How to invest during a market downturn

As you work diligently to build a strong financial plan for you and your family, it can be discouraging to think of a market downturn, or even a recession, sidelining your progress. Prolonged economic downturns are an inevitable part of the economic cycle. And while recessions are rare and typically only last around 10 months, the right investment strategy can help mitigate damage to your portfolio.

So far, 2025 has seen a fair amount of economic volatility and will likely see more. Recent short-term data shows a weakening economy, while long-term views indicate slower but continued growth. Whether we undergo another recession soon, it’s never a bad time to equip your portfolio to face volatility.

“The best way to prepare for market volatility is not to be surprised by it,” says David Royal, executive vice president and chief financial & investment officer at Thrivent. “Have a conversation with your financial advisor and be sure you understand how your current financial strategy is positioned to meet your long-term goals. Remember, too, that times of volatility can be potential opportunities, depending on your financial goals.”

Check out the most recent commentary on the market from the Thrivent Asset Management team

It’s true: Each stage of the economic cycle comes with investment opportunities in addition to risks. As the market revolves, you can make thoughtful choices about how to invest, even during a recession. The chart below shows the economic cycle rotating counterclockwise as driven by growth and inflation on the X and Y axes. Each stage lists strategic opportunities to consider for that period.

The Economic Cycle

Some investments tend to perform more reliably than others in turbulent times, such as large cap stocks or bonds. As always, diversifying your portfolio can help balance your risk.

Many investors find it beneficial to invest in a diversified fund that includes a variety of asset classes. When you’re invested in multiple asset classes, you can potentially offset losses in one area with gains in another. Holding bonds and stocks together, for example, combines the possibilities of income from dividends and interest with long-term appreciation. Regardless of the combination, the idea behind diversification is that it can help reduce your overall investment volatility and stabilize your long-term returns.

A financial advisor can be especially helpful in determining which investments and funds are right for you based on your risk tolerance and long-term goals. To reap the potential benefits of diversification, you should meet with your financial advisor to review and rebalance your portfolio periodically, ideally at least once a year.

In addition to diversification, many investors combat market volatility through dollar-cost averaging. This strategy tries to smooth out price volatility by investing a fixed amount of money into an asset at regular intervals, regardless of price. Over time, dollar-cost averaging can help reduce the overall cost of an investment—which is always a perk, but especially during a recession.

Go deeper: Dollar-cost averaging explained, with examples

Choosing what to invest in during a market downturn depends on a few factors, such as your financial goals, time horizon and risk tolerance. You'll want to match your needs with investment qualities that tend to hold up even in downward economic times—features like historically reliable returns, connections to essential industries or commodities that tend to stay in demand.

While it's important to not derail your longer-term investing goals by making large changes to your investment mix, you may consider how these various investment types can help meet your financial goals:

Stocks often decline in tough economic times, so it can be tempting to cash out when market volatility hits or there are fears that a recession is looming. But timing the market is notoriously difficult. Instead, you might just shift the focus of your stocks.

One approach is to reconsider how your stocks are distributed across market cap segments. Investors use market cap to compare different-sized companies and diversify their portfolios to manage risk and target different growth opportunities. In general, large-cap companies (e.g., S&P 500 firms) are less sensitive to market volatility, making them ideal investments during a recession. On the other hand, small-cap stocks can offer strong rebound potential once the economy recovers. As always, the right choice depends on your investment goals.

Learn the risks of trying to time the market

Bonds can provide a steady source of income and have the potential for price appreciation during a recession. They work like certificates of deposit (CDs) in that they earn a fixed rate of interest over a specified term, but they range much longer—up to 30 years.

Bond prices generally move in the opposite direction of interest rates. This is why they often rise during a recession, when the Federal Reserve may lower interest rates to stimulate the economy. However, lower-quality, high-yield bonds issued by less stable companies may not perform as well as higher-quality, investment-grade bonds in a recessionary environment.

Exchange-traded funds (ETFs) combine the benefits of mutual funds with the flexibility of stocks, and can be bought and sold throughout the day, just like stocks

Similarly, a mutual fund is a collection of stocks or bonds chosen and managed by professional money managers. Mutual funds offer individual investors access to a diversified mix of stocks and bonds they may not be able to invest in otherwise. Thrivent’s Asset Allocation Funds are a type of mutual fund that cover numerous asset classes, allowing you to invest according to your risk tolerance.

Investment funds like these can give you exposure to a broad segment of the market, providing some of the benefits of diversification, such as reducing risk and balancing volatility.

Real estate is a tangible asset that can provide you with a steady stream of income through rental payments. Recessions can increase demand for rental properties as people look for more affordable housing options. Or rather than owning physical property, you may want to invest in real estate investment trusts (REITs). These entities operate apartment and office buildings, shopping centers, hotels and other properties that tend to consistently generate income and withstand recessions.

Tune in to our next Market & Economic Update on April 15

Navigate current market conditions with insights from Thrivent Investment leaders. Register to join us online on April 15 at 11:30 a.m. CST, or if you can't make the date, register to receive the recording.


Register now

When considering how to invest during a recession, some raw materials, such as gold and precious metals, could be safe havens. Historically, commodities like these have shown low or negative correlations with assets like stocks and bonds, which means having them in your portfolio could help you balance risk across time. Just bear in mind that industrial metals, like copper, may experience price weakness during periods of slowing economic activity.

Economic downturns may tempt you to hoard your money, which is fair if you want quick access to cash in case of an emergency. There are several savings options that can help you potentially grow your cash without sacrificing liquidity:

• High-yield savings accounts can help you safeguard your cash during a recession, offering above-average rates of return in addition to easy access.
• A certificate of deposit (CD) is a fixed-term deposit account offered by banks and credit unions that pays a guaranteed interest rate in exchange for locking in funds for a set period. CDs can be a beneficial recession investment because they offer predictable returns and are FDIC-insured.
• Money market funds are a type of mutual fund that invest in short-term, liquid assets like cash and short-term securities. They offer a low-risk way to earn a modest return while maintaining liquidity.

Read about balancing security and liquidity for your money

Finally, consider that over the last 41 years, the stock market has ended in positive territory more than 75% of the time. The following chart^* shows the calendar year performance of the S&P 500® Index in green and the largest period of downward performance within each calendar year in red.

Economic downturns can rattle even seasoned investors, but they always pass. Keep the bigger picture in mind as you take steps to build, balance and diversify your portfolio.

The economy has shown remarkable resilience, but risks remain on both sides of the Federal Reserve’s dual mandate of full employment and stable prices. Economic data continues to send mixed signals, with areas of both strength and weakness.

David Royal, Executive Vice President & Chief Financial & Investment officer at Thrivent