Use ETFs to Build a Recession-Proof Portfolio in 2025

In today's volatile economic climate, constructing a recession-proof portfolio is more crucial than ever. Exchange-Traded Funds (ETFs) offer a diversified, cost-effective way to achieve this goal. By strategically selecting ETFs that focus on defensive sectors and assets, investors can mitigate risks associated with economic downturns.

Understanding a Recession-Proof Portfolio

A recession-proof portfolio is designed to withstand economic contractions by emphasizing stability, consistent income, and lower volatility. Key characteristics include:

• Diversification: Spreading investments across various sectors and asset classes to reduce risk.

• Defensive Sectors: Focusing on industries like utilities, healthcare, and consumer staples that maintain demand during downturns.

• Income Generation: Prioritizing assets that offer reliable dividends or interest payments.

• Low Volatility: Selecting investments that exhibit less price fluctuation.

Top ETFs for a Recession-Proof Portfolio in 2025

1. Utilities Select Sector SPDR Fund (XLU)

• Price: $80.89

• Dividend Yield: Approximately 3.47%

• Expense Ratio: 0.10%

• Top Holdings: NextEra Energy, Duke Energy, Southern Company

Utilities are essential services with consistent demand, making them a cornerstone of recession-resistant investing. XLU offers exposure to major utility companies, providing stability and regular income. 

2. Vanguard Consumer Staples ETF (VDC)

• Price: $220.34

• Dividend Yield: Approximately 2.5%

• Expense Ratio: 0.10%

• Top Holdings: Procter & Gamble, Coca-Cola,

Consumer staples encompass products that remain in demand regardless of economic conditions. VDC provides exposure to companies producing essential goods, offering both stability and dividends. 

3. Health Care Select Sector SPDR Fund (XLV)

• Price: $130.39

• Dividend Yield: Approximately 1.5%

• Expense Ratio: 0.12%

• Top Holdings: Johnson & Johnson, UnitedHealth Group, Pfizer

Healthcare services are non-discretionary, maintaining demand during economic downturns. XLV offers diversified exposure to leading healthcare companies, providing resilience and potential growth. 

4. SPDR Gold Shares ETF (GLD)

• Price: $310.10

• Expense Ratio: 0.40%

Gold is a traditional safe-haven asset, often appreciating during market turmoil. GLD allows investors to gain exposure to gold prices, serving as a hedge against inflation and economic uncertainty.

5. iShares Core U.S. Aggregate Bond ETF (AGG)

• Price: $97.28

• Dividend Yield: Approximately 2.5%

• Expense Ratio: 0.04%

Bonds provide income and lower volatility, essential for a balanced portfolio. AGG offers broad exposure to U.S. investment-grade bonds, enhancing stability.

Constructing Your Recession-Proof Portfolio

A sample allocation might look like:

• 30%: Utilities (XLU)

• 25%: Consumer Staples (VDC)

• 20%: Healthcare (XLV)

• 15%: Bonds (AGG)

• 10%: Gold (GLD)

This diversified mix aims to balance income, stability, and growth potential.

Final Thoughts

Building a recession-proof portfolio with ETFs involves strategic selection across defensive sectors and asset classes. By focusing on utilities, consumer staples, healthcare, bonds, and gold, investors can enhance their portfolio's resilience against economic downturns. Regularly reviewing and adjusting allocations ensures alignment with financial goals and market conditions.

Note: Always consult with a financial advisor to tailor investment strategies to your individual needs and risk tolerance.