Historical data confirms that investors who bought stocks during recessions achieved the best long-term results.
Examples from history:
- Those who bought S&P 500 in March 2009 (financial crisis bottom) made +400% by 2020
- Those who bought in March 2020 (COVID crash) made +100% in 2 years
The problem is that during a crisis, nobody knows it's "the bottom." That's why strategy is crucial, not timing.
What to buy during a recession?
1. Global equity ETFs
Recession lowers prices, and regular buying (DCA — Dollar Cost Averaging) allows accumulating units at lower prices. MSCI World or S&P 500 ETFs are the foundation.
2. Government bonds
Polish anti-inflation bonds (EDO, COI) protect capital. In recession, interest rates often fall, which raises prices of fixed-rate bonds.
3. Defensive companies
Companies from sectors: healthcare, food, utilities (energy, water). People don't stop eating and seeking medical care during crises.
4. Cash
Paradoxically, cash in recession is a weapon. It provides ability to buy at low prices when others must sell.
What to avoid?
- Panic selling — this is the worst thing you can do. You sell cheap and buy expensive when fear passes
- Leveraged instruments — CFD contracts, options, crypto with leverage — in recession they can zero out your account
- Speculation on "bottom" — nobody knows when the market will reach minimum. Regular buying is safer than guessing
- Investing on credit — never invest borrowed money, especially in crisis
Recession strategy — step by step
1. Make sure you have an emergency fund
Before you start "buying opportunities," make sure you have 6 months of expenses in cash. Recession is when you might lose your job.
2. Continue regular investing
If you invest 1,000 PLN monthly in ETFs — don't stop. Market declines mean you're buying more units for the same amount.
3. Rebalance portfolio
If stocks have fallen and now constitute 40% of portfolio instead of 60%, it's time to buy more — restore target allocation.
4. Don't check your portfolio daily
Seriously. Daily logging into brokerage account during declines is a recipe for impulsive decisions. Set up automatic orders and check once a month.
5. Think in decades, not quarters
Recessions last on average 11 months. Bull markets — average 2.7 years. Time is on your side if you don't sell in panic.
Recession and All-Weather portfolio
Ray Dalio's All-Weather portfolio is designed to perform in any economic environment — including recession. It combines stocks, bonds, gold and commodities in proportions that minimize volatility.
If you don't want to actively manage your portfolio during crisis — All-Weather is a "set and forget" option.
How Freenance can help
Freenance shows you how recession affects your portfolio in real time. You see changes in asset values, Financial Freedom Runway and savings rate — without emotions, based on hard data.
In crisis, the most important thing is sticking to your plan. Freenance helps you not lose it.
Want full control over your finances?
Try Freenance for free