Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

As both the stock market and housing market nose dive this year, it seems that a possible deep recession is becoming much more likely. And, although, nobody actually wants to see or feel a recession, I want to instill a different mindset in investors.

First, I want to make it clear that recessions are not good for many. People might lose their jobs, lose their house, or have difficulty in keeping food on the table. Those are real effects that recessions can bring. There is no downplaying that, and my heart goes out to those that do have real consequences.

This blog post is for all those that are not at risk of serious consequences.

The majority of news sources will try to strike fear in you. You will only hear of people talking about moving all of their investments into cash, or losing money in stocks. Please, do yourself a favor and turn off the news! I want you to think of a recession as an opportunity to build serious wealth. There are plenty of great investment opportunities during market downturns. After all, the golden rule is “buy low, sell high”, not what most investors do, which is “buy high, sell low”.

I’m not talking about making huge gambles or putting all of your eggs in one basket. What I am talking about is making calculated strategic finance moves at opportune times. After all, Warrant Buffett says, “Be fearful when others are greedy, and greedy when others are fearful”.

Well, during a recession, there are plenty of fearful people out there.

But, you will not be one of those fearful investors because you are armed with the calculated opportunities that can help propel your wealth!

I want to share with you 5 investment opportunities that can help you thrive during the next recession:

1.     ROTH Conversion

If you have a retirement account, like a Traditional IRA or Rollover IRA, your account balances have likely dropped quite a bit during this stock market downturn. Maybe your account has declined as much as 30%-40%. And, although, that’s not enjoyable to experience, there can be some real opportunity there.

When you have a ROTH IRA, you are paying taxes on your money now at your current tax bracket. Then you can invest that money and have any capital gains tax deferred and later withdraw the funds tax free.

Why would you do this? Well, likely because you believe your tax rates will be higher in the future. Either because your income will increase or because we are at historically low tax rates, and that’s not going to last forever.

So, when you convert traditional IRA money that is taken a 30%-40% decline, then you are paying taxes on that lower amount. Rather, you are locking in lower taxes now and then never paying taxes on that money again, even if it grows 300% over the next 10 years.

2.     Backdoor ROTH IRA

The Backdoor ROTH has been up on the policy chopping block for some time, but as of November 2022, it still remains in play for investors. In 2022, the income phase-out levels are $109,000-$129,000 for married filing jointly, to be allowed to contribute to a traditional IRA. Anyone above this range cannot. In addition, the income phase-out range for ROTH IRA contributions is $204,000-$214,000 for taxpayers married filing jointly.

For those looking to utilize a ROTH account are limited. UNLESS, you do a Backdoor ROTH IRA.

There are 2 ways to do this. The first is through a company retirement plan that allows “after-tax contributions”. Some company retirement plans allow you to make additional after-tax contributions above and beyond your normal tax deductible contributions. Then, you can immediately roll those contributions over into a ROTH IRA as a ROTH conversion. There are not any phase-out limits on income for ROTH conversions!

The second way to do this is by making after-tax contributions into a traditional IRA, and then doing the ROTH conversion into a ROTH IRA. You would need to file IRS form 8606 to claim the non-deductible contribution.

This strategy is important to work with a CERTIFIED FINANCIAL PLANNNER™ and your CPA to ensure everything is done correctly.

3.     Investment Contributions

Whether inside of a retirement plan or outside of a retirement plan, investing in the stock market during a recession can be a smart move. Much wealth has been created during recessions for those who make calculated risks.

Again, I’m not saying to make speculative bets on some new crypto coin or the latest fad tech stock. But, I am saying that if you have a longer time horizon for needing the funds, making an investment into something like an S&P 500 index could be a worthwhile decision.

Remember, “buy low, sell high”.

4.     Buy Investment Property

The majority of my clients are real estate professionals, and real estate is something they understand. But, I’m always a bit surprised at how, even a real estate professional, can be fearful of housing market downturns.  

During the Great Recession of 2007/2008, some investors created significant wealth by buying properties at major discounts! Many of those properties were foreclosures. And, although, the next recession may not bring foreclosures, we certainly will see some properties at deep discounts.

Timing any market is not recommended, but if the opportunities are there where you can get in at a lower investment point, then that’s hard to ignore.

The thing people need to understand about real estate investing, is that it’s not a simple linear return like the stock market. There are multiple ways to earn return on your money through appreciation, tax deductive return, and income on the investment. I could go on and on with the benefits of owning real estate, but the same principle applies. Its best to “buy low, sell high”…or utilize 1031 exchanges and never sell and pay the tax.

5.     Invest in Yourself

Remember, people tend to panic in recessions. They, typically, aren’t thinking about getting ahead, they are just thinking about basic survival. And, rightfully so for those people that are affected by the recession.

But, if you are not affected, think about investing in yourself. This is the time where people can thrive. Those that are dedicated to coming out the other side even better, make investments into their knowledge. If you are a business owner, consider making tax deductible investments to make yourself a better business owner.

Above all else, do NOT panic!

Hopefully this blog article gave you some things to consider for an upcoming recession. Again, I want you to change your mindset about market downturns. There is plenty of opportunity to help propel your wealth and your future. The opportunities exist if you want to see them. But, you must act on them!

You’ve got this, I believe in you!


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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