Part 5: Investment Planning Amidst a Recession

Over the last five weeks we’ve discussed different strategies to review all 5 pillars of wealth management amidst a recessionary environment. Today we will conclude with tips around managing your investment portfolio amidst the volatility that traditionally comes with an economic recession.

Educators are given the opportunity to participate in their employer sponsored plans while working. The 403(b) is the most common vehicle used for employees of educational institutions and will be the subject of this example today as we discuss how you can utilize the method of dollar cost averaging to your advantage in a volatile market..

I field questions and concerns from clients whenever market volatility strikes. It’s normal, it’s natural, and it’s a large part of my job – to educate and lead in times of volatility. One approach that is often overlooked is the ability to take advantage of the discounted prices that come with market swings. Let’s go through an example.

Our case study – Dr. Doe: Dr. Doe is a 60-year old professor at a large university in the Midwest. He is eyeing retirement in the next 5-10 years and is becoming more and more conservative with the investment allocation in his 403(b) Plan. He is very concerned about heavy volatility and the total value of his hard-earned savings decreasing if there is a recession. Due to this concern Dr. Doe keeps his allocation in a very conservative fund lineup, no matter what the global markets do, after all, why would he want to add risk to his portfolio at this age?

Areas of Opportunity: If Dr. Doe engaged me as his fiduciary financial planner, I’d inform him of the following items to consider at this stage in his life to ensure how volatility can be his friend.

1. In-service withdrawal

Most plans[1] allow you to execute what is called an in-service withdrawal in the plan you are participating in once you reach age 59.5. This allows you to rollover your vested portion of 403(b) funds into an IRA, without any IRS imposed penalty for the early withdrawal of your qualified funds. This option can offer you flexibility as an investor.

  • If you have years of embedded gains in your funds, you can capture those gains and establish a long-term allocation at the custodian of your choice. Most 403(b) Plans will have a pre-selected library of investments you must choose from and can be limited in comparison to the universe of investment choices. If you roll your money to an IRA at a different custodian, you will have a much wider array of investment options available to your needs. This allows you to establish your long-term allocation and set-up your portfolio within the time frame you expect to need it, in this case 5-10 years from now.
  • Once the vested portion has been rolled out, since you are still working, still contributing, and have your long-term allocation established, Dr. Doe and I would discuss the opportunity to dollar-cost average into more aggressive equity positions. The focus here is this: if markets are decreasing, then every time your pay period hits and your contribution flows into the plan, you are accumulating more shares at a lower price. Yes, the value of your account is decreasing if equity markets continue to fall, but you’re gobbling up shares at less expensive prices. Buy low, sell high, right? If you can find a more aggressive allocation that you believe in long-term, like a globally diversified mix of funds, then taking advantage of buying low (volatility) will be a good thing as you accumulate shares.

2. Re-allocate & Re-strategize

  • If your plan does not allow an in-service withdrawal you can still execute the majority of the example I explained above. In 403(b) plans you can allocate your plan balance into one strategy and allocate your contributions into another. The same methodology applies. Work with your CERTIFIED FINANCIAL PLANNER™ to find the funds in your 403(b) library that give you the best long-term allocation for your retirement goals. Allocate your existing balance to that fund lineup and allow it to do its job over the next 5-10 years.
  • Utilize the rest of your 403(b) fund library to find a more aggressive allocation that allows you to take advantage of decreasing share prices so you can accumulate more shares of funds you want to hold long-term.

3. Plan with your desired peace of mind, in mind

  • Of course, neither of these options are required, nor do they fit everyone. Advice isn’t a one size fits all, nor should it be. I have worked with many individuals who I’ve laid this strategy out to, and they aren’t comfortable with increasing their equity position in any way. You know what – that’s fine! You can still engage in creating a plan with the goal of sustaining your peace of mind, which is the most important thing. Not interested in additional risk? I understand – let’s map out an effective plan that still allows you to sleep at night.

You do not have to run from volatility. Planning around what you’re comfortable with, what you want to achieve, and how you would like to accumulate money for your long-term goals are all items my team and I specialize in helping you consider and act upon. Volatility is part of the investing process, being able to embrace it can be a positive move with beneficial outcomes, and we’re here to make it easier. Want to learn more? Start here.

[1] Not every plan allows this option. Please check with your plan provider to see if it is available before making a decision.


Diversification and asset allocation do not ensure a profit or guarantee against loss.

The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.


CATEGORIES: Wealth Management
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