2 ETFs That Could Be Your Best Investment During A Recession

The chances of a recession appear to be rising. Just a couple of months ago, economists surveyed by Bloomberg estimated a 30% probability that the U.S. would enter a recession within the next year. Last week, Bank of America predicted that a relatively mild U.S. recession will probably begin later this year.

This increasing gloom is almost certainly causing many investors to think about where to put their money if a recession is on the way. There are plenty of good alternatives. But these exchange-traded funds (ETFs) could be your best way to invest during a recession.

Look to Uncle Sam

What do investors want the most during a major economic downturn? A safe haven. It’s hard to find a better safe haven than U.S. Treasury bonds. When you buy these bonds, you’re lending money to the U.S. government. If the day ever comes when Uncle Sam can’t pay you back, the world is in big trouble. 

Treasury bonds aren’t just good investments during a recession because they’re safe havens, though. In the midst of a recession, the Federal Reserve frequently buys U.S. Treasury bonds as part of a strategy to lower interest rates and spark an economic rebound. This buying causes the prices of the bonds to rise. 

Investing in ETFs that own U.S. Treasury bonds gives you greater flexibility than buying the bonds themselves. Blackrock‘s iShares family of Treasury bonds, in particular, allows investors to focus on different maturity lengths for the government bonds.

The heaviest-traded of these ETFs is the iShares 20 Plus Year Treasury Bond ETF (TLT 1.73%). As its name indicates, this fund owns U.S. Treasury bonds with maturities of 20 or more years.

For investors who don’t want maturities quite that long, the iShares 10-20 Year Treasury Bond ETF (TLH 1.22%) is an alternative. Or you could go with shorter maturities with the iShares 7-10 Year Treasury Bond ETF (IEF 1.14%), the iShares 3-7 Year Treasury Bond ETF (IEI 0.78%), or the iShares 1-3 Year Treasury Bond ETF (SHY 0.28%).

Lessons from two recessions

There have only been two U.S. recessions since these iShares ETFs launched — the Great Recession of late 2007 through mid-2009 and the brief coronavirus-caused recession of 2020. However, we can learn some lessons from how the ETFs performed during those two recessions.

Let’s first look at the Great Recession, which was one of the most severe recessions in U.S. history. All of the iShares U.S. Treasury ETFs held up quite well during this…

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