Which Investments Do Best—and Worst

We ran the numbers for seven recessions, and found a big difference between what fared well in the period leading up to recessions and during the recessions themselves

With academics, economists and pundits arguing over whether the U.S. is in a recession, many investors are wondering how to shift their portfolios amid the current economic uncertainty and its effect on financial markets.

If we are in a recession, what’s the best way to reposition a portfolio to maximise returns? And if this is just the lead-up to a recession, what then?

My research assistants, Zi Yang and Yuge Pang, and I decided to examine how various asset classes have fared leading up to recessions and during recessions—as defined by the National Bureau of Economic Research—over the past 50 years. We studied the seven recessions in that period (1973-75, 1980, 1981-82, 1990-91, 2001, 2007-09 and 2020) and found that growth stocks led the way in the lead-up to recession. But, once we entered a recession, fixed income far outperformed equity, with international stocks providing the worst returns by far.

The asset classes we examined were U.S. high-yield bonds, U.S. long-term bonds, U.S. short-term bonds, U.S. total fixed income, U.S. growth stocks, U.S. value stocks, U.S. small-cap equity, international equity and U.S. large-cap equity.

In the nine months before the start of a recession, U.S. growth stocks delivered an average monthly return of 0.92% (a compound annualised return of 11.6%), followed by U.S. small-cap equity at 0.83% monthly (10.4% annualised). U.S. total fixed income averaged a monthly return of just 0.48% (5.9% annualised).

But in a recession, U.S. total fixed income averaged a monthly return of 0.62% (7.7% annualised), while U.S. growth stocks returned an average of 0.12% monthly (1.5% annualised). Returns were negative for every other equity class we studied.

Among the fixed-income classes, U.S. high-yield bonds are notable for having the lowest average monthly return of any of the asset classes we studied in the lead-up to a recession, at 0.14% (1.7%% annualised), and for being the only fixed-income class with a negative return during a recession, at a monthly average of negative 0.08% (minus 0.9% annualised).

On the equity side, international equity was easily the worst performer in a recession, at negative 0.93% a month on average (minus 10.6% annualised). That compares with an average monthly return of 0.80% (9.9% annualised) in the lead-up to a recession—the biggest difference for any asset class between returns before and during a recession.

The takeaway from it all, if history can tell us anything, is that once we enter a recession, the average investor best be prepared to head toward fixed-income assets and get out of international equities.

Did your mum ever suggest a warm glass of milk to help you sleep?

Science says she may be right.

An emerging field of research called chrononutrition indicates that choosing the right foods and meal times may improve our sleep . Some key findings: Eat dinner early. Keep consistent schedules. And, yes, drink milk.

You already know that fruits, veggies and lean protein are good for your health. But they can boost your sleep, too. These foods are the basis for the Mediterranean diet, which research shows may improve sleep quality, reduce sleep disturbances and boost sleep efficiency—the amount of time you spend asleep when you are in bed.

Eating a Mediterranean or other similarly healthy diet is linked to a reduction in symptoms of insomnia , according to a just-published review of 37 studies with almost 600,000 participants. This same research also found that unhealthy diets—high in simple carbohydrates and processed foods —are associated with an increase in insomnia symptoms, says Frank Scheer, a professor at Harvard Medical School, who studies the internal body clock.

When we eat affects our internal body clock, or circadian system, which regulates our physiology and behaviour, including sleep. While our master clock resides in our brain, each of our organs has its own clock, too. We don’t want to wake up our stomach just when we’re trying to go to sleep.

“There’s a rhythm to our digestive system,” says Kelly Baron, director of the behavioural sleep medicine program at the University of Utah. “And eating at the wrong time can cause internal jet lag.”

Roughly a third of American adults don’t get the recommended seven to nine hours of sleep, according to the Centers for Disease Control and Prevention.

When Sarah Linderman, 46, started having sleep problems several years ago—tossing and turning for hours before drifting off, then popping awake for good at 3 am — a doctor suggested she focus on her diet.

The doctor recommended she consume more of her calories earlier in the day, load up on protein and veggies, cut back on cocktails at night and finish her last meal at least three hours before bedtime. Linderman soon found herself falling asleep more easily. She also began sleeping seven or eight hours uninterrupted and waking feeling refreshed in the morning.

“With the right nutrition, I took my sleep back,” says Linderman, who owns a marketing company in San Pedro, Calif.

What’s the best way to adjust your diet to improve your sleep? Here’s some advice, according to a growing body of research.

Follow a Mediterranean diet

A diet high in vegetables, fruits, whole grains, fish and unprocessed lean meat is good for nutrition and may promote sleep by reducing inflammation and providing nutrients that boost the neurotransmitter serotonin and the hormone melatonin. It also balances our gut microbiome , which may help regulate our circadian rhythm, says Uma Naidoo, a nutritional psychiatrist and director of nutritional, lifestyle and metabolic psychiatry at Boston’s Massachusetts General Hospital.

Some nutrients are particularly helpful.

Tryptophan is an amino acid necessary to produce melatonin. Our bodies can’t produce tryptophan, but foods that provide it include turkey, chickpeas, milk, grains, nuts and seeds.

Serotonin is also a precursor to melatonin. Fruits, vegetables and nuts can help boost serotonin.

Melatonin promotes sleep and influences the timing of the circadian system. Eggs, fatty fish such as salmon, mushrooms, bananas and tart cherries help promote it.

Naidoo’s perfect sleep-promoting dinner suggestion? A mushroom omelet with a side salad topped with flaxseed and walnuts.

Have an early dinner

People who eat close to bedtime have poorer sleep quality, studies show.

Researchers think this may have something to do, in part, with body temperature. Our body typically cools down before bed; this is an important part of our circadian rhythm. Digestion heats our body up, messing with this process.

“Your stomach is working up a sweat just as you’re trying to wind down,” says Marie-Pierre St-Onge, director of the Center of Excellence for Sleep and Circadian Research at Columbia University.

Eating before bed can also cause acid reflux, which often disrupts sleep.

A good rule of thumb, researchers say: Eat dinner at least two to three hours before bedtime to give yourself time to digest your meal.

Be consistent about meal times

Having a regular eating rhythm sends a strong signal to your brain about when it is time to be alert and when it is time to be drowsy, says the University of Utah’s Baron.

Try to eat your first meal and your last meal around the same time each day. “This bookends your day and helps differentiate between waking activities and nighttime,” Baron says.

Eat breakfast

When we don’t eat breakfast, we tend to get hungrier at night. And that sets us up for making poorer food choices closer to bedtime, says St-Onge.

Some studies have shown that people who skip breakfast have lower sleep quality. Researchers aren’t sure why, but they believe it’s because people who eat breakfast tend to practice other healthy habits, such as being more active.

Cut back on alcohol

Yes, alcohol may help you wind down at night and fall asleep faster. But it also messes with your sleep quality . (Do I really need to tell you this?) It suppresses REM sleep, causes sleep disturbances and shortens sleep duration, says Massachusetts General’s Naidoo.

A light evening snack is OK

Hunger is stimulating because the hormones that make you seek food are the same ones that arouse you from sleep, says Columbia’s St-Onge. It’s hard to fall asleep when you’re obsessing about the ice cream in your freezer.

If you eat a snack, make it light and have it at least an hour or so before bed. Pair protein and healthy carbohydrates—hummus and pita or fruit and yogurt—for the biggest sleep boost. Protein is satiating and carbohydrates promote sleepiness by helping the absorption of tryptophan.

And, yes, milk can help, too. A study of people recovering from a cardiovascular event showed that they slept better if they drank milk with honey before bed. And, in general, people who consume more milk throughout the day have better sleep, research shows. Milk is a good source of tryptophan, St-Onge says.

So go ahead and listen to your mum. Have that glass of milk.

Which Investments Do Best—and Worst—in a Recession

The right foods and strategic scheduling can improve your shut-eye