Have you ever wondered what recession means, and why investors need to be concerned about it? I just read an article about economic downturns, and it made me think about something most investors tend to overlook.

A recession is a broad contraction of economic activity over a prolonged period. It is generally measured by a decline in GDP for two or more consecutive quarters. If the recession continues for more than 3 years and GDP is negative by more than 10%, it is called a depression, which is a much more severe level.

There are many causes of a recession, and it’s not easy to predict. Sometimes it comes from an oil crisis, sometimes from the government’s efforts to rein in inflation, and sometimes from the buildup of debt until it spirals out of control. I believe that the occurrence of a recession is a natural part of the economic cycle—not something abnormal.

Looking at U.S. history, there have been three major crises since 2000: the dot-com crisis in 2001, when the NASDAQ fell 82% in 8 months; the financial crisis of 2007-2009, when GDP turned negative at -5.1% over 18 months; and the COVID-19 crisis in 2020, when GDP fell to -19.2%—but it ended after just 2 months.

What I’ve noticed is that in each recession, asset prices move differently. When COVID hit, the Dow Jones index dropped 38% within a few weeks, but gold rose by 32%. Meanwhile, U.S. government bonds increased because investors fled to safe-haven assets. This is what’s called a risk-off sentiment.

For investors like us, there’s nothing we should do when a recession arrives. First, don’t increase your bets on risky assets, because returns can turn negative during this period. Second, don’t take on additional debt. I’ve seen many investors panic and rush to sell in order to repay debt, and that’s not a good idea.

So what should we do? First, shift toward safer assets—gold, bonds, and other low-yield but stable assets. Second, hold on to a steady source of income. If you have a regular paycheck, use it to buy good stocks at discounted prices. A recession is a time when solid underlying assets become cheaper. Third, if you need to borrow, choose fixed-interest loans rather than floating-rate ones, because when the economy recovers, interest rates will rise.

What I’ve learned from studying recessions is that they’re not something to be afraid of. They’re something to prepare for. Investors with well-balanced portfolios, diversified across multiple assets, and backed by steady income can get through this period safely. Sometimes, recessions even turn into opportunities—golden chances—for long-term investing, because good assets are priced cheaply. If you still don’t truly understand what recession means, understand that it’s a time to be prudent—but it’s not something you can completely avoid.