Investing during a recession requires a different strategy than investing during prosperous times. It makes sense to be careful and redirect your efforts. When the economy is in meltdown, the last thing you want is to lose more of your portfolio. If you do careful research and are willing to embrace what might be a new definition of investing, you may be better able to weather a recession.

Invest in and Improve Your Cash Position

In a recession, cash is king for both companies and individuals. You cannot go wrong with investments in some type of liquid, cash account. Additionally, if you have neglected this part of investing in the past, building your cash reserves now is crucial.

Depending upon your portfolio and your financial needs, buffeting your portfolio with more cash reserves could include any of the following:

- Savings accounts

- Money Market accounts

- Certificates of Deposits with a short maturity (if you know you can live with locking up the money for a short time).

One essential item is to make sure you have a liquid cash fund that will cover three to six months’ expenses, at a minimum.

Michael Brisky’s “In the know: A Financial Blog” at http://briskycapital.blogspot.com/ discusses how cash is king in companies and how these companies are poised to survive a recession.

Invest in Evergreen Industries and Sectors

Which stocks will still be thriving on the other end of a recession? Choose industries or sectors for which consumer demand will remain strong even during economic hard times.

Examples of evergreen industries that might prove to be stable investments during a downturn include:

• Pharmaceuticals. People will continue to need prescriptions filled and to take needed medications. 
• Staples such as grocery items. People will always need to eat, though stretched budgets may force families to focus more on staples and less on expensive food items.
• Alcohol and cigarette manufacturers, sometimes known as “vice” industries.
• The energy sector. Consumers will still need to fuel their vehicles and power homes and businesses. As nonrenewable energy becomes more scarce and expensive, consider investing in renewable energy, which may become more mainstream and in demand.

If any of these stock investments pay dividends, such investments can be even better for you during a recession.

The Disciplined Investor (at http://www.thedisciplinedinvestor.com/) discusses evergreen investments and other good investments during a recession.

Reinvest Stock Dividends

If you are not already reinvesting dividends from stocks you own, a recession is an excellent time to put this strategy into place, because share prices in your stock investment have likely dropped during the recession. Your dividend then buys more new shares than it would have in the past. If the market turns around after the recession, all those shares increase in price, making you money at a faster rate.

Invest in Paying Down Your Personal Debt

Ideally, you should pay down your debt before investing in stocks, bonds, or other vehicles. During a recession, being debt free is even more important. Paying off debt is likely to give you a much higher rate than many investments, given the interest rates charged on many types of personal debt.

This article at http://www.kiplinger.com weighs saving versus paying down debt.

Invest in Safe Investments with Relatively Low Returns

If your risk tolerance has been pummeled by investment losses during a recession, you might consider adding conservative investments to your portfolio. While the returns on these investments may be relatively low, they may be better than some falling stock market returns.

Conservative investments include:

- Short term treasury securities (also known as T-Bills). You can purchase these at http://www.treasurydirect.gov. Resist the temptation to lock into longer rates, because future inflation might diminish an already low return. You will be powerless to move the money if locked into a long maturity timeline.

- Treasury Inflation Protected Securities (TIPS). You can purchase these at http://www.treasurydirect.gov or through banks and brokers. These protect against inflation by adjusting interest above inflation rates.

- Government I Bonds. You can purchase these at http://www.treasurydirect.gov or through banks. These are tax deferred investments, and you pay no commission. Yields, however, are often low.

- Certificates of Deposit, Savings Accounts, and Money Market Accounts.

Additional Resources

- http://www.usnews.com gives advice for continuing to save toward retirement, even during a recession.

- http://www.businessweek.com/ gives advice on safe investing during a recession.

- http://recession-investing.swicki.com has several links to articles on recession stock investing.

- http://www.dailywealth.com focuses on when recessions bottom out, and why that is a good time to invest in stocks