The idea of a recession is unsettling to many people, including investors who have been through periods of economic decline before. During a recession, a lot of things can happen. Unemployment levels can increase, stock values can drop, and home prices can sink (though based on the current state of the housing market, we're unlikely to see the latter anytime soon).
Meanwhile, many experts are sounding warnings about an impending recession. Inflation fears, rising interest rates, and tensions abroad are just some of the factors contributing to general economic uncertainty.
This isn't to say that the U.S. economy is about to tank overnight. But could a recession hit later this year or early next? It's possible.
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That's the bad news. The good news, however, is that if you set yourself up with the right investments, you'll land in a strong position to get through a recession. And in that regard, there's one specific investment worth looking at.
The upside of owning REITs during a recession
REITs, or real estate investment trusts, are companies that own and operate different types of properties. Within the realm of REITs, there are multiple sectors you can look at investing in.
Industrial REITs, for example, are companies that operate warehouses and distribution centers. Retail REITs, on the other hand, operate malls and shopping centers. And healthcare REITs operate hospitals, nursing facilities, and urgent care clinics.
The great thing about REITs is that they're required to pay at least 90% of their income to shareholders as dividends. As such, REITs tend to pay higher dividends than your average stock -- and that alone could help you get through a recession.
Right now, stock values are down as a whole. But if a recession hits and investment values plummet even more, having a generous amount of dividend income to look forward to is a good thing -- namely, because those payments could help offset losses in your portfolio.
When economic conditions decline and stock values follow suit, it's actually a good idea to keep investing to capitalize on the option to buy at a low. And if you set up your portfolio with steady dividend income, that's money you'll have the option to reinvest and use to snag your share of deals.
Plus, REITs can serve as a nice means of diversification within your portfolio -- especially if you aren't yet invested in any real estate stocks. That's an important thing during a recession, too.
Prepare but don't panic
It's natural to be nervous about the idea of a recession, but it's also not something you should lose sleep over. The reality is that the next economic downturn that hits could be relatively mild and short-lived, so there's no need to panic.
What you should do, however, is conduct some research on REITs to see if they're an appropriate investment for you. You may find that holding them brings you peace of mind at a time when the economy is on shaky ground.
