April 10, 2020                

 

We add our voices to countless others wishing you and your loved ones’ safety and security during the pandemic.  We are all affected profoundly at a human level.  Yet we might take solace in a growing, global response to curtail and end the spread of the new coronavirus.  

 
This invisible enemy reveals our shared vulnerability and interdependence - locally and globally - as well as the role of science, responsive government, and each and every citizen.  Accordingly, our firm is following the shelter-in-place mandate.  We are working remotely from our respective homes, seamlessly except for the occasional bark of dogs in the background.  
 
Increasingly we use video conferencing for “virtual meetings” with clients, colleagues, and service partners. We are happy to demonstrate how easy this online technology is to use.  
 
With this electronic newsletter, we are attaching your investment portfolio performance and advisory fee reports for First Quarter 2020.  Due to sheltering, we are not able to send printed copies to clients.  
 
For an overview of global financial markets, we are also providing this link to the First Quarter 2020 Market Review  – an excellent compendium of how stock and bond markets here and around the globe have performed over the past decade.  

 

This quarterly newsletter also covers:
     3 Financial Strategies During Scary Times 
     The pandemic, financial markets, and your financial plan

     Provisions of the $2 Trillion CARES Act affecting individuals and families

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3 Financial Strategies During Scary Times 

1. Don’t make emotional decisions.  Stick with your long-term plan.

2. Focus on what you can control. Review your financial plan, the facts of your situation, and your options.

3. Eliminate noise. TV is not your friend.

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The Pandemic, Financial Markets, and Your Financial Plan
 
There is no separating the health and financial crises.  Markets have been flying blind since falling about 30 percent from their historic highs of mid-February.  Market fluctuations have narrowed since governments have launched massive health and financial interventions.  
 
Still, speculation in lieu of hard data will move short-term markets, in particular not knowing when the pandemic will end or how resilient our shell-shocked economy might be.  Increased uncertainty would put greater downward pressure on stocks; rays of hope, an upward effect. 
 
The longer an investor’s holding period, however, the less all of this should matter. Our clients typically exercise patience along with a risk-adjusted diversification strategy to meet individualized goals.  
 
Market history provides a degree of comfort, though no guarantees.   For example, the Great Recession of 2008-2009 produced a stock market drop of 51 percent that led to universal feelings of despondency.  However, that period was followed by a record-long, eleven-year bull market – often with marked complacency.  

Even with the pandemic and the resulting crash, global stock markets registered an annualized 6.45% return for the past ten years, and they did so during a period of record-low inflation (MSCI All Country World Index, as of March 31). At the end of 2019, before this latest crash, that ten-year average stood at 9.37% – looking back, it’s merely a historical number; looking forward, it’s grounds for optimism. 

At some unknowable future date, this current stock market will have appeared a bargain. “I wish I would have gone all-in at fire-sale prices,” some will say.  However, today we advise caution and patience (not running to the sidelines) nor heroics (not plunging into the stock market for short-term gain).  However, adjusting one’s long-term strategy is always open for review, and it can go far to reduce the stress of present uncertainties.  None of this precludes withdrawing now monies for any cash purchases already planned for the next twelve months.
  
The history of economic expansions and contractions suggest that time is a magnificent diversifier; markets go through infinite cycles, marching to the beat of an improvisational drummer.  Investors – by virtue of steady, balanced participation – should eventually accumulate the rewards of uneven, global economic growth. It’s just that the animal spirits of production are now stewing at home, sheltering in place until we kill this virus. 

CARES Act

 
Learning from the near financial meltdown of 2008-2009, the federal government has acted more swiftly and with vastly greater reach to cushion the financial shock of the pandemic.  The CARES Act immediately injects $2 trillion (that’s trillion with a “t”) into the economy.  Congress has signaled the possibility of injecting another trillion or two if the first massive infusion proves inadequate. This is going far to reduce panic. 
 
Here are a few CARES Act provisions affecting individuals and families: 

Cash payments of $1,200 to most individuals.  Individuals with moderate, low, or no income should qualify for a $1,200 payment and $500 for each dependent. The benefit is phased out for those earning between $75,000 and $99,000.  The government promises to transmit those funds within a couple of weeks. Let’s see. 

Funding deadline postponed.  Individuals have until July 15 to fund a traditional or Roth IRA for the 2019 tax year. 

The tax filing deadline postponed.  Filing of 2019 tax return is postponed to July 15.  

Estimated tax payments postponed.   First and Second Quarter 2020 estimated tax payments are postponed until October 15, when Third Quarter taxes are due.   No interest or penalties accrue during that time.

Required Minimum Distributions (RMDs) for 2020 are waived.  For 2020, the government has waived the RMD rule for individuals who are normally required to make annual withdrawals from their retirement funds after age 70.  The same waiver applies to those holding inherited IRAs. 
 
Any RMDs that have been processed this year can be reversed, thus allowing individuals to forgo taxes on that amount for the 2020 tax year if they replenish those withdrawals.  (Our firm will help our clients navigate that decision to determine what best fits with their cash flow and tax situation.)

Liberalized borrowing and withdrawal provisions for 401(k).  For the current year, the government has waived the 10% early withdrawal penalty affecting those under age 59-1/2.  Further, an individual can now withdraw up to $100,000.  If simply a withdrawal, it will be taxed as ordinary income.  However, the CARES Act allows a three-year repayment to one’s 401(k), thereby treating the withdrawal as a loan while avoiding taxation.  (It is our general opinion unless you’re faced with an eviction notice, don’t tap your 401(k).  Treat retirement funds as “don’t touch” money.)

Additional Provisions.  Small business owners may be eligible for forgivable, low-interest loans if they hold onto their employees.  Unemployed workers will receive supplemental benefits of $600 per week. 

If you feel like we are in a war, Queen Elizabeth can relate.  She drew on her World War II experience while addressing the pandemic this week.   The “good-humored resolve” of that era, she says, will see us through the present crisis.  Speaking most assuredly, the former, wartime jeep mechanic declares the pandemic will recede and “We will meet again.” 
 
Our firm is here to help you in any way possible to discuss your portfolio, personal changes, or concerns.  More than ever, in these unprecedented times, we welcome your phone calls and emails.  We are grateful for the opportunity to be of service.