How to survive a recession
- A recession refers to a period of declining economic activity, typically defined as two consecutive quarters of negative economic growth, and is often linked to job losses, lower spending and increased market uncertainty.
- It’s important to reassess your investment risk so you can stay comfortable during periods of market volatility.
- Diversifying your portfolio across asset classes, sectors and regions can help reduce your exposure to any single downturn.
- Invest regularly over time to help manage market ups and downs and avoid trying to time the market.
- Paying down high-interest debt early can help reduce financial pressure, especially when borrowing costs rise.
- Building an emergency fund covering three-to-six months of expenses can help cushion against income disruptions.
- It’s important to stay focused on your long-term financial plan so short-term market changes don’t derail your goals.
Recession concerns can feel overwhelming, but taking a thoughtful approach to your finances can help you feel more prepared. While downturns can vary in length and impact, they’re a normal part of the economic cycle and tend to pass over time.
This guide outlines nine practical areas to focus on, covering both your investments and day-to-day finances, so you can evaluate your options and plan ahead with more confidence.
What's a recession?
A recession generally refers to a period of declining economic activity, often marked by at least two consecutive quarters of negative economic growth. It can be accompanied by rising unemployment, lower consumer spending and increased market uncertainty. As businesses slow down, job growth can weaken, which can lead to lower income and reduced spending.
A recent Bank of Canada survey from the first quarter of 2026 suggests many Canadians are concerned about rising costs and job security, which makes planning ahead even more important.
Even the possibility of a recession can feel stressful, but it can be helpful to remember that economic slowdowns are a natural part of the cycle. Planning ahead can make it easier to navigate periods like this.
Investment tips for a recession
Recessions can bring more market uncertainty, which can affect both stocks and bonds. Taking time to review your risk tolerance, your asset allocation and your long-term goals can help you stay aligned with your overall plan.
Reassess your risk tolerance
During periods of uncertainty, it may be worth taking a closer look at how much risk your portfolio is carrying. Market volatility, or the ups and downs of asset prices, can increase during uncertain periods.
If you’re taking on more risk than you’re comfortable with, you might consider shifting part of your portfolio toward fixed income, which tends to be less volatile than equities. If you’re comfortable with short-term fluctuations and focused on long-term growth, your current mix may already be a good fit.
Assess your diversification
Spreading your investments across different asset classes, regions and sectors can help reduce the impact of any one downturn. You might hold a mix of equities and fixed income, along with exposure to areas like real estate or commodities.
Within equities, you might consider a range of sectors, such as technology, consumer staples and utilities. Holding both domestic and international investments can also help reduce volatility, as different regions don’t always move in the same direction at the same time. This can help smooth out your portfolio during market ups and downs.
Consider dollar-cost averaging.
If you have a longer time horizon, continuing to invest during a downturn can be more impactful. Investing a fixed amount at regular intervals, such as monthly or quarterly, is known as dollar-cost averaging.
When prices fall, regular contributions can buy more shares. Over time, this can help smooth out the impact of market ups and downs and support long-term investing goals. This approach can also help take some of the guesswork out of trying to time the market.
Make tactical portfolio adjustments.
Keeping your long-term goals in mind is important, but you may also consider smaller changes within your portfolio. If certain sectors appear more resilient during a slowdown, you might adjust your allocation slightly.
You could also look at higher-quality investments, including those that pay dividends. Dividend income can help cushion the impact of price changes during weaker market periods by providing a source of regular income.
It’s important to consult with your financial advisor before making changes to your portfolio.
Personal finance tips for a recession
Changes to your day-to-day finances can also make a difference during uncertain times. Reviewing your spending, reducing debt and building a financial buffer can help you feel more prepared.
Try being more mindful with spending.
Taking a closer look at where your money goes can help you identify areas to cut back. Scaling down non-essential expenses, such as dining out, travel or entertainment, can free up cash for more important needs. Even small adjustments can add up over time and give you more flexibility in your budget.
Pay down debt.
Carrying high-interest debt can add pressure, especially if income becomes uncertain. Focusing on paying down your credit card balances first, followed by other loans, may help reduce that burden.
High-interest debt can become harder to manage during periods of rising rates, so reducing it earlier can make a difference. For context, the average Canadian carries around $22,300 in non-mortgage debt, including credit cards, car loans and lines of credit.
Managing and lowering your overall debt levels can also give you more breathing room if your financial situation changes.
Build or top up your emergency fund.
Having savings set aside for unexpected expenses can help provide a sense of stability. A common starting point is enough to cover three months of expenses. If your income feels less certain, you may aim for closer to six months. Keeping these funds in lower-risk options can help preserve their value, even if markets fluctuate.
Review your financial plan.
A clear financial plan can help you stay focused during periods of uncertainty. This might include a budget, savings strategy and investment plan that reflect your goals.
Speak with your financial advisor to review your plan. Looking at your numbers now can help you understand where you stand and where adjustments may be needed.
Stay focused on your long-term goals
Short-term market changes can be unsettling, but they don’t always require major shifts in your long-term plans. Continuing to save and invest regularly allows you to keep building toward your goals, even during slower periods.
Staying consistent may help you take advantage of opportunities as conditions improve.
Planning ahead can help you feel more prepared for changes in the economy. While recessions can bring uncertainty, focusing on steady, practical steps across your investments and personal finances may help you stay on track over time.
