145: Are We in a Recession?

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:
All right. Hey, hey, hey. Welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I am Austin Wilson, Research Analyst at Hixon Zuercher Capital Management.

Josh Robb:
And I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Austin how can people help us with this podcast?

Austin Wilson:
Two things-

Josh Robb:
Two things.

Austin Wilson:
… we would love it if you would do.

Josh Robb:
Two in a row.

Austin Wilson:
Do it right now, if you’re not driving. Please don’t do it while you’re driving. First of all, we would love it if you would subscribe if you’re not subscribed so you get every episode on Thursdays when it comes out. So we would love it if you could do that. We would also love it if you would visit our website and sign up for our weekly newsletter where we send out a link to the episode but also some little show notes-

Josh Robb:
Show notes and all that stuff. Summary.

Austin Wilson:
… a little summary. Yeah, it’s great. So we would love it if you would do that as well. Today, Josh, the question that a lot of people are asking right now… Because there’s people talking.

Josh Robb:
Yes.

Austin Wilson:
People talking. People are asking, are we as a United States economy in a recession?

Josh Robb:
Ooh. Yeah. Good question. Should be easy. I’m sure there’s some sort of set standard for this so we could tell them exactly yes or no to this answer.

Austin Wilson:
We’re going to get it to that.

Josh Robb:
Ready. All right.

[1:24] – How Did the Economy Get to Where it is Right Now?

Austin Wilson:
Yeah, we’re going to get to that. So, yes, a lot of speculation whether the US is or is not officially in a recession. As a reminder of how we got to be where we are right now, on July 28th-

Josh Robb:
Yep. Good day. Yep.

Austin Wilson:
… the second quarter gross domestic product for the economy came out. It was -0.9% annualized, second quarter in a row of negative GDP reading. First one, first quarter, was -1.6%. By traditional-

Josh Robb:
Yep. Sweet. So, we shrank for two quarters.

Austin Wilson:
Yes. By traditional thoughts, two negative consecutive quarters of GDP would be indicative of some sort of recession.

Josh Robb:
That’s what they call a rule of thumb?

Austin Wilson:
It’s a rule of thumb. However, the NBER or the National Bureau of Economic Research-

Josh Robb:
Oh, yeah.

Austin Wilson:
Relations? Research. They have yet to confirm that we’re in a recession. Couple reasons being that unemployment is at-

Josh Robb:
Their Zoom was muted. They can’t get it out.

Austin Wilson:
They can’t get it out. Unemployment is really low. In fact, the last reading we got, which was looking back at July, came in below pre-pandemic levels, and now we’re back to levels not seen since the 1960s.

Josh Robb:
Yes. Like, 56 years.

Austin Wilson:
3.46%.

Josh Robb:
53 years ago, something like that?

Austin Wilson:
3.46% technically rounds to 3.5, but 3.46% unemployment with July adding over 500,000 jobs to the economy. There were over 10 million jobs openings still in the economy as well. So a lot of the labor side of things looking very strong. That is one of the reasons there’s some hesitation to say that we are in a recession right now. So I was reading, Josh, because that’s what I do sometimes.

Josh Robb:
You like to read.

Austin Wilson:
I was reading a CNBC article, which we’ll link in the show notes, that outlined a few points in this discussion from experts in the field because as much as we would like to say we’re experts in the field, we’re not economists.

Josh Robb:
Yes. Unless I’m in corn. That’s when I become outstanding in my field.

Austin Wilson:
Outstanding in your field. So, both President Joe Biden and Federal Reserve Chair Jerome Powell have both said were not yet in a recession. Again, they pointed to the strong labor market. They pointed to rising wages. Again, the reminder is that we’re waiting for the official declaration from the National Bureau of Economic Research.

Josh Robb:
Yes.

Austin Wilson:
They have yet to call us in a recession.

Josh Robb:
They actually call everybody, which probably is why it takes a while. You’re farther down. You’re a W-

Austin Wilson:
I’m a W.

Josh Robb:
… so you’re still waiting for the call. Still waiting for that call.

Austin Wilson:
That’s going to be 2030 before I get that call.

Josh Robb:
Yes.

Austin Wilson:
But regardless of the country’s economic standing, consumers, they’re not feeling so great. They’re struggling in the face of sky-high prices. Inflation’s been hot for a while, and nearly half of Americans actually say they’re falling deeper into debt. So debt is going up.

Josh Robb:
That’s not good.

Austin Wilson:
That’s not necessarily great. So, a guy named Tomas Philipson… Or Tomas. There’s no H, so it could be “Tomas”.

Josh Robb:
Yes. That’s probably it.

Austin Wilson:
He is a professor of public policy studies at the University of Chicago and Former Acting Chair of the White House Council of Economic Advisors. That’s a lot of titles.

Josh Robb:
So do people sit on him? He’s an acting-

Austin Wilson:
He’s a chair.

Josh Robb:
He pretends to be a chair in this board.

Austin Wilson:
Exactly.

Josh Robb:
Okay. That’s weird.

Austin Wilson:
He said that what really matters is that paychecks aren’t reaching as far. What you call it, whether that be a recession or not, is less relevant. And that is true. Paychecks are going less far. The last inflation reading we got-

Josh Robb:
Yes, we know real earnings is down.

Austin Wilson:
… it was 9.1%. We’re seeing wages rising at about 5%-

Josh Robb:
Five, five and a half.

Austin Wilson:
… which is historically pretty good but much less than inflation, so you’re in negative real wages, down about 4%. That’s called bad news, right?

Josh Robb:
That’s called painful.

Austin Wilson:
It makes people feel unhappy about their financial situation. So, amid fears of a recession and rising interest rates, most people said they’re already seeing their standard of living declining, according to other reports. So that means your dollar’s not going as far. Maybe you’re having to cut back on certain things or having to go generic on certain things, make substitutions, not do this, not do that.

[5:25] – Side Note: What Won’t You Buy Generic?

Josh Robb:
Side note.

Austin Wilson:
Yes.

Josh Robb:
What is one thing you will not go generic on at the grocery store?

Austin Wilson:
Toilet paper.

Josh Robb:
Toilet paper?

Austin Wilson:
You?

Josh Robb:
Well, since you already said that, I’m going to go… Because that is one-

Austin Wilson:
Yeah. Oh, yeah.

Josh Robb:
… I would definitely say. The second one is laundry detergent.

Austin Wilson:
Really?

Josh Robb:
Mm-hmm.

Austin Wilson:
Huh. You notice a difference?

Josh Robb:
Yes.

Austin Wilson:
We go generic on laundry detergent, not on dishwasher detergent.

Josh Robb:
Ah, yes. That’s the other good one.

Austin Wilson:
It’s Cascade.

Josh Robb:
We’ve tried different of those little-

Austin Wilson:
Pod things?

Josh Robb:
… pods, and they don’t work as well.

Austin Wilson:
Really? That’s all we use.

Josh Robb:
I think the difference is the amount that I use of non-brand detergent.

Austin Wilson:
Okay. Gotcha. Yeah. We use-

Josh Robb:
We go through it.

Austin Wilson:
… Cascade Platinum pods, and we try and run it once a day, and they are more expensive, for sure. I feel like they do a pretty good job. But, yeah, there are another couple things. I guess I do not go generic on coffee. I don’t go Kroger brand or whatever. I get Folgers-

Josh Robb:
Folgers.

Austin Wilson:
… which is still… Bougie people are like, “Ew.” That’d be a step down for them. I think that’s-

Josh Robb:
You don’t do the instant coffee?

Austin Wilson:
Nope. Can’t do it. I don’t go generic on-

Josh Robb:
Cheese. So Kraft-

Austin Wilson:
Kroger brand cheese?

Josh Robb:
… cheese squares. I don’t feel like they melt as well. Burgers and stuff, they just don’t melt as well.

Austin Wilson:
Oh, the off-brand?

Josh Robb:
Yeah.

Austin Wilson:
Really?

Josh Robb:
Mm-hmm.

Austin Wilson:
Huh.

Josh Robb:
There’s a difference. You should get a slice of each and put it on when you’re grilling one time and just look at the difference. There is a difference.

Austin Wilson:
This is a total side note that we stopped buying pre-shredded cheese. Some people have health issues with it. They’re just like, “Oh, it’s not healthy because X, Y, Z.” But we have found that it just melts better and it tastes better when you shred it yourself.

Josh Robb:
Shred it yourself.

Austin Wilson:
So we buy blocks of cheese and we have a cheese grater and we shred our own cheese.

Josh Robb:
A lot of work.

Austin Wilson:
It really is.

Josh Robb:
Man.

Austin Wilson:
I know.

Josh Robb:
It would make me use less cheese, that’s for sure.

Austin Wilson:
No. We go through cheese.

Josh Robb:
Oh, man.

Austin Wilson:
My daughter eats cheese quesadillas.

Josh Robb:
Oh, we go through cheese like crazy. That’s why I’m thinking that would just be… I would have the strongest arm. You’d be like, “Josh, why are you so lopsided?” I was grating cheese all day.

[7:21] – What is a Recession?

Austin Wilson:
Grating cheese all the time. So, as a reminder, officially, the NBER defines a recession as, and I quote, “A significant decline in economic activity that is spread across the economy and lasts more than a few months,” end quote.

Josh Robb:
Very specific. I mean, that is down to a T.

Austin Wilson:
That is down to the penny, right?

Josh Robb:
Yes.

Austin Wilson:
So, in fact, the latest quarterly gross domestic product report, which tracks overall healthy economy, showed a second negative contraction this year. Yes, exactly. We just talked about that. So the most vague definition of a recession, I think you could probably-

Josh Robb:
A significant decline.

Austin Wilson:
Over more than a few months.

Josh Robb:
In economic activity that is spread across the economy and lasts more than a few months. Yeah. Man, not a single thing in there is defined besides-

Austin Wilson:
Yeah, they’re not trying to lock down anything. Oh, man. So, still, if the NBER ultimately declares a recession, it still could be months from now before they do that, and it will factor in other considerations as well, such as employment and personal income, which are both of the more bright sides of the economy.

Josh Robb:
Income not as much as employment.

Austin Wilson:
Exactly. So, for now, consumers should be focusing on high-energy prices and overall inflation, Philipson talked about, one of the guys in this article, and to that end, the Fed is making aggressive moves to temper surging inflation, but it will take a while to work its way through. Another lady, Diana, I’m not even going to say this right, but I’m going to try because that’s what I do, Furchtgott-Roth.

Josh Robb:
Probably right.

Austin Wilson:
Probably pretty close. I’m only going to say that once. An economics professor at George Washington University and former Chief Economist at the Labor Department said Powell is raising the federal funds rate and he’s leaving himself open to raise it again in September. He’s saying all the right things and that consumers are paying more for gas and food, so they have to cut back on other spending. Negative news continues to mount up, and she says that we are definitely in a recession.

Josh Robb:
Now, she’s not the NBER.

Austin Wilson:
She’s not the NBER.

Josh Robb:
So she could say whatever she wants.

Austin Wilson:
It doesn’t mean anything.

Josh Robb:
Man.

Austin Wilson:
So the direction of the labor market is really going to be key in determining the future state of the economy, both people we just talked about said. Decreases in consumption come first. Philipson noted if businesses can’t sell as much as they used to because consumers aren’t buying as much, then they lay off workers. We’ve definitely not gotten to that point yet. Layoffs are not happening rapidly, and the job market pretty strong there. So, on the upside, we still have twice the number of job openings as unemployed people so employers are not going to be so quick to lay people off. That is what is causing the Fed to have a bit of an issue right now. They’re seeing really high inflation and all this stuff and some indicators slowing down significantly. But on the other hand-

Josh Robb:
Job market is-

Austin Wilson:
It’s just rock solid for now.

Josh Robb:
Rock solid, yep.

Austin Wilson:
That is definitely giving some uncertainty, I think, as to the direction of the economy.

[10:06] – Dad Joke of the Week

Josh Robb:
All right. I’m going to do a dad joke of the week.

Austin Wilson:
You should.

Josh Robb:
Before I do, I’m drinking a Snapple, watermelon lemonade, by the way, which is really good.

Austin Wilson:
Did they go to all plastic bottles?

Josh Robb:
I don’t know, but it is… That is plastic.

Austin Wilson:
I like the glass. Call me old-fashioned.

Josh Robb:
Glass is nice. Recycle it. You can recycle this, too, I guess.

Austin Wilson:
Call me old-fashioned, Josh.

Josh Robb:
I will call you old-fashioned. But little tidbit there in the cap, tennis was originally played with bare hands. Whoa. Who knew?

Austin Wilson:
Isn’t that called handball?

Josh Robb:
That’s not a dad joke. That is fact.

Austin Wilson:
That’s just a fun fact.

Josh Robb:
All right. Austin?

Austin Wilson:
Yes.

Josh Robb:
What is the difference between a sock and a camera?

Austin Wilson:
There’s a lot of differences. I’m not even going to try.

Josh Robb:
One difference. One takes five toes, and the other takes photos.

Austin Wilson:
Five toes and photos. Very nice, Josh. I appreciate that. Thank you.

Josh Robb:
That’s what I got. Dad joke.

[10:54] – Josh & Austin’s Thoughts on the Rules

Austin Wilson:
So the rest of this episode, I’d like to have a discussion-

Josh Robb:
All right.

Austin Wilson:
… because we chat a lot, but only small bits of our conversations actually ended up on recordings. So let’s talk about our opinion on whether or not we should have a definite, easy to understand and calculate, rules-based official recession indicator rather than the NBER just going, “Yes, maybe. Yep, yep, close enough. Recession.” So should we? What’s your opinion?

Josh Robb:
All right. I kind of have two mindsets here. I’m a rules-based person. Austin knows I like to follow rules. I like it when there are clearly-defined rules. Then you know what you’re doing is right or wrong.

Austin Wilson:
Well, as our compliance officer, that’s a very helpful-

Josh Robb:
It is what it is. So I like clear, defined indicator. Having said that, it’s hard to clearly define the path of such a large economy because there are so many pieces to it. So I think as what the average person thinks of a recession, things come to mind, a very bleak outlook, a lot of problems, a lot of issues. So I think I’m okay with it being a little more open-ended because the NBER, it’s always backwards-looking, even… I mean, they got to wait at least those six months for that negative two quarters to make that judgment. Then from there they got to determine everything else.

So I’m okay with it being open because I think you can use it… Because it does impact sentiment, it does impact how people respond, it impacts the market when people hear that word recession. So I’m okay with it being a little looser so that they can say, “You know what,” like we are right now, “Eh. Maybe we’re still looking.” That gives a little leeway, a little flexibility there. So I get it. I love rules, and I think this rule of thumb is a good way of saying are we close to a recession? So that two negative quarters, I still look at it as that’s a good indicator that there’s something wrong. If you go six months of negative growth, maybe. So I don’t think, from a general standpoint, you should go away from that being your starting point or the general rule of thumb. But I’m okay with them having some leeway.

Austin Wilson:
Gotcha.

Josh Robb:
You?

Austin Wilson:
Yeah. I like taking the emotion out of it and just saying, “Hey, these four boxes are checked, we’re in a recession or we’re not.” I think it seems more like an art than a science the way it’s done right now, which I think is a challenge. That being said, I acknowledge and recognize that every recession is different, and that, I think, is part of the issue with why it’s done the way it is. Because, in this, say we’re headed into or in or whatever a recession. We’ve never been through this economic scenario before.

But I think, if it were up to me as a non-professional economist, if we could get some sort of agreement on a bucket of indicators that are all-encompassing and we could do an attribution analysis of every single period in time or whatever so that you could look back and say, “Oh, well, it was consumer spending that made us into the biggest contributor to our recession this time, or this time it was fiscal policy, or this time it was whatever.” A lot of the GDP components you could probably do to do that, and back into whether we are or not, I think a rule would help. But I don’t like this soft fluffy feel that we’re in right now.

Josh Robb:
Let me ask you this question based on hearing that.

Austin Wilson:
Yeah.

[14:18] – Was 2020 a Recession?

Josh Robb:
Was 2020 a recession?

Austin Wilson:
I mean, yeah, I think that economic activity on all fronts except for fiscal was just put to a complete standstill or negative for at least a short period of time. So I would’ve called that a recession.

Josh Robb:
Did we get two negative GDP quarters?

Austin Wilson:
We did. We did, Q1 and Q2.

Josh Robb:
Q1 and Q2.

Austin Wilson:
Mm-hmm.

Josh Robb:
Yeah. If it-

Austin Wilson:
But it was really short.

Josh Robb:
It was really short. It was a very short recession.

Austin Wilson:
It was February to April or May or something, right?

Josh Robb:
I guess what I was wondering with that is, obviously, there was a large unemployment because things were shut down, and that quickly recovered thankfully. All those things pointed to it, but the NBER could have said that this is not a recession because it’s self-imposed. They could have made that argument that all these numbers are skewed because we purposely shut everything down, and you probably could have made a really good argument for that. So I get what you’re saying about having these check boxes. I think you need to better educate on a recession in general because people panic to hear that recession, right, that word, and maybe there’s things underlying it.

Austin Wilson:
Maybe we need to use longer timeframes.

Josh Robb:
Yeah.

Austin Wilson:
Maybe this six-month thinking… Maybe you need to look at doubling it, go to a year, and look at total year GDP rolling periods and try and take away some of the noise. I don’t know. It’s tough. So those are our opinions on what the rules should be.

Josh Robb:
Defining it.

[15:40] – Josh’s Opinion: Are We in a Recession?

Austin Wilson:
But the real question, Josh, everyone’s been sticking around for this, is are we in a recession, in your opinion? Not the NBER, not the president, not the fed chair, Josh Robb’s opinion.

Josh Robb:
No. Nope, we’re not. And I say no because, again, going back to if that’s how you’re going to define it, then, no, we’re not in recession. Are we in a tough spot from inflation? Yes. Is the consumer feeling it? Yes. Are gas prices and food prices really hurting people’s budgets? Yes. But if the recession is decided by the NBER and we aren’t been decided a recession, then, no, we’re not in a recession. It goes back to my rules, right?

Austin Wilson:
Wow, you made it easy. You made it easy.

Josh Robb:
But that goes back to me, though, saying, “Define it,” because it almost sounds like you don’t care when you say, “We’re not in a recession right now,” because it makes it sound like all your pains don’t matter. So that’s why I think it needs to go back to better defining or indicating, well, who cares? Recession is a term for a period of time, but let’s say we flip-flop it. Let’s say inflation’s really low but unemployment’s really high. Are we in a recession? Probably not, maybe if the GDP’s not negative. But do you feel really, really upset about life? Yeah. So I think there’s a difference between those two, which is why we see consumers at the lowest point of their feelings than we have in a long time, because the things that are bad are impacting the average person’s budgets more than if we would’ve had other pieces of the indicators of recession creeping up.

Austin Wilson:
I’m glad you said what you said because you said, “The average person,” and I think that that brings us to another point, is that whether or not we are in a recession is different for everyone. Macroeconomic landscape impacts people on the lower end of income spectrum a lot more than it does on the higher end of income spectrum. So if you’re making a lot of money and doing very well, you’re spending… While you certainly are seeing inflation as well, you aren’t really feeling it at all. But that is making a lot bigger impact to people who make less money. Whether or not we’re in a recession or not is different for everyone.

[17:40] – Austin’s Opinion: Are We in a Recession?

Austin Wilson:
My opinion is that we’re also not in a recession, and I could really care less what the NBER says. I know what the NBER is going to cause some drama because people are going to say, “Hey, we’re officially in a recession or not,” six months late, but I think that the employment situation is far too good at this point to say we’re in a recession. If you break down the components of GDP for the first and the second quarter, the consumer components were exceptionally strong. So that is, numbers-wise, why I think we’re not. But, hey, we’ll just have to wait to see what officials come out and say eventually.

Josh Robb:
It’s the same as a bear market, right? The official bear market is down 20%.

Austin Wilson:
Closing basis.

Josh Robb:
Yep. But let’s see you get to 18, 19, like we did… What, was that 2018? We didn’t quite get there.

Austin Wilson:
It was, like, 19.8.

Josh Robb:
Yeah. Right. And 2011 was right there, too. It feels just as bad just because, technically, you didn’t call it that.

Austin Wilson:
Yeah, I know.

Josh Robb:
To me, it’s the same thing. It’s like, okay, we weren’t technically in a bear market as we’re technically not in a recession now, but it doesn’t feel good.

Austin Wilson:
Your account value seems the same.

[18:42] – How to Prepare for a Financial Downturn

Josh Robb:
I mean, it’s the same. You’re going to react the same. Speaking of reacting, we should talk about what do you do?

Austin Wilson:
That’s the question. So this is where I’m going to come to you as my financial expert in my life, Josh, is what are some things you can do? Because whether or not we’re in a recession I think is irrelevant right now, but we’re headed towards some sort of slowing of our economy in general because it’s grown very quickly coming out of COVID.

Josh Robb:
Well, raising rates is designed to slow the economy.

Austin Wilson:
Exactly. So our economy is slowing. In my opinion, we’re getting a recession at some point. So what can you do to financially prepare yourself for some sort of economic slowdown or recession.

Josh Robb:
All right. So, we’ll walk through a couple things. Again, the first one always comes back to make sure you’re talking with your financial advisor. Make sure you have a plan and that the plan accounts for these types of things, all right? What’s the first thing you need to do? Well, if you know there is going to be a slowdown and there could be a disruption in your income, you need to know where your money’s going. So make sure that you take a hard look at your budget, make sure that you know exactly what are your required spending, which is those have to happen every month, mortgages, utilities, property tax, the things that you have to pay, versus discretionary spending, which is, “Yeah, I could live without it.”

Austin Wilson:
Vacations and movie tickets and-

Josh Robb:
All the fun entertainment stuff, all the good stuff that’s actually fun in your budget. But know how much you need minimum to get by versus all the extra fun stuff you’d like to do. Understanding that gives you a good handle on where you’re at for your own comfort level. Your job is important. So right now, we’re talking about whether we’re in a recession or not, the job market at this point has not been drastically affected by where we’re at, and so job security is still pretty strong. There’s not a lot of layoffs right now. But understand where you’re at, what your industry looks like, how easy it is for me to find a new job based on my skillset and my experience.

Austin Wilson:
Or how frequent it is, I guess, that your industry does layoffs when things slow down.

Josh Robb:
Yeah. Am I one that right away we’re the first group to go? So understand that. Be ready to go if you need to. Maybe have some backup. Get some side hustles going just in case, those type of things.

Austin Wilson:
Update your resume.

Josh Robb:
Update your resume. Yes. Always have that ready to go. I don’t know. A cover letter.

Austin Wilson:
Do people use cover letters?

Josh Robb:
I don’t know.

Austin Wilson:
Sure.

Josh Robb:
And then if you’re worried about a disruption, having excess cash is never a bad thing. So we always call that emergency fund. Maybe you beef that up a little bit. Maybe you’re sitting there at about three months of your living expenses. Maybe you push it up to six just to have a little extra cushion in there. Again, it comes back to where are you at in your own industry? Let’s say you are a nurse and there’s always opportunities for nurses. You may have to travel a little farther, go to a different spot. But there’s usually a spot where you can… Then there’s less worry about that loss of income disruption. But if I’m in an industry, like you said, like construction, where if things slow down, people aren’t building new, I may go and be laid off for a little while. Okay, I need to be more aware of that. There’s different industries that react differently to that.

[21:39] – What Should You Do With Your Portfolio?

Austin Wilson:
Absolutely. That leads us to our next question, is what about your portfolio? Because, obviously, the majority of people, not just in the US but around the world, their financial assets, stocks, bonds, mutual funds, whatever you’re holding, likely down this year.

Josh Robb:
Yeah.

Austin Wilson:
So that’s where the markets are right now. We know that over longer terms, things recover, and we’re not concerned about that, and we’ve talked about that many, many times. But, Josh, what do you do if you’re at different stages in life with this situation right now? Because the markets and the economy are separate; however, they do tend to follow some trends.

Josh Robb:
Yes. So when we’re looking at the overall portfolio, this advice goes true to everybody, is go back to your plan, no matter how old you are, where you’re at in your life, and stick to that as the overall strategy. But within it… Let’s say you’re a younger person. Downturns are great. You shouldn’t be rooting for recessions, but-

Austin Wilson:
You’re buying stocks on sale. Yeah.

Josh Robb:
… you should be glad when you have the opportunity to continue to add money into your accounts when the market is down because everything that you are buying is now at a lower price so you’re getting more of those shares for the same dollars you’re putting in. So these disruptions for young people, great. Just keep adding your money. Don’t give up. Don’t change that. If you’re older, in retirement or living off your portfolio, it’s a little harder, and that’s where having the plan comes in place. But thinking through, “Okay, do I have assets that are less volatile that I can live off of while the more volatile assets recover,” having an allocation that’s diversified to give you some opportunities there. For everybody thinking through this, they might create one-off opportunities. So one of the things we should talk about is Roth conversions, moving money from IRAs to Roth IRAs. Well, when you do, you create tax, so if I had, let’s say, a $10,000 IRA and now because of the market, it’s down to $6,000… That’s pretty steep, $4,000, 40%.

Austin Wilson:
Ooh. You’re pretty aggressive. You went ark.

Josh Robb:
Yeah. But let’s say I’m down. I could move that money from a traditional IRA to a Roth IRA. I’ll pay tax on that $6,000 of income, six because that’s what the value is when I moved it, but if I move those same investments and they have the ability to recover, I’m only paying tax on 6,000, not 10.

Austin Wilson:
Exactly.

Josh Robb:
So there’s some opportunities where if you look at it from a bigger picture to say, “Hey, if I’m down in value, is there anything I can do with this money while it’s reduced in value that I wouldn’t have wanted to do when it was a higher value?”

Austin Wilson:
And, Josh, what is another great example of that?

Josh Robb:
So that’s an IRA account. If you have a taxable account, if it’s down in value… And let’s say it’s even at a loss. I bought something for $100 a share, now it’s $80 a share, I’m down. If I were to sell it now, I would actually realize a loss. I lost money. Well, we always say stick to your plan. You’re not selling because you’re panicking, but you could say, “You know what? If I have things that are gains, I could offset that tax by selling this thing and then buying something different.” It has to be different. Can’t do the same thing again. There’s a whole rule on that.

Austin Wilson:
Oh, yeah. Wash sale rules.

Josh Robb:
Wash sale rules. But that’s called tax loss harvesting. I’m harvesting, taking my losses, and then I’m going to utilize those on my taxes. But then I’m going to take that money and reinvest it right away into something maybe similar but different so that I’m back in the market to capture the recovery but I’m going to grab those losses while they’re there and I’m going to use them. So there’s some opportunities for both of those. There’s also opportunities that you are looking to exit a position. It’s cheaper now than it would’ve been if you had high gains. Let’s say you’re not at a loss, but you’re just less capital gains. If you really wanted out of that position, you’re going to take less of a tax now, especially if you plan on reinvesting that money somewhere else. You’re still going to capture the upside potential of the market-

Austin Wilson:
Long as you’re in the market. Yep.

Josh Robb:
… as long as you get back in the market. So, yeah, there’s some opportunities there. Again, it all comes down to planning, and you need an advisor to help you through that to make sure you’re doing the right things because you hate to do a move like that and realize there’s other consequences that you didn’t plan on.

Austin Wilson:
Absolutely. Well, thank you for being here this week. That is our thoughts on whether or not we’re in a recession because it’s depends on who you ask.

Josh Robb:
That’s the question. Yeah.

Austin Wilson:
It is the question of the month. But we are happy that you were with us. So thank you for listening. As a reminder, we would love it also if you’d follow us on social media.

Josh Robb:
Oh, yeah.

Austin Wilson:
Because we have Instagram, Facebook, Twitter, we do it all.

Josh Robb:
We’re all over.

Austin Wilson:
We’re all over the place. And we’d love it if you’d share this episode. If you had someone asking, “Hey, am I in a recession, is this a recession, what’s going on right now,” share this episode with them and they may be as confused as we are at the end of it, because we don’t really know. We would also love it if you would email any ideas, topic thoughts, or questions to hello@theinvesteddads.com. Hey, who knows? Maybe your idea turns into an episode one day. We’d love to hear from you.

Josh Robb:
All right sounds good.

Austin Wilson:
Yeah. Well, until next Thursday, have a great week.

Josh Robb:
Yep.

Austin Wilson:
Talk to you later. Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode.

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.