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4 Key Investing Tips During a Recession

Chances are you might be feeling a bit worried about the recession in 2023, and you might be re-thinking what to do with your investments during this time.

During a recession, it is important to manage investments carefully. Some strategies include moving savings to high-yield savings accounts or CDs, converting retirement funds to Roth accounts, and considering tax-loss harvesting if selling investments. However, it is generally best not to make dramatic changes to investment strategies during a recession, as pulling money out of the market during a downturn can result in locking in losses and missing potential rebounds.

1) Move your savings to a high-interest one

Consider moving your savings to high-yield savings accounts, CDs, or bonds, which offer competitive interest rates. These options provide a safe way to grow your balance during a recession, even though they come with withdrawal restrictions. I recently had a money market that wasn’t budging in interest and holding a steady 0.8 %, but surprising to me, there was a high-performance savings account at 3.3%. This is 2023 and I haven’t seen this high of an interest rate in 10+ years. This simple account change can give you an extra few hundred of dollars a month.

2) Contribute to your Roth IRA or convert funds to it

Low paying years is the perfect time to leverage your Roth. Consider converting your retirement funds to Roth accounts during a period of reduced income or job loss. This will enable your money to grow tax-free. Though you’ll need to pay taxes on the amount converted from a traditional IRA or 401(k) account, you might pay them at a lower tax bracket during a low-income year.

3) Continue your recurring investments

During a recession, it’s not advisable to make major changes to your investment strategy. It’s important not to pull your money out of the market during a downturn because you could miss out on a rebound, and some of the best trading days occur after the worst days.

4) Leveraging Tax Harvesting 

To minimize the impact of selling investments during a recession, it’s advisable to consider tax-loss harvesting by selling equities for less than their purchase price, allowing for a tax write-off on future bills. However, be aware of the wash sale rule, which disallows buying back the same equities sold for a loss to avoid the tax write-off.

Remember, investing during a recession requires patience and discipline. It’s important to have a long-term investment plan and stick to it, even during market volatility.

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