3 Ways to Build Wealth During a Recession

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  • With the recession of 2023, I have been looking for ways to earn more and protect my money.
  • Experts tell me to put the money in interest vehicles, like Treasury bonds and CDs.
  • They also recommended harvesting tax-losses to reduce my tax bill, and looking into Roth conversions.

Over the past few months, I’ve begun to worry that I may need to shift my financial strategy as we continue to navigate the financial waters. After spending years trying to find ways to save more and spend less, my main focus in 2022 has been trying to outsmart a looming recession.

I have really wanted to find a way to bring more income streamstighten my monthly budget so I can save more in my emergency fund, and have kept my eyes out for new investment opportunities.

But in order to continue to build my wealth in the coming years, I want to know what I should start now with my money so as not to be subject to the negative effects that the recession can bring.

I asked financial experts to share the top ways people can build wealth during a recession. Here’s what they said.

1. Reassess your cash holdings

One of my biggest financial mistakes was that my entire financial portfolio was too heavy. I’m afraid to take any big investment risk with the potential of a recession just a few months away. But even so, the financial planner Adam Pawloski says that there are low-risk options that can help your cash grow more than just staying in a checking or savings account.

“There are many investments that offer the same liquidity as cash, but pay interest,” Pawloski said.

Depending on how much access you need to that money in the near term, Pawloski says you can get the money without putting it in the stock market. Options included put the cash in a CDbuy US Treasury bondsor find a high-interest savings account.

2. Consider harvest taxes

When we think about how to plan for a recession, we sometimes only look at what to do with our cash and assets now while ignoring what we can do in the near future to help lower our tax bill. Chartered financial analyst Philip Mock advises speaking to your accountant to see if you can do anything harvest tax-loss.

“If the market goes down, chances are you have a loss in your portfolio,” Mock said. “If you sell a security at a loss, you can generally use it to offset other capital gains.”

He advises discussing this strategy with your accountant and using it to reduce capital gains in the near term. Plus, Mock says, an additional benefit of this strategy is that if you generate more capital losses than you are allowed to reduce in the current year, you can carry this forward to offset gains in the future.

3. Look into Roth conversions

As you look at your recession strategy, Mock advises paying attention to your retirement accounts and seeing what you can do Roth conversionthat when you take money from a Traditional IRA and transfer to a Roth IRA.

Wealthfront Wealthfront IRA

costs

0.25%; 0.06 – 0.13% for low cost investment funds

Account Type

Traditional IRAs, Roth IRAs, and SEP IRAs

Type of investment

ETFs, index funds, and crypto trusts

Wealthfront Wealthfront IRA

costs

0.25%; 0.06 – 0.13% for low cost investment funds

Account Type

Traditional IRAs, Roth IRAs, and SEP IRAs

Type of investment

ETFs, index funds, and crypto trusts

costs

0.25%; 0.06 – 0.13% for low cost investment funds

Account Type

Traditional IRAs, Roth IRAs, and SEP IRAs

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Chevron iconThis indicates an expandable section or menu, or sometimes previous / next navigation options.

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Mock says when you make a Roth conversion, and pay taxes on the conversion amount, you’ve now made after-tax money. When you make Roth conversions in below-market years, you accomplish two things.

“First, you can convert a smaller amount because the value has gone down, and in doing so generate a smaller amount of taxable income in the current year,” Mock said. “Secondly, when the market is rebounding, the rebound occurs in a post-tax vehicle, which is profitable.”

Seek advice from a financial planner or advisor if you are considering this strategy.

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