Recessions

• The difficulty with investing for a recession is that you don't know when the next one is coming. Even then, you don't know when you're in one. Usually a recession has been going on for a couple of months before being officially announced by government officials. If you are an investor worried that a looming recession will lower the value of your mutual fund, you may want to look at mutual funds that are more conservative and have lower fluctuations in their day-to-day value. This type of fund holds more fixed-income investments and fewer equity investments. If you rely on the income you get from selling your mutual funds on a regular basis, and you fear a recession is coming on, you most definitely will want to hold fewer equity investments.
  
  

Income

• It may be that you rely on your mutual funds to provide income during a recession, but you don't actually sell the units of the mutual funds you own. In this case you want to own mutual funds that invest in high-quality bonds, especially U.S. government bonds. Other high-quality bonds and fixed-income investments are available too, from other governments and some large and stable corporations. Some mutual funds invest primarily in dividend-paying companies. These funds provide diversification to your portfolio and make it more robust throughout a recession.
  
  

Buying in a Recession

• Many investors see recessions as an excellent buying opportunity. Mutual funds that invest in growth stocks, small cap stocks and in developing countries tend to be especially hard hit during the recession. The long-term investor believes that the markets will bounce back, and the large decline in these mutual funds presents a very lucrative buying opportunity. It takes courage to invest in this way and faith in the cyclical nature of markets.
  
  

Market Timing

• Many financial advisers argue that you do not benefit by trying to time the market, including trying to buy specific recession mutual funds. They argue that investors should only invest for the long run and stick to their planned goals. Markets go up and go down significantly, and your big picture investment strategy should not change with the markets. In this case, the best mutual fund for a recession is the same one during a boom -- the one you decided on when you developed your financial plan.