Listen on Apple Podcasts, Spotify, Buzzsprout, online, or search ‘The Stewardology Podcast’ in your favorite podcast app.

 

How To Approach Investing During a Recession

There’s a famous saying, “you don’t know what you don’t know.” There is no shame in not knowing what to do, if anything when the financial markets are being troublesome and this is either not your area of expertise or area of interest. But, you cannot just stick your head in the sand and not do nothing!  If you are “navigating your own financial ship,” you need to have knowledge and understanding on what to do.

If you are not navigating your own financial ship, you still ought to have a working understanding of why things are positioned the way that they are. In today’s episode we want to help you understand how to approach these crazy investing days.  With the markets all over the place, and the official word on a recession about to be announced, what is one to do with their investments during these days?

 

What NOT To do

  • Panic – run around screaming like your hair is on fire
  • Knee-jerk reaction – don’t sell everything and move to cash, or gold, or ____________ (fill in the blank)
  • Become Jaded or embittered – Just because you may have seen your account values decrease, doesn’t mean that investing is rigged or that the market is fixed. The market tends to reward those with a long timeframe. 
  • Donate shares in a loss – If you bought a stock for $50 but it is now only worth $10, do not donate those shares to charity. Rather, donate shares that are still in gain status, give cash, or sell losing shares and donate cash.

How to approach investing during a recession

 

What To do

  • Nothing – Often the best choice when you are tempted to throw in the towel. 
  • Invest – buy more shares of high quality investments that happen to be on sale. 
  • Rebalance – sell winners to buy losers may help to lower risk and potentially boost long term returns. 
  • Roth Conversion – take advantage of the markets being down to shift money from your taxable retirement (IRAs) to tax free retirement (Roth IRA). Roth conversions incur income tax in the year of conversion. 
  • Tax Loss Harvesting – in a taxable account (non-IRA/retirement), sell shares at a loss to offset other gains elsewhere in your income/portfolio. 
    • Be aware of the 60 day wash sale rule.

 

How to Approach Investing During a Recession

 

Hypothetical Scenarios

The following should not be taken as financial advice. Please reach out to us if you’d like personalized advice!

 

I’m 30, married, own my home and have 2 kids. What should I do?

    1. Work on budget
    2. Pay down debt
    3. Emergency fund 
    4. Roth IRA

I’m 50, have $300k invested in my 401(k)s and kids are finishing up college within the next 2 years. What should I do? 

    1. Keep risk levels the same in retirement planning. Don’t reduce risk during the downturn. 
    2. Make sure you are funding your Roth IRAs. 
    3. Consolidate 401ks into 1 IRA, 
    4. Roth conversion of IRA to Roth, Pay attention to taxable income and FAFSA form. 

I’m 66, retiring next year, have $800k invested and am afraid that I’ll run out of money. 

    1. What is your expected income in retirement? SSi, Pension, PT work, Investment income.
    2. What is your budget in retirement? 
    3. Are you debt free? If not, can you delay retirement until you are? 
    4. Roth Conversion
    5. Rebalance Portfolio
    6. Consider annuities
    7. Revisit risk as the markets recover to zero in the right risk level. 

I’m 75, retired with $600k and am taking $2,000/mo from my accounts. What should I do? 

    1. How much cash is in your portfolio? If you have less than 6 months income ($12k) in cash, consider raising cash now to buy time until the market recovers
    2. Reduce withdrawal if able. Cut back expenses or increase other income sources (PT work, rent out spare room…)
    3. Roth Conversions
    4. QCDs

I just inherited $500k from my mom in an IRA ($400k) and a Roth IRA ($100k). What should I do?

    1. 10 year withdrawal rule – Applies to both IRAs (Roth and traditional), you have 10 years to withdraw 100% of the account (pay taxes on inherited IRA, no tax on Roth). 
    2. Plan inherited IRA withdrawals based on anticipated income. In high income years, you may want to defer taking from the Inherited IRA. May be best to hold off on withdrawals from inherited Roth until the end of the 10 year withdrawal period (allowing for tax free growth). 
    3. If you don’t need the money, consider withdrawing from inherited IRA during down year and investing them in a taxable/joint account. Pay income tax when accounts are down. When accounts rebound, they would be subject to capital gains and dividend taxation.

Investing during a recession

 

Stewardship Application

Psalm 1:1-6 ESV – “Blessed is the man who walks not in the counsel of the wicked…”

  • Choose to seek out not just counsel in what you don’t know, or what you could know better. But, seek out GODLY counsel!
  • Find someone of like faith, values, and passion for God and His Word and lean into them for counsel and wisdom in your financial plan and decisions.

Proverbs 1:5 ESV – “Let the wise hear and increase in learning, and the one who understands obtain guidance…”

  • Increase in your learning!!!  And you are doing so right now through this podcast!

 

Next Steps

 

Material presented is property of The Stewardology Podcast, a ministry of Life Financial Group and Life Institute. You may not copy, reproduce, modify, create derivative works, or exploit any content without the expressed written permission of The Stewardology Podcast. For more information, contact us at Contact@StewardologyPodcast.com or (800) 688-5800.

The topics discussed in this podcast are for general information only and are not intended to provide specific investment advice or recommendations.  Investing and investment strategies involve risk including the potential loss of principal. Past performance is not a guarantee of future results.

Securities and advisory services offered through GWM, Inc Member FINRA/SIPC