7 Benefits of Non-Cyclical Stocks for Conservative Investors

From what I have learned, Non-Cyclical Stocks retain their value even in economic recessions because the demand for essential goods and service remains consistent.

For instance, in 2008, the financial crisis caused the S&P 500 to lose approximately 38% of its value .

The utilities and consumer staples sectors lost only 15-20%, and the largest distractor was Procter & Gamble, whose stock prices fell by 16%.

7 Benefits of Non-Cyclical Stocks for Conservative Investors


There are different types of stocks that are beneficial for investors one way or another. Specifically, non-cyclical stocks are commonly seen as less affected by economic fluctuations which often makes them more expensive than cyclical equivalent. Typically, a non-cyclical stock is used as a definition for a “ defensive ” stock.

Those are stocks of specific industries that are vital and essential for human life, such as utilities, healthcare, or consumer staples. For example, during the latest major economic recession in 2008, while most of the markets went down and capitalization of companies in cyclical sectors was almost on the ground, utilities, and consumer staples stayed fine. For instance, if cyclical stocks went down for about 45% during the crisis, value of utilities’ stocks fell only by 10% . This is because people cannot stop using power or water.

Superior yields on dividends also illustrate this point. For instance, consumer staples often provide about 3% yield on dividends . The average for dividends is much lower than that but demand for food and other essential for surviving, even when consumers are strapped for cash, products will not go away making companies in the sector less vulnerable.

One of Berkshire Hathaway’s subsidiaries also operates in the same sphere:

Moreover, Warren Buffett coined a phrase than “it’s far better to buy a wonderful company at a fair price” than a fair company at a wonderful price .

Consistent Dividends

Non-cyclical stocks are widely known for their reliable dividends that make them very attractive to conservative investors, who need a certain and dependable income. Unlike cyclical stocks, non-cyclical ones are primarily engaged in businesses that do not lose their relevance during the times of economic decline, but, in opposite case, remain or even become more demanded by the society. For example, during the crisis of 2008-2009, many sectors stopped or drastically reduced their dividends, especially banking and industrial ones, who were hit to a large extent. At the same time, the companies that belong to consumer staples not only sustained their dividends but also increased them Procter & Gamble is one of the renowned examples from that time period; their policy of paying and increasing dividends has remained unbroken, yielding the average of about 3% per year.

The illustrative data from the upcoming graphs clearly demonstrates, that non-cyclical stocks have never stayed below dividend yield of 2-4% in average for more than 20 years. Therefore, it is beneficial to become their shareholder, especially in the conditions of unstable economy and constantly low interest rates on regular deposits and fixed incomes.

John D. Rockefeller used to say, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” This statement can fully characterize non-cyclical stocks.

Recession Resilience

Non-cyclical stocks, also known as defensive stocks, demonstrate outstanding resistance to recessions, which is beneficial for conservative investors, who aim at getting exposure to the less volatile securities. As a rule, these stocks are part of the industries that operate in the field of essential goods and services delivery, such as healthcare, utilities, and consumer staples . In fact, during the 2008 financial crisis, where the stock market was hugely impacted, non-cyclical sectors showcased their strength.

For instance, the healthcare sector, as presented by the Health Care Select Sector SPDR Fund, demonstrated a much more moderate drop compared with the S&P 500, along with being the first to recover . Moreover, the consumer staples were also able to demonstrate superior market performance during this period.

According to the data, during the 2008-2009 period, the S&P 500 decreased by almost 38%, while the consumer staples dropped by about only 22% . Therefore, the difference in stock price changes between the two options serves evidence of the market-protecting properties of the latter in relation to volatility.

Low Maintenance

Non-cyclical stocks, or in other words, defensive or consumer staples, offer an investment opportunity that involves very low maintenance. Therefore, they can be especially attractive for conservative investors. These stocks include such industries as utilities, healthcare, and consumer goods to name but a few. People tend to buy these goods and services regardless of the economic conditions, which makes them less influenced by downturns.

One of the advantages of non-cyclical stocks is that the demand for them is rather stable and predictable, meaning that the revenue stream for the companies involved is also rather consistent and reliable . For instance, during the period from 2000 to 2020, low consumption grew by 3.7 percent as compared to 0.5 percent in the cyclic technology sector.

Another benefit of this kind of stock is that investors have to spend less time monitoring their investment and worrying about potential unexpected changes in the market. For example, during the downfalls in the years 2008 and 2020, the S&P 500 Consumer Staples Sector Index experienced much lower decreases than the broader range of the market and recovered losses much faster. That is why a well-known investor Peter Lynch once said, “The key to making money in stocks is not to get scared out of them”.

Predictable Performance

Non-cyclical stocks are considered one of the biggest ways for conservative investors to grow their economy due to the nature of their performance. In most cases, these companies operate in the utilities, healthcare, and consumer staples sectors. Non-cyclical business has predictable demand for its products and services, and consequently predictable economic results. An investigation of the non-cyclical stocks’ performance over the past two decades provides a clear tendency towards decent returns.

To illustrate, in 2008 the world faced a financial crisis and the vast majority of instruments turned dramatically downwards. However, the consumer staples sector showed a slight decrease and quickly gained its original value. The same can be said about early 2020, when the COVID-19 pandemic-induced high volatility in the stock market. The consumer staples kept its position and outperformed its counterparts on the broader market, such as Procter & Gamble and Johnson & Johnson, who suffered only minor downtrends and recovered quickly.

The reasons for such performance can be multiple. Firstly, these companies provide critical goods and services, and the significance of demand ensures continuous business. Meanwhile, these businesses operate with lower debt and higher cash balances which contributes to their financial performance.

For example, Public Utilities stock ensures a steady salary for the owners since a significant share of them is regulated by the government and ensures fixed earnings. For instance, over the period from 2000 to 2020, utilities’ dividend yield was about 4%. That is the place non-cyclical stocks have in one of the best investors of all time, Warrant Buffet. He once said: “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.

Safe Haven During Volatility

Non-cyclical stocks have always been considered as an excellent form of a saving grace amid market turmoil. As defined by Investopedia, non-cyclical stocks come from the consumer goods sectors such as healthcare, utilities, and consumer staples. These are the companies that offer essential goods and services which one needs regardless of the economic condition .

In the example of the 2008 Financial Crisis, when the market was sending signs of a large-scale downturn, and the S&P 500 Index lost more than 37.00% of its value throughout the year, critical sectors were hit much less intensely . For instance, XLP, or the Consumer Staples Select Sector SPDR Fund, has lost no more than 17.00% of its value when other potentially leading sectors were suffering advantages far greater than that.

Equally important, non-cyclical stocks were some of the quickest to recover from the mentioned crisis, regaining their value in no time and remaining as stable as ever. The advent of COVID-19 in early 2020 was perceived as a legitimate market shock, but the values of the medicinal stocks did not take that hard of a hit, and these have regained their value almost instantly.

The dividend yields of the consumer staples sector not just remain stable in the times of crisis, but they also rise . Back during the 2008 Financial Crisis, quite a few companies within the consumer staples sector increased their dividend yields, compensating the general losses incurred by their investors. As per Benjamin Graham, a universally recognized investor, and financial expert, the most appropriate investment is the one that is both safe and can secure an adequate return, with the defensive kind of stock, that is not sensitive to economic trauma, often being even better .

Suitability for Retirement Portfolios

For the stability of characteristics and dividends, non-cyclical stocks are the privilege of any retirement portfolio. In this case, we are primarily talking about reliability in the context of sectors such as utilities, health care, and consumer staples. Given that older people should live on investments and their income, factors such as high predictability, low volatility, and resistance to economic downturns are fundamental. History shows that such stocks reacted much less and more moderately to the financial crisis than, for example, cyclical ones. In 2008, the S&P 500 sank by 38.5%, but consumer giants and even took such a hit by seeing only a few percentage point drops. Meanwhile, during the ongoing COVID-19 pandemic, health and consumer goods are very popular and are reviving at this time.

Aside from the stability factor, a dividend also plays a crucial role. The fact is that among utilities, it fluctuates around 3-5%, which are not bad values ​​and turn out to be very decent income. However, in the context of retirement planning , the very fact of preserving assets could be an excellent factor. Therefore, the purchased shares can be held until the moment of full retirement, and the dividends received from new acquisitions will continue to replenish the account. Or, at the time of retirement, such a bond would allow you to be calmer about the costs accumulated there and use these dividends. After all, the principal remains invested and does not need to be touched.

In any case, if a person uses such stocks, they will not care about how they are doing a few decades after, as their previously accumulated income will live by its current principles and will not give the investor to sniff. This is especially important in the context of inflation, which will already not affect the costs that matter. And, as Warren Buffet said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.

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