Unfortunately a recession is avoidable, like everything in life there must be a time for growth and expansion and a time for decline and recession. When the country goes through a recession, several people lose their jobs and look for ways to save money. Inevitably people stop purchasing products, causing businesses to lose money and the stock market goes down.

A recession is defined as a negative gross domestic product (GDP) for two consecutive quarters or longer. There are other factors that lead into a recession such as faltering employment, slow business expansion, housing prices dropping by 10% or more, and weakening sales and production. Several people start to look for safe investments during a recession and they avoid high-risk stocks. The only good thing about a recession is that the stocks are so low that investors can purchase quality stocks for a low price. Eventually a recession will end and the stocks will go back up, causing the smart investors to gain a lot of money. Anyone that is looking to purchase a home is in luck during a recession. Since housing prices are falling, people can get into a home they normally couldn't afford because it has fallen into their price range. Not only can people get great deals on homes, the financing for a home is down so they can get excellent rates.

The best way to invest is to prepare your portfolio before a recession, maintain it during a recession, and stay focused on the long-term pay-offs versus short-term "get rich quick" investments. There are several things the ordinary investor can do to protect their portfolio during a recession. Before a recession, equity markets tend to fall because investors sell their higher risk investments and move to safer investments. People begin to worry about their earning potential and scale back on their portfolios. When a recession hits the capital market, everything slows down. Everyone becomes pessimistic about the future instead of optimistic and they only invest in a few broad capital markets.

One way to prepare for a recession is to keep an eye on the equity markets since they tend to get hit first. Currently the equity market for real estate is taking a beating, and it normally is the first area to be hit first by a recession. When the housing market starts to drop, it is time to start preparing your portfolio for a recession. Several investors start saving money to make sure they can cover their salary in case they are laid-off by company cut-backs. Other investors sell their high-risk stocks and purchase low-risk stocks. Several investors look for long-term investments that continually produce a positive return. One of the biggest investments during a recession is gold. Since gold is valuable in every country, it holds a certain appeal to it. Investors like the fact that they can access their gold at any time, if they have invested in physical gold like gold bars and gold bullion coins. Foreign investments tend to increase during a recession as investors begin looking at foreign currencies as the value of the U.S. dollar decreases.

An investor looking for stocks in a recession needs to consider stocks that have shown they can perform during long periods of weakness in the market. Look for companies that have little debt and strong balance sheets since they will do better than a company with little or poor cash-flow. Companies that have strong cash flows are able to continue funding their businesses during slow times. Since these companies usually have little debt, they don't have to worry about paying back large debts.

One of the best places to invest during a recession is consumer staples. No matter how bad the economy gets, people will continue purchasing the essential items like food, beverages, prescription drugs, household products, and tobacco. Anyone that is addicted to smoking will continue finding ways to purchase cigarettes to feed their addiction. Those individuals that need to feed their addiction feed the tobacco companies, making them a safe investment during a recession. Consumer staples are not only personal hygiene products but they include cleaning products like detergent, bleach, and dishwashing soap. Consumer staples have a consistent demand from consumers and will always maintain a consistent level in an investment portfolio. People will also continue going to the doctor for medical needs and purchasing prescription drugs. While competing drug manufacturers are making generic drugs, they demand for other prescription drugs is high and consumers need them in order to function on a day-to-day basis.

One area to look at with an investment portfolio during a recession is fixed-income markets. When investors become worried about risk, they avoid it like the plague. Credit risk will be avoided during a recession so this means corporate bonds and mortgage securities will lose investors because they have higher default rates. Businesses will always have difficulties generating revenue during a recession because consumers are spending less. Debt repayment is often difficult for consumers and bankruptcy is sometimes inevitable. During a recession, one of the companies that actually makes money is bankruptcy firms and credit counseling companies. While people are seeking ways to pay off their debt at a lower amount each month, they seek out professional help. Every time someone is forced to declare bankruptcy, the bankruptcy firms gain money and their stock rises. Even after a recession, the stocks for bankruptcy firms will produce even higher earnings because of all the cases they are handling.

Several investors look for Government Treasury bonds to help them get through a recession. The risky bonds decrease and the prices on Treasury bonds increase. Anything that is considered low-risk and "safe" will be considered by investors. Most investors hold a certain amount of safe investments in their portfolio to compensate for the money they lose on high-risk investments. One area investors focus on is commodity markets. Before a recession, investors will dump their commodities and the prices will lower. The one thing to remember with commodities is that they are traded on a global basis and the U.S. is not the only company that demands certain goods. Oil, gas, and steel are traded in several markets so when the U.S. commodities market lowers, look for foreign markets that will yield higher results.

Prepare for a recession by shifting assets away from equities. Any credit risk and fixed income markets need to be dropped and U.S. Treasuries need to be picked up. During a recession, seek out long-term investments that continually produce a positive number. Anything that is considered a risky investment can wait till the end of the recession when you are looking for ways to rebuild your portfolio. If you didn't sell before the recession, don't sell during it because you will just lose more money. "Weather the storm" and hold out until the economy turns and the recession ends.

One way to see the end of a recession is the reduction of interest rates. The reduction of interest rates is used to increase the money supply and encourage people to spend money instead of save it. Low interest rates create a demand for higher risk investments and a demand for a higher return. Once this sweeps the economy, people will begin thinking optimistically about the future instead of pessimistically and they will re-examine riskier investments. When people start embracing risk again, the equity markets see positive numbers and do quite well.

Companies that took a beating during a recession will often rebound quickly. Growth stocks and small stocks also do well after a recession because investors are taking on risk again. Corporate debt and the housing market will return and investors will start driving prices up as the demand becomes greater. At the end of a recession, the U.S. Treasuries go down so it is a smart idea to sell your investment in U.S. Treasuries toward the end of the recession and shift back to assets and yields. Commodity markets will do the same thing because the economy is growing and the consumer demand increases.

Timing the end of a recession is hard since you are looking for risk investments as other people are turning away from it. Predicting a recession is a little easier because you will want to sell your investments when others are being optimistic about the future. The second you notice consist drops in the real estate market, start taking steps to protect your investment portfolio. Have discipline to sell before the recession hits instead of holding onto the investments too long and lose money. If you weren't smart about selling and you are stuck with some high-risk investments, you need to keep them and wait until the economy takes and upward swing. There is no way to predict how long a recession will last but the good news is that it will eventually end and return to high-risk investing. Maintaining focus on long-term investing is the best way to get through a recession. Look for ways to minimize risk and maintain capital in your portfolio.