I Asked Financial Experts How to Build Wealth During a Recession, and They Said 3 Strategies Could Improve My Bottom Line

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• With a 2023 recession looming, I’ve been looking for ways to earn more and protect my money.
• The experts told me to put my money in interest-bearing vehicles, like treasury bills and CDs.
• They also recommended collecting tax losses to reduce my tax bill and reviewing Roth conversions.

Over the past two months, I’ve started to worry about having to change my financial strategy as we continue to navigate choppy financial waters. After spending years finding ways to save more and spend less, my main focus in 2022 has become trying to outsmart an impending recession.

I was eager to find ways to bring in more income streams, tighten my monthly budget so I could save more in my emergency fund, and keep my eyes peeled for new investment opportunities.

But in order to continue building my overall wealth for years to come, I wanted to know exactly what I should start doing now with my money so that it doesn’t succumb to the negative effects that a recession can bring.

I asked financial experts to share the best ways a person can build wealth during a recession. Here’s what they had to say.

1. Reassess your cash flow

One of my biggest ongoing financial mistakes is that my overall financial portfolio is too cash heavy. I’m afraid of taking big investment risks with a potential recession just a few months away. But even so, financial planner Adam Pawloski says there are low-risk options that can help your money grow more than just keeping it in a checking or savings account.

“There are many investments that offer liquidity similar to cash, but earn interest,” says Pawloski.

Depending on how much access you would need to that money in the near future, Pawloski says you can make money without putting it on the stock market. Options include putting the money on a CD, buying US Treasury bonds, or finding a high-interest savings account.

2. Consider reaping tax losses

When we think about how to plan for a recession, we are sometimes content to look at what to do with our current cash and assets while ignoring what we can do in the short term to help lower our tax bill. Chartered Financial Analyst Philip Mock advises talking to your accountant to see if you can reap tax losses.

“If the markets are down, you’re likely to have some losses in your portfolios,” Mock says. “If you sell a security at a loss, you can usually use it to offset other capital gains.”

He advises discussing this strategy with your accountant and using it to reduce short-term capital gains. Plus, says Mock, an added benefit of this strategy is that if you incur more capital losses than you’re allowed to deduct in the current year, you can carry them forward to offset future gains.

3. Examine Roth Conversions

When considering your recession strategy, Mock advises to pay attention to your retirement accounts and see if you can perform a Roth conversion, which is when you take money out of a traditional IRA and you transfer it to a Roth IRA.

Mock says that when you do a Roth conversion and pay tax on the conversion amount, you’ve now earned some after-tax money from it. When you make Roth conversions in market down years, you are accomplishing two things.

“First, you can potentially convert a smaller amount since the value has dropped and in doing so generate a smaller amount of taxable income for the current year,” Mock explains. “Second, when the market rebounds, the rebound occurs in an after-tax vehicle, which is beneficial.”

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