How to Grow Your Wealth During the Next Downturn

I've got to tell you something that might sound crazy: I'm actually looking forward to the next market downturn.

And if you're a high earner like many of my clients, you should be too.

I know that sounds counterintuitive. 

Most people hear “recession” or “market crash” and immediately think about protecting what they have.

But here's the thing – if you're making six figures and you understand what I'm about to share with you, a market downturn becomes your biggest wealth-building opportunity.

I recently recorded a video breaking down the fundamentals of investing during economic downturns. If you prefer watching to reading, go ahead and check that out first – I'll wait.

But in this post, I want to dive deeper into strategies specifically designed for high earners like yourself. Because frankly, the generic advice you'll find everywhere else doesn't account for your unique situation.

The High-Earner's Dilemma You Never Hear About

Here's what I call the “Golden Handcuffs Paradox” – and I bet you've experienced this firsthand.

You're making great money. Six figures, maybe multiple six figures.

But when that perfect investment opportunity comes along – when the market crashes and everything's on sale – you find yourself saying, “I wish I had more cash to invest right now.”

Sound familiar?

It's not because you're not making enough money.

It's because lifestyle inflation has this sneaky way of eating up your investment capacity. The bigger house, the nicer cars, the private schools, the vacations – they all make sense individually, but collectively they can leave you cash-poor even on a high income.

I see this all the time with my clients. They're financially successful by every measure, but they're missing out on the biggest wealth-building opportunities because they don't have what we call “dry powder” – cash sitting on the sidelines ready to deploy.

So here's what I recommend.

The 3-Bucket Cash Strategy To Survive Any Downturn

Bucket 1: Your emergency fund. Yeah, I know, boring. But you need 3-6 months of expenses in a high-yield savings account. Non-negotiable.

Bucket 2: Your opportunity fund. This is where it gets interesting. I want you to keep 10-20% of your annual income in cash specifically for market opportunities. If you're making $200K, that's $20-40K just waiting for the market to give you a gift.

Bucket 3: Tax-loss harvesting reserves. We'll talk more about this, but you want some cash available to optimize your tax situation during volatile periods.

Now, I know what you're thinking: “Joe, that's a lot of cash earning practically nothing.”

And you're right.

But here's the thing – that cash isn't just sitting there. It's your ammunition for when everyone else is panicking.

Why Traditional Dollar-Cost Averaging Isn't Enough

Let me tell you about dollar-cost averaging, but not the basic version everyone talks about.

Most financial advice assumes you have the same amount to invest every month.

But that's not how high earners actually work, is it?

Your income probably varies. You get bonuses, commissions, maybe stock options. Your cash flow looks nothing like someone making $50K a year.

So here's what I call “DCA 2.0”, or…

Dynamic Dollar-Cost Averaging

You still do your base monthly investment from your regular salary. Let's say that's $3,000 a month going into your 401(k) and taxable accounts.

That's your foundation.

But then you layer on what I call the Bonus-Based Acceleration Method.

When you get that quarterly bonus or annual windfall, instead of upgrading your lifestyle, you deploy it strategically based on market conditions.

Here's my framework:

• If the market is down 10-15% from recent highs: deploy 2x your normal monthly amount
• If it's down 20-25%: deploy 3x your normal amount
• If it's down 30%+: deploy 4x your normal amount

Remember what I said in the video about wanting to buy every major dip? This is how you actually do it systematically, not emotionally.

And here's the kicker – you're coordinating this with your tax-advantaged accounts.

Max out that 401(k), do your backdoor Roth conversions when the market's down, and use your taxable accounts for the extra firepower.

Your Asset Allocation Timeline (And Why Age Matters More Than Ever)

Now, let's talk about something most generic investment advice gets wrong – how your asset allocation should change as you move through your peak earning years.

You're not 25 anymore.

You also can't afford to be overly conservative.

You're in this sweet spot where you need growth, but you also can't afford a major setback right before retirement.

Here's how I break it down:

Ages 35-42: Peak Accumulation Phase

You can still handle a 90/10 or 85/15 stock-to-bond allocation. You've got 20+ years until retirement, and these are typically your highest earning years. This is when you want to be aggressive, especially during market downturns.

Ages 43-50: Transition Phase

Start introducing some alternatives. Maybe 80/15/5 – stocks, bonds, and REITs or commodities. You're reducing your concentration risk but still staying growth-focused. This is also when you want to start thinking about international diversification seriously.

Ages 51-55: Pre-Retirement Fortification

You're getting close enough to retirement that a major market crash could actually derail your plans. I'd cap you at 70/30 stocks to bonds, and start building in more recession-resistant assets.

But here's what's crucial – and this ties back to what I said in the video about risk tolerance – you need to know your exact numbers.

I have my clients calculate what I call their “Financial Independence Number.“

It's not just “I need $2 million to retire.”

It's: “Based on my current net worth of $800K, my target of $3 million, and 12 years until I want to retire, I need an average annual return of X%, which means I can handle Y% allocation to stocks.”

When you know your numbers that precisely, you can make much smarter decisions about risk.

The Tax Strategies Most High Earners Miss

Here's where being a high earner during a recession can really pay off – literally.

Most people think about market downturns as just investment opportunities.

But if you're in a high tax bracket, downturns create what I call “Recession Tax Alpha” – tax optimization opportunities that can add serious value to your wealth building.

Strategic Roth Conversions

This is huge, and most people completely miss it.

When the market crashes and your 401(k) or traditional IRA is worth 30% less than it was six months ago, that's when you want to convert some of it to a Roth.

Let's say you had $500K in your traditional 401(k), and now it's worth $350K.

If you convert $100K of that to a Roth, you're only paying taxes on $100K instead of what would have been $140K+ six months ago.

Plus, all the future growth in that Roth is tax-free.

If you're in the 32% tax bracket, that conversion saves you over $12,000 in taxes compared to converting the same number of shares at higher values.

Advanced Tax-Loss Harvesting

Everyone knows about basic tax-loss harvesting – selling losing investments to offset gains.

But here's the advanced play: you harvest losses in your taxable accounts while simultaneously loading up your tax-advantaged accounts.

So you're selling your losing positions in your regular investment account, taking the tax write-off, and then buying similar (but not identical – watch those wash sale rules) positions in your 401(k) or IRA.

You get the tax benefit now, and you maintain your market exposure in the tax-advantaged accounts.

And if you're charitably inclined, this is when you want to load up your donor-advised fund with appreciated assets.

You get the full tax deduction, and the charity gets to sell the assets without paying capital gains.

What to Actually Buy When Everyone's Selling

Alright, let's get tactical. When the market's crashing and everyone's panicking, what should you actually be buying?

First, let's talk about quality dividend aristocrats – companies that have increased their dividends for 25+ consecutive years.

During downturns, these often trade below their historical price-to-earnings ratios, but their business models are solid enough that they keep paying and growing dividends even during recessions.

Think companies like Johnson & Johnson, Coca-Cola, Procter & Gamble.

Boring?

Maybe.

But when you can buy them at 15-20% discounts to their normal valuations, boring becomes beautiful.

REITs are another opportunity, especially during interest rate pivots. When the Fed starts cutting rates after raising them, REITs often bounce back hard. And if you're a high earner, the tax benefits of REIT dividends can be substantial.

International diversification becomes crucial too. When the U.S. market is struggling, sometimes international markets are doing better.

Plus, if you're buying international when the dollar is strong, you're setting yourself up for currency gains when the dollar eventually weakens.

Now, here's something I don't usually recommend to average investors, but if you're a sophisticated high earner with the time and knowledge: individual stock picking during crashes can be incredibly profitable.

Look for companies with strong balance sheets – low debt, high cash reserves.

Look for pricing power – companies that can raise prices even during tough times. And look for management teams that have navigated downturns before.

The key is doing this with a small portion of your portfolio – maybe 5-10% in individual stocks, with the rest in diversified funds and ETFs.

Protecting Your Peak Earning Years

Here's something that doesn't get talked about enough in investment circles: protecting your ability to earn income is just as important as protecting your investments.

You're in your peak earning years. If something happens to your ability to work – disability, job loss, industry disruption – it doesn't matter how well your portfolio is allocated.

For high earners, I'm a big advocate of robust disability insurance, specifically own-occupation coverage. This means if you can't do your specific job, you get paid, even if you could theoretically do some other job.

Most employer disability insurance caps out at $5,000-$10,000 per month. If you're making $200K+ per year, that's not going to maintain your lifestyle or your ability to keep investing.

Also, start building multiple income streams before you need them. Real estate, consulting, online courses, dividend income – whatever makes sense for your expertise and interests. The goal isn't to replace your primary income, but to create some cushion and optionality.

Your 7-Year Wealth Sprint

Here's the exciting part – how all of this comes together to potentially accelerate your path to financial independence by 3-5 years.

I call it “The 7-Year Wealth Sprint,” and it's based on the mathematical reality that major market corrections happen roughly every 7-10 years, and how you respond to them can dramatically impact your wealth trajectory.

Years 1-2: Foundation Building

Build your opportunity fund, optimize your tax strategies, and get your asset allocation dialed in. This is when you're preparing for the opportunity, not just hoping it comes along.

Years 3-4: Deployment Phase

Statistically, we're likely to see a significant market correction within this timeframe. This is when all your preparation pays off. You've got the cash, you've got the strategy, and you've got the discipline to buy when others are selling.

Years 5-7: Compound Acceleration

This is when the magic happens. Your opportunistic purchases from the downturn are now appreciating, potentially at above-average rates as the market recovers. Combined with your continued systematic investing, you're seeing compound growth on both your regular investments and your “crash purchases.”

Let me give you a real example. Say you're 45, making $150K, with a current net worth of $500K. Under normal circumstances, with consistent investing and average market returns, you might reach $2 million by age 62.

But if you execute this strategy – building your opportunity fund, deploying it strategically during the next major downturn, and optimizing your taxes throughout – you could potentially reach that same $2 million by age 58 or 59.

That's 3-4 years of additional freedom, or 3-4 years of additional wealth building if you choose to keep working.

Your Next Steps

Look, I know this is a lot of information. But here's what I want you to do in the next 30 days:

Week 1: Calculate your current “dry powder” ratio. How much cash do you have available for opportunities? If it's less than 10% of your annual income, start building that opportunity fund.

Week 2: Set up that high-yield savings account for your opportunity fund. Automate transfers so you're consistently building this war chest.

Week 3: Review your current asset allocation. Does it match your age, timeline, and risk capacity? If not, start making adjustments.

Week 4: Schedule a meeting with your tax professional to discuss advanced strategies like Roth conversions and tax-loss harvesting.

Here's the thing – while everyone else is worried about the next recession, you're going to be positioned to profit from it. While others are paralyzed by fear, you're going to have a systematic plan to build wealth faster.

That's the difference between hoping for financial success and strategically creating it.

The next market downturn is coming – not because I'm pessimistic, but because that's how markets work. The question isn't whether it will happen, but whether you'll be ready when it does.

Want to dive deeper into the systematic approach to building wealth?

I've put together a comprehensive course called Personal Finance Mastery that covers the five key areas that really matter: tracking your money intelligently, planning with business-level projections, investing strategically, optimizing your earning potential, and retaining more through smart tax planning.

It's designed specifically to help high earners like you go from six figures to seven figures – not through get-rich-quick schemes, but through understanding and systematically managing your finances.

If you're ready to stop leaving money on the table and start building wealth with intention, check it out here.