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Recession Proof Industries That Can Protect Your Money

The current economic environment is as unpredictable as it has ever been. Let’s examine a few recession proof industries.
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This article was originally published by Investment U

The current economic environment is as unpredictable as it has ever been. Inflation is at its highest rate in decades. There is a war in Europe that shows no sign of getting resolved anytime soon. And, there is still no telling when the lingering effects of COVID-19 will wear off. In times like these, many investors switch their mentality. Instead of trying to generate the highest yearly return possible, they focus on simply losing as little money as possible. If the overall market returns -20% but your portfolio breaks even then you’re technically coming out ahead. With that in mind, let’s examine a few recession proof industries that will protect your money.

Recession-Proof Industries

Real Estate

Real estate is traditionally one of the most recession proof industries out there. I say this for two reasons:

  1. Housing is a necessity: Housing has a fairly inelastic demand. No matter how expensive homes/rent gets, people need a place to live. If you invest in residential real estate then there is a good chance you can stay afloat through any recession. Of course, it ultimately depends on what property you own, the market it’s in, and the way you structure your financing.
  2. Inflation-protected: Real estate is also insulated from inflation. When inflation rises and profits start to erode, landlords can just increase the price of rent. Each year, they can increase the rent to keep pace with inflation. This is why owning real estate is so valuable.

There are dozens of ways that you can invest in real estate. To start, you can take out a loan and buy a property yourself. Or, you can use a third-party site like Fundrise. Fundrise is a site that owns a portfolio of real estate. It then allows you to invest in the properties that it owns.

Finally, you can invest in shares of a real estate investment trust (REIT). A REIT is a company that owns income-producing real estate. Each month, it pays out 90% of its income to investors.

There’s also one more stock you can buy to get exposure to recession proof industries. Let’s take a look at my favorite recession proof stock: Airbnb.

What makes Airbnb Unique?

Airbnb is in an incredibly unique position. Around the world, Airbnb owners are probably increasing the rates of their Airbnbs to compensate for rising inflation. In fact, we’re already seeing evidence of this. In a letter to shareholders, Airbnb said that Q1 2022 rates were up 39% when compared to 2019 levels. There is a good chance that this trend will continue, especially as we head into the summer months.

Remember that Airbnb mainly generates revenue by collecting a percentage of each stay. Hosts usually pay a flat fee of around 3% to list their property on Airbnb.

Over the coming months, hosts should continue to raise their rates to combat inflation. This will instantly translate to increased revenue for Airbnb. The best part is that Airbnb doesn’t even need to do any additional work to earn this income. Not only is Airbnb inflation-proof, but it might actually perform better.

Consumer Staples

Another one of the safest recession proof industries is consumer staples. Consumer staples are any product that consumers are unable to cut out of their budget. This could be anything from food to toilet paper.

Even in the middle of a recession, people still need to spend money on food, water, and hygiene products. For this reason, consumer staple companies can expect fairly consistent revenue in the coming months. Compare this to a company that sells luxury goods. If the U.S. enters a recession, people are much less likely to splurge on a $1,000 watch or handbag.

There are plenty of ways that you can invest in consumer staple companies. But, the easiest is to buy stock in the world’s largest CPG company: Proctor & Gamble.

Proctor & Gamble

There’s a chance you might not have heard of Proctor & Gamble as it’s not a consumer-facing brand. But, you’ve most definitely heard of the brands that P&G owns. To name just a few, Proctor & Gamble owns:

  • Gillette
  • Pampers
  • Downy
  • Tide
  • Bounty
  • Head and Shoulders
  • Old Spice
  • Febreze

For many Americans, these types of brands are still a necessary expense. With this in mind, P&G should continue to see consistent profits even if we enter a recession.

In 2021, P&G delivered annual revenue of $76.12 billion. It also reported a net income of $14.31 billion. On top of that, it has a dividend yield of 2.58%. P&G stock probably isn’t going to 2X over the next year. But, it’s got consistent, reliable profits and pays a dividend. This makes it a relatively safe place to park your money during a recession.

The only downside to P&G stock is that it owns a lot of premium brands. For example, Gillette razors tend to be much more expensive than other brands. The same is true for Bounty and Tide. There’s a chance that consumers might stray away from P&G products in favor of cheaper ones. If this happens then there’s a chance that they are probably visiting a discount retailer to do so.

Let’s take a look at one one of the final recession proof industries to invest in.

Discount Retail

With inflation sitting at nearly 8%, the American consumer is getting squeezed. With less spending money, consumers are more likely to shop at a discount retailer. For example, instead of stocking up on goods at pricey Whole Foods they might swing by a Walmart. Walmart is the premier example of a discount retailer. However, there’s one other retailer that might be better positioned.

Dollar General

Dollar General operates 18,216 discount stores in the United States. In 2021, it reported annual revenue of $34.22 billion and a net income of $2.4 billion. It also pays a dividend yield of 1.17%. If we enter a recession, consumers will likely clamp down on their spending. They’ll cut out everything but the essentials from their budget. During this time, most retailers will probably experience depressed sales.

On the other hand, Dollar General might actually get a small sales boost. It could experience an influx of shoppers who are suddenly budget-conscious. Basically, lots of people might start shopping at Dollar General that do not normally shop there.

I hope you’ve found this article valuable in learning about three recession-proof industries that are safe to invest in! Please remember that I’m not a financial advisor and am just offering my own research and commentary. As usual, please base all investment decisions on your own due diligence.

The post Recession Proof Industries That Can Protect Your Money appeared first on Investment U.

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