What Is a Recession? What Investors Should Do in a Downturn
The word “recession” sounds scary, but it's a normal part of the economic cycle. Here's what it means and how to prepare for one without panicking.
What it is
A recession is an economic downturn: output and incomes fall, companies lay people off, and people spend less. A popular simplified rule is two consecutive quarters of falling GDP. In the US, recessions are officially determined by a special committee of economists at the NBER based on a broader set of data.
How it affects markets
- Stocks often fall, especially for companies that depend on consumer spending.
- Central banks usually cut rates, and high-quality bonds may rise in price.
- The market looks ahead: stocks often fall before a recession begins and start rising while the news is still bad.
How to prepare
- An emergency fund covering 3–6 months of expenses.
- A diversified portfolio — diversification explained simply.
- Don't sell everything in a panic: make decisions by plan, not by headlines.
On behavior during a drawdown — the investor psychology lesson.
Aspiro Invest — a medium-term portfolio: what to hold, when to review it and where the protective levels are.
- A recession is an economic downturn, part of the normal cycle.
- The market falls and recovers ahead of the news.
- An emergency fund and diversification are your main protection.
Frequently asked questions
How often do recessions happen?
Regularly, every few years or less often. No one knows their exact timing in advance.
Should I sell stocks before a recession?
Timing it is almost impossible. It's usually wiser to hold a portfolio you're prepared to ride out through a drawdown.
What's the difference between a recession and a depression?
A depression is a very deep and long downturn. A recession is shorter and milder.
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