The Best Investments in a Recession

9 of the best investments to make during a downturn

Economies move in cycles. Downturns are a perfectly normal, albeit uncomfortable, part of the process.

New Zealand has had its share. The Asian financial crisis in 1997–98, the GFC in 2008–09, the sharp COVID contraction of 2020, and a domestic recession running through late 2022 into 2023 all tested investor resolve. Each was caused by different forces. Each was followed by a recovery in which markets went on to reach new highs.

Rough patches tend to stand out because of their visibility: business failures, job losses, a softening property market, volatile share prices, and a general mood of pessimism. These periods can also present genuine opportunities for anyone with patience and a clear head.

This article covers nine ways to put your money (and your time) to work during a recession in New Zealand. They are not presented as equal-weight alternatives. Some, like regular contributions to a diversified portfolio or fund, are sensible for nearly everyone. Others, like starting a business or buying an investment property, suit only specific circumstances. Where a particular option carries conditions or is best suited to a certain reader, the section says so upfront. The final section, investing in yourself, is written for those still in the workforce and can be skipped by retirees or those not currently earning.

The Mental Game: Recession Psychology in Practice

The most important tool in your investment kit during a downturn is not a stock chart or a financial newsfeed. It is your psychology.

Sir John Templeton observed about investing:

"The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."

Warren Buffett put it even more succinctly: be fearful when others are greedy, and greedy when others are fearful.

Simple ideas, but executing them is anything but. It means resisting herd mentality and treating a drop in prices not as a loss of value, but as a discount. When was the last time you saw a 50% off sign at your favourite store and decided to stay away?

In New Zealand, we saw this play out in real time. When COVID hit in March 2020, an estimated 90,000 KiwiSaver members switched from growth or balanced funds to conservative or cash options. Many crystallised losses near the market bottom and then missed the recovery, which in some growth funds delivered returns exceeding 20% over the following twelve months. A similar, smaller wave of switching occurred during the 2022 drawdown. In both cases, the investors who stayed the course came out ahead.

We see this regularly across our client base. The households who weather downturns best are not the ones with the most money. They are the ones with a plan, a long enough time horizon, and the discipline to avoid reacting emotionally to short-term noise.

Read on if you are looking to position yourself to benefit from a downturn by making one or more of the nine best investments at a time like this, and becoming one of the winners in a downturn.

What To Invest in During a Recession

1. Regular Contributions: The Simplest Edge

For nearly everyone, this is the single most powerful move during a downturn.

Dollar-cost averaging means investing a fixed amount at regular intervals regardless of market conditions. When prices are high, your contribution buys fewer units. When prices fall, the same amount buys more. Over time, this averages your cost per unit and removes the guesswork.

KiwiSaver is the most familiar example. Each pay cycle, employer and employee contributions flow into your chosen KiwiSaver Scheme regardless of what markets are doing. During a downturn, those contributions are quietly buying more units at lower prices. This is the mechanism working in your favour.

A common mistake during recessions is switching a KiwiSaver growth fund to a conservative or default fund after markets have already fallen. Default funds typically hold 35–55% in growth assets, which means you lock in the losses from the fall and then miss most of the recovery. The evidence from both the 2020 and 2022 episodes is clear: staying the course with a fund suited to your time horizon produced better outcomes than switching.

If you can afford to increase your regular contributions during a downturn, the mathematics are even more compelling. Buying more at lower prices accelerates the recovery in your portfolio when markets turn.

2. Shares: For Investors With Capital and a Long Horizon

A recession can offer excellent buying opportunities for those comfortable selecting individual companies. When markets fall broadly, well-run businesses with strong balance sheets, low debt, and essential products or services can be purchased at prices well below their long-term value.

History is firmly on the side of long-term shareholders. The S&P 500 has recovered from every recession in its history and gone on to new highs, often within two to three years of the trough. The NZX has followed a broadly similar pattern, though with a smaller, more concentrated market.

The distinction between buying shares directly and investing through a managed fund matters. Direct share ownership means concentration: you are selecting specific companies, accepting the risk each one carries, and taking responsibility for diversification yourself. This requires more knowledge, more attention, and a higher tolerance for the possibility of permanent capital loss if an individual company fails.

If you have the means, the knowledge, and a time horizon of at least five to seven years, buying quality shares during a downturn is one of the simplest ways to build lasting wealth.

3. Managed Funds: Diversification Without the Complexity

For most investors, managed funds are the more practical choice during a recession, and at any other time.

A single managed fund can hold shares in hundreds or even thousands of companies across multiple countries, alongside bonds, property, and cash. This breadth of exposure means you are not dependent on any single company or sector. You also benefit from professional governance: a fund manager rebalancing the portfolio, making tactical decisions, and preventing the behavioural errors most retail investors make when markets turn volatile.

Most New Zealand managed funds investing in growth assets saw drawdowns of roughly 20–30% during the GFC, followed by full recoveries within two to four years. Balanced funds, with their higher allocation to bonds and cash, experienced smaller drawdowns and recovered faster. Knowing which profile suits your risk tolerance is the key decision.

Unlocked managed funds also offer liquidity advantages over property or locked KiwiSaver funds. You can access your money at any time, which matters if circumstances change unexpectedly.

If you are looking for professional portfolio management tailored to your goals and risk tolerance, this is what a DIMS-licensed firm like ours does every day.

4. Cash and Term Deposits: Your Defensive Foundation

Before chasing opportunities, make sure your foundations are solid. Cash is the most flexible and accessible asset you can hold, and a recession is the worst possible time to discover you do not have enough of it.

Cash serves three purposes in a downturn. It provides a safety net for unexpected expenses. It prevents you from being forced to sell investments at depressed prices. And it gives you the liquidity to act on opportunities when they appear.

Cash held at a major New Zealand bank is extremely safe, backed by the government's deposit guarantee scheme up to $100,000 per depositor per institution. Term deposits can offer a modest premium over on-call savings accounts, and during periods when the Reserve Bank is cutting the Official Cash Rate, locking in a competitive rate before cuts arrive secures a known return with virtually no risk. The trade-off is reduced flexibility.

Neither cash nor term deposits will generate the returns available from shares or property over the long run. Their role is defensive: preserving capital, maintaining an emergency fund, and keeping you composed when markets are anything but.

If you are unsure whether your current investment mix matches your time horizon, or you want to understand how your portfolio might behave in a prolonged downturn, our team can walk you through it. Book a complimentary initial consultation.

5. Bonds: Stability When You Need It Most

Bonds have traditionally served as a safe harbour during economic storms. When recessions hit, central banks typically cut official interest rates, and existing bonds paying higher coupon rates become more valuable. This inverse relationship between rates and bond prices is what makes them a useful counterweight to shares in a downturn.

Few New Zealanders invest directly in individual bonds, but most hold significant bond exposure through KiwiSaver Schemes and managed funds. A balanced fund will typically allocate 40–60% to fixed income. During the GFC, this allocation meaningfully softened the blow: balanced funds experienced drawdowns roughly half the magnitude of pure equity funds and recovered faster.

Within New Zealand funds, bond exposure is typically split between NZ government bonds (very low default risk, lower yields) and a mix of international sovereign and corporate bonds. The NZ government bond market is small but highly rated. Some funds also hold inflation-indexed bonds, which can offer additional protection if inflation stays elevated during or after a recession.

The key during a recession is to favour high-quality, investment-grade bonds. Higher-yielding corporate bonds carry the risk the issuer may fail to repay, and this risk increases precisely when economic conditions deteriorate.

6. Real Estate: A Kiwi Favourite, With Conditions

Property investment has long been a Kiwi favourite, and a recession can produce buying opportunities for those in a position to act.

When the economy weakens or interest rates rise, real estate prices tend to soften. Over longer timeframes, as confidence and demand return, property prices have historically resumed their upward trend. Anyone with cash reserves, stable employment, or substantial equity in an existing home may find themselves well positioned to buy at prices below the cycle peak.

Several NZ-specific factors amplify property cycles. Reserve Bank loan-to-value ratio (LVR) restrictions affect how much buyers can borrow at different points in the cycle. The phased restoration of interest deductibility on residential investment property, legislated in stages through to 2025–26, affects the after-tax economics of holding rental property. And the Brightline test, while recently shortened, still creates holding-period considerations for investors thinking about entry timing.

Even buying a home you intend to live in for the long term during a weakened market is a sound move, since you are likely to build equity faster as values recover. The usual caveats apply: property is illiquid, leveraged, concentrated in a single asset, and subject to ongoing costs. It works best as one component of a diversified portfolio, not the entirety of it.

7. A Business: Higher Risk, Higher Autonomy

Starting a business during a recession might sound counterintuitive, but some of the world's most successful companies were founded during downturns. Costs are often lower: cheaper rent, more available talent, and less competition for attention. Businesses born in difficult conditions tend to be lean and resilient by necessity.

Plenty of side ventures do not require significant capital and can be launched alongside existing employment. Even if a side business never becomes your primary income, it provides diversification of your earnings, which has real value in an environment where job security is less certain.

This is not for everyone. Starting a business requires time, energy, risk tolerance, and often some capital. If you are already feeling financially stretched by a downturn, this is not the moment to add another source of pressure. For those with capacity and inclination, though, it can be one of the most rewarding investments on this list.

8. Precious Metals: A Small, Specialist Allocation

Gold has historically been treated as a store of value during periods of economic stress and elevated inflation. Central banks hold it. Institutional investors allocate to it. During the GFC, gold prices rose while most other asset classes fell, and it reached record highs again in 2024.

The appeal is straightforward: gold is not linked to any single company's earnings or any government's fiscal position. It tends to perform well precisely when confidence in other assets is low. Silver and other precious metals share some of these characteristics, though with higher volatility and more exposure to industrial demand cycles.

For most New Zealand investors, direct ownership of physical gold is impractical. Exposure is more commonly gained through gold ETFs, managed funds with commodity allocations, or shares in mining companies. In a well-constructed portfolio, a modest allocation (typically 5–10%) can act as a counterweight during periods of market stress. It generates no income and its long-term returns trail equities significantly, so it is a complement, never a substitute.

9. Investing in Yourself: For Those Still in the Workforce

This section is for readers who are employed or self-employed. If you are retired or not currently earning, the sections above cover the ground. Feel free to skip ahead to the conclusion.

For those still building their careers, the single most valuable asset you own is your ability to earn an income. In a downturn, investing in your earning power can deliver returns no share portfolio can match.

This does not require a multi-year degree. Certificates, professional accreditations, and short courses can open doors to new careers or boost income in an existing one. Platforms like Udemy, Coursera, and LinkedIn Learning offer a wide range of skills training at modest cost. Even reading widely and watching instructional content can sharpen your professional edge.

For many professionals, though, the highest-return move is not a side hustle or a second qualification. It is doubling down on their primary career. Developing deeper expertise, taking on stretch assignments, or positioning for a promotion during a period when others are distracted or demoralised can accelerate your trajectory faster than almost any external course. A pay rise earned during a downturn compounds for decades. There are plenty of proven ways to increase your income without switching jobs.

If your current role has limited upside, a downturn can be the push to retrain or pivot. Industries respond to recessions unevenly: some sectors contract while others expand. Healthcare, technology, and essential services have historically held up well through cycles. Repositioning your skills toward resilient sectors is a form of investment with a very tangible payoff.

Beyond formal skills, strengthening your financial literacy matters enormously. Understanding how to budget effectively, how to avoid lifestyle creep, and how to build a proper emergency fund are all forms of investing in yourself. Kiwis who enter a downturn with solid financial habits and cash reserves are far more likely to come out the other side in a strong position.

Those with dependants should also consider whether their income is properly protected. If your career is your biggest asset, income insurance exists for precisely this reason.

The return on investing in your skills, your career, and your financial resilience can dwarf anything available on the NZX. Markets recover on their own. Your earning power requires deliberate effort. For further reading, explore our guides on side hustle ideas, passive income sources, and the financial mistakes high-income earners make.

Conclusion: The Best Investments in a Recession

A recession is uncomfortable, but it is not a reason to stand still. The nine options above fall into three broad categories, and most people will benefit from attention to all three:

1. Stability and resilience. Cash reserves, an emergency fund, term deposits, and high-quality bonds form the defensive base. Without these, the rest is built on sand.
2. Growth deployment. Shares, managed funds, property, and for specialist allocations, precious metals, are the assets you buy when prices are low and hold for the recovery. The evidence across every past recession supports this.
3. Personal investment. For those in the workforce, investing in your career, your skills, and your financial literacy can deliver compounding returns no financial asset can replicate.

In our experience advising New Zealand households through multiple cycles, the clients who come through best are those who resist anxiety, maintain their contributions, and use the period to strengthen their position rather than retreat from it.

If you would like to talk through how any of this applies to your situation, we are here. Book a complimentary initial consultation, no obligation, no pressure.