While it may seem counterintuitive to some, it’s entirely possible to still build wealth during a recession. In fact, recessions can be one of the best times to maximize your personal wealth, according to experts. How exactly does one do that? To answer that question, we reached out to personal finance experts, entrepreneurs, academics, and business leaders around the country for tips on the best ways to build wealth during a recession. Here’s what they had to say.
1. Learn To Invest
Technology-driven robo investment advisers like Betterment and Wealthfront offer low cost investment management that automates investment selection and even the periodic portfolio rebalancing process needed to build a solid investment portfolio as a beginner, says Ben Dobler, certified financial planner, financial coach and founder of Ohio-based Stewardship Financial Counsel. “Investing gives you compound returns on your wealth, so that you can double or even triple your savings over time,” says Dobler. “A recession is the best time to start investing because you can buy into the stock market at a discount, and sell later when the economy picks back up again.” If you’re not sure where to invest, look for a fee-only, fiduciary financial adviser who will bill you for a short, hourly engagement to help you get started on the right track, says Dobler.
2. Invest using the dollar cost averaging approach
Dollar-cost averaging is a long-term investment method that involves investing a fixed amount of money in the same fund or stock at regular intervals such as monthly. “It is an investment approach that lets you buy assets over a specified period of time using a fixed amount of money, which can allow you to purchase more shares when the price is low, and fewer shares when the price is high,” says Mindy Yu, director of investments at the financial technology and services firm Stash. “The dollar amount of money you invest stays the same each month. By taking this approach you participate in different share prices during the various investing cycles. Ultimately, by regularly investing and leveraging dollar cost averaging you can remove any need or knee-jerk reaction to time the market.”
3. Invest In Real Estate
Most real estate wealth is made during recessions, says John Kilpatrick, managing director of Greenfield Advisors in Seattle. “If I was just starting out, and had a bit to invest, I would look for a small investment property, such as a duplex with good bones but a distressed seller,” explains Kilpatrick. “Networking with realtors who specialize in this area is a great idea. You want something that’s located in a very economically stable neighborhood, good solid blue-collar jobs, such as near a government or university campus … and where most of the fix-up can be accomplished with sweat equity.”
4. Think like a business
The items you spend money on need to provide a return or save you money elsewhere, suggests Bob Castaneda, program director for Walden University’s Master’s in finance program. “For example, if you purchase a home, you can salt away savings in addition to the real estate appreciation you’ll realize versus renting,” according to Castaneda, who says it’s a good idea to examine what you’ve purchased over the past six months and assess your spending habits and the value of what you’re spending money on.
5. Refinance Your Mortgage
An economic downturn can be an ideal opportunity to refinance your mortgage, or other types of debt that you may be paying interest on. Taking this step can cut your costs and spending, says David McHugh, chief marketing officer at Crediful. “In fact, it’s been shown that paying off a high interest rate has one of the best returns on your investment, meaning that finding ways to pay off debt or lower interest is one of the best ways to build wealth, especially during a recession,” says McHugh.
6. Pay down debts
In order to build wealth, you’ll need to manage debt, says Leslie Tayne, a debt attorney and founder of Tayne Law Group. “Having lots of debt will hinder your ability to build wealth and cost you money because you’re paying interest fees,” explains Tayne. “Some debts are okay and help you build wealth, such as real estate. If you’re struggling with credit card debt or loans, however, have a plan to pay those down faster … It’s essential to take into account how devastating compound interest can be when trying to pay down debt and build wealth. If you only pay the minimums each month, your debt could be growing simply because of interest, which turns into more interest. Break the perpetual cycle by paying as much as you can towards high-interest debt each month.”
7. Invest in yourself
One last way to build wealth over the long term, albeit less straightforward, is to invest in yourself during a recession, says Matt Frankel, a certified financial planner at The Ascent. “If you’ve lost your job, now could be a smart time to … maybe take a class to gain another credential for your resume, or even consider going back to school to earn a degree,” says Frankel. “I used the 2008-2009 recession as motivation to get my master’s degree, and it permanently increased my employability and earning power.”
8. Buy in bulk if you can afford to. Anything that is a cost savings today that you’ll need and use in the future will save you even more money later on, if inflation continues.
Non-perishable staples like toilet paper, toothpaste, shampoos and soaps, or even canned foods make great bulk purchases.
9. If you are considering a career change, look for recession-proof positions. Although no job is completely safe during a recession, certain jobs like those in essential services offer more security.
Think: medicine, teaching, law, accounting, public safety, utilities, waste management and other jobs that keep society running.
10. Create additional sources of income the biggest risks consumers face during a recession is loss of income. Pad that risk by taking on an additional job. You can find a second, hourly job with flexible hours (e.g., bartending or waiting tables, two occupations with a lot of job openings right now).
Or you can start a side hustlethrough gig apps like Uber, TaskRabbit, Instacart or Rover. Renting out your property (or even a vacant room in your home), either to a tenant or through a vacation agency, is another way to make a predictable stream of income.
