Resources

Just too good to keep to ourselves

Welcome to our library. We strive to provide resources so that our clients know as much as they wish when it comes to being financially savvy. And it doesn’t stop there! We are part of a larger community – including you, wherever you may be. This is where we share content and tools that are important, fun and even inspiring, with everyone. Our resource vault will help you get smart about money, find your own motivation to move forward, and laugh and breathe a bit easier along the way.

Women Do Have Financial Confidence, Despite What the Stereotypes Say

Published in: Resources |

In the world of finance, women have long been depicted as indecisive investors, insecure about their financial knowledge and the decisions they make with money. But this is a myth — women don’t lack financial confidence. Here’s why.

Why the Myth Exists

We live in a culture that applauds people who speak and act authoritatively, don’t hesitate or mince words, and make decisions quickly (for better or worse).

While there are certainly women who embody these characteristics, there are many more who tend to think things through before they contribute to a conversation or prefer to gather more information before making a decision. This quality can be easily misinterpreted as a mark of indecisiveness and insecurity when, in fact, the woman who embodies it is simply taking time to reach a well-informed decision.

Research has shown that when complex situations present themselves, women are more likely to evaluate the nuances in the details, while men tend to focus on fewer pieces of data. As you can imagine, this often decreases the quality of the man’s decision-making process and boosts the quality of the woman’s.

Get Rid of the Unnecessary Jargon

Merrill Lynch recently pointed out that even among men and women with similar levels of financial knowledge, women are more likely to say they don’t know enough.

Many of our clients have walked into our office believing they were not adept at handling their finances when, in actuality, they just needed to have their questions answered in a straightforward and transparent way.

More Women Are Taking Charge in Money Matters

The good news is there are early indications that societal changes are improving women’s “confidence” around money, particularly in the younger generation because they are gaining more access to information.

Women ages 25–34 are more likely than their elders to report they learned about finances from one or both parents (62%, compared to 45% of older women), and over half (51%) say they are very confident in their investing skills.

This final statistic is in stark contrast to their elders: Only 36% of women ages 35–49, 14% of women ages 50-69, and 11% of women ages 70–84 said they feel confident in their investing skills.

So, how can we ride this new wave of financial confidence?

What's Behind the Confidence Gap?

Women are often cast as “timid, indecisive investors” when it comes to personal finance. But this couldn’t be farther from the truth. It’s time we broke these damaging stereotypes — and it’s time to own your financial power. #InvestLikeaWoman

Posted by The Humphreys Group on Tuesday, August 27, 2019

In Our Experience

Women often discount their financial savviness without considering areas of their lives in which they are already smart about money — family budgeting, volunteer work involving financial management, managing medical issues, and advocating for family members and loved ones.

Women are adept at picking up financial concepts if they are explained without unnecessary jargon or obscure concepts.

And if women are clear about their goals and values, they’ll find making decisions can be simple and straightforward. Once our clients have defined what matters most, decisions fall into place more easily. Aligning our financial resources with our highest priorities and values can provide relief and a sense of certainty.

Keep the Conversation Going at One of Our Circles

We regularly host Conversation Circles for women who are interested in straightforward and authentic discussions focusing on the non-numerical aspects of personal finance. Everyone is welcome — let us know if you’d like to be included in our next Circle!

Week in Review: What’s Happening in the Markets, the Economy, and on the Policy Front

Published in: Resources |

When we compare the beginning of this year to our current state, it’s hard to believe that so much can change in just a matter of months. It has been a little over four months since February 12, when we celebrated as the Dow Jones Industrial Average (DJIA) hit its all-time high of 29,551.42.

And then, the COVID-19 outbreak happened — and we all know what happened next, as March and early April brought some dark days for the financial markets.

Since then, it has been a rocky couple of months, filled with both ups and downs. This week proved that we know very little about what lies around the bend. After a period of remaining steadfast in the face of staggering jobless claims — which recently sent the unemployment rate up over 15% — all of the major indices struggled mid-week before making a comeback on Thursday, when the DJIA rose more than 300 points to break its three-day losing streak.

The markets closed the week with the DJIA +0.25% higher, the S&P 500 +0.39% higher, and the Nasdaq +0.79% higher.

The Economic Outlook: Preparing for What’s to Come, as States Move to Reopen

As some states move to reopen their economies, while others take a more gradual approach throughout the summer months, the nation is waiting with equal parts anticipation and anxiety to see when the economy will get back on the road to recovery.

When we look at the latest data, the effects of measures to stem the spread of COVID-19 are taking their toll. Weekly jobless claims rose by 2.98 million in the week ended May 9, which is slightly worse than what many had forecast. Total claims have now reached nearly 36.5 million over the past two months, which represents the biggest loss in U.S. history. What’s more, some economists have claimed that we haven’t reached the peak of unemployment yet.

But even though the big picture currently appears grim, some reports have indicated that re-openings and government relief programs could already be working for some sectors. In a recent interview with CNBC, Luke Tilley, chief economist at Wilmington Trust, said that the construction sector, for instance, which lost just under 1 million jobs last month, “… could see a boost in employment as restrictions are lifted for workplaces where physical distancing is easier.” It’s also a sector that could see a big boost from the Paycheck Protection Program (PPP), because construction firms may be able to easily meet the requirement to spend 75% of the loan on payroll costs to turn it into a grant. Other sectors could see similar strides.

Will the stimulus efforts by the government and Federal Reserve pay off? Will gradual re-openings help get the economy back on track? Only time will tell. In the meantime, the best path you can take is to maintain your current long-term investment strategy, and proactively communicate with our team on any changes in your financial life in light of the pandemic which may affect your plan. 

New Stimulus Package Proposal

On Tuesday, House Democrats unveiled a new $3 trillion stimulus package to combat the economic downturn caused by the COVID-19 pandemic. The bill, which Democrats are calling the Heroes Act, would be the largest relief package in U.S. history.

The bill would provide:

  • $1,200 to individuals earning up to $75,000 a year. These payments would also include immigrants and dependents ages 17 and over who were left out of the CARES Act payments.
  • $2,400 to married couples earning up to $150,000 a year.
  • $1,200 per dependent with a maximum of three dependents.
  • An extension of the $600-per-week unemployment benefit through January.
  • $200 billion in hazard pay for first responders and frontline workers.
  • $75 billion for increased Coronavirus testing, tracing, and isolation efforts.
  • $175 billion in rent and mortgage assistance.
  • $1 trillion for state and local governments.

Some lawmakers have argued that another stimulus package is not yet needed as states begin to partially reopen their economies. As of this writing, the House is expected to reconvene later today to vote on the legislation.

Social Security Proposal

The White House is reportedly considering a proposal that would allow struggling Americans to take an advance on their Social Security in exchange for delaying their benefits in the future. The payment — which reportedly will be up to $5,000 — would be structured as a loan with a government-set interest rate. Individuals who decide to participate in the program would pay that loan back when they start collecting their first Social Security checks. Their benefits would return to normal after the loan is paid off.

We’ll keep you updated on the latest developments from both of these proposals in the coming weeks.

Understanding Coronavirus-Related Distributions (CRDs)

Stimulus checks aside, the CARES Act also provides economic relief to struggling Americans in the form of Coronavirus-related distributions. Here’s a quick breakdown of what you should know:

What is a CRD?

A CRD is a distribution that is made from an IRA or employer-sponsored retirement plan to a qualified individual (more on this below) from January 1, 2020, to December 30, 2020. Qualified individuals are allowed to take up to $100,000 from all of their eligible retirement plans without incurring the normal 10% early-withdrawal penalty.

Do I still have to pay income taxes on a CRD? 

Unfortunately, yes, but the law allows the income taxes from these distributions to be spread out equally over a three-year period.

Can I repay a CRD?

Yes, the law allows qualified individuals to repay the distribution amount within three years from when the distribution was received. If you pay income tax on a distribution and then later recontribute the funds to an eligible retirement plan, you will be allowed to file an amended tax return to recover the taxes paid.

Who qualifies for a CRD?

Under the CARES Act, you are considered a qualified individual if:

  • You’re diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (CDC).
  • Your spouse or dependent is diagnosed with COVID-19 by a test approved by the CDC.
  • You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19.
  • You experience adverse financial consequences as a result of being unable to work from lack of childcare due to COVID-19.
  • You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to COVID-19.

While a CRD can provide you with short-term financial relief during this ongoing crisis, an early withdrawal from your retirement plan should always be a last resort. Contact our team today if you feel you could benefit from taking CRDs; together, we can explore all possible funding options.

As always, we will continue to remain diligent about communicating the latest news, events, and updates you should know during this uncharted time. In the meantime, please don’t hesitate to reach out to us directly if you have concerns, questions, or want to discuss your financial situation. We will get through this, together.

Rewriting The Rules: Women Are Not Risk Averse. They’re Risk Aware.

Published in: Resources |

Think women are more risk averse than men? Consider this myth busted. Eighty-five percent of women believe that risk-taking is beneficial when investing.

In 2015, Merrill Lynch asked 5,000 women about their investing beliefs and behavior. When asked if they believed risk was worth the chance of reaping higher returns, the answer was a resounding “yes” — 85 percent said they agreed that risk-taking is beneficial, and 81 percent said they could adapt to changing markets and investment outcomes. The study also found that men and women who share the same level of financial knowledge exhibit the same risk behavior.

Even more interesting is a 2012 meta-analysis of over 25 economic studies regarding risk tolerance differences between men and women. The researchers found that the difference between genders was negligible and even concluded this perception of women as cautious investors “appears to perhaps be rooted more in confirmation bias than in reality.”

In other words, our assumption that women are risk averse may be skewing our perception of what is really going on.

Are Women More Risk-Averse Than Men?

Think women are more risk-averse than men? Tell that to the 85% of women who believe that risk-taking is beneficial when investing. #rewritingtherules #investlikeawoman

Posted by The Humphreys Group on Monday, July 29, 2019

Women Aren’t Risk Averse — They’re Risk Aware

All of these findings would seem to imply women have a healthy appetite for investment risk — and a lot of the time, that’s true. But unlike men, women are more mindful about what the dangers are before diving in. We take the time to evaluate whether the reward justifies the risk.

Sallie Krawcheck, former Wall Street executive and co-founder and CEO of Ellevest, explains this by differentiating between “risk aversion” and “risk awareness.” It’s true that women are often more aware of risk. We are more likely to be invested in an age-based allocation that diversifies across asset classes, for example, and are less likely to be fully invested in equities than men.

Fortunately, these behaviors clearly put women at an advantage: We’re prioritizing diversification over trendy or unsustainable investments, which is a successful long-term strategy.

Our Risk Tolerance Increases as Our Income Increases — But This Is Not a Luxury Many Have

There’s a bigger story happening here: As our incomes increase, so does our tolerance for risk. Fifty-four percent of women who earn more than $200,000 are willing to take “a significant investment risk” to earn higher returns, compared to 32 percent of the broader population of investors. High-earning women are also more likely than low-earning women to own more volatile investments like commodities, hedge funds, and venture capital. This makes sense, considering those with higher incomes have more resources and the higher margin of error that often comes with them.

Unfortunately, most women do not earn six-figure incomes, and further still, most of us are undercompensated relative to our male peers. Therein lies the best explanation for our risk-averse reputation: When we start off with less, we won’t allow ourselves to jeopardize what we’ve already saved — we have less risk “capacity.”

The issue is not that women are wary of taking on risk; it’s that they don’t have as much to risk in the first place. Men, on the other hand, have reported taking on financial risk because they — quite correctly — feel they could easily make up for investment losses with their earnings. This is not a luxury that most women have.

Our Advice to You

The trade-off between risk and reward is the holy grail of investing. Spend some time educating yourself about how diversification works and how investments react differently to economic, market and geopolitical news. There’s no need to read The Economist cover to cover, but you may want to start with a classic piece of investment literature, such as A Random Walk Down Wall Street by Burton Malkiel.

Consider that risk and reward go hand in hand. Work with an advisor, like the advisors at The Humphreys Group, to develop a clear sense of the level of investment risk needed to accomplish your goals. If that level is too high for your risk tolerance, you may need to refine your goals or make other changes.

And don’t apologize if you have a low tolerance for risk. We all have different prerequisites for sleeping well at night. Taking on too much risk can backfire if you make a rash investment decision in a moment of panic or stress.

We invite you to help us change the conversation around women investors and money. If you want read more about common money myths and how we can break them, download our free eBook, “Rewriting the Rules: Telling Truths About Women and Money.”

Week in Review: Market Updates, Economic News and Your Stimulus Check

Published in: Resources |

It’s safe to say we could all use a little positive news these days. In April, the markets helped deliver on that need. Despite some volatility in the stock market toward the end of this week, the Dow Jones Industrial Average (DJIA) and the S&P 500 indices still posted their best month since the 1980s.

What a difference a month can make! After a blistering couple of weeks in late February and March — culminating in bear-market-level lows on March 23 — the stock market enjoyed a solid performance last month. As we moved through the last week of April, the market rallied on Wednesday after a New York Times report first revealed the U.S. Food and Drug Administration (FDA) planned to announce an “emergency-use authorization” for remdesivir, an investigational Coronavirus treatment. The FDA is in discussions with Gilead Sciences, the producer of remdesivir, to make its current supply available to patients, which could cover at least 140,000 treatment courses. Though discussions are in early stages and experts are still looking into other therapies, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, announced positive results from a trial for the drug that began on February 21.

Amid the optimism that came with Wednesday’s rally, stocks let go of some of their gains on Thursday and Friday, following a new unemployment report and economic data that showed a sharp decline in consumer spending. By the end of this week, the DJIA had lost 617 points (2.5%), while the S&P 500 and the Nasdaq closed 81 (2.8%) and 285 (3.2%) points lower, respectively.

Although the markets gave us a silver lining the past few weeks, we should prepare to heed more news about economic declines over the course of the second quarter, as the country slowly, but surely, emerges from lockdown and businesses potentially begin to reopen in May and June. Federal Reserve Chairman Jerome Powell echoed this sentiment in his statement on Wednesday (more on that below).

This is why we place such a strong focus on comprehensive financial planning, and why we stress-test your plan against a wide range of scenarios. Our goal is to ensure that your long-term financial security and goals are prepared to withstand the unexpected and inevitable events that come our way.

April’s strong market performance also underscores why it’s important to stay invested, even if volatility has your nerves on edge. History has shown that markets have rewarded discipline over the long term. Studies have also shown that stocks have generally delivered strong returns over one-, three- and five-year periods after sharp declines, according to fund manager Dimensional Fund Advisors. Regardless of what lies ahead, we encourage you to stay focused on your long-term, diversified and disciplined investment strategy, and to tune out the noise.

The Federal Reserve Doubles Down on Its Effort to Boost the Economy 

On Wednesday, Federal Reserve Chairman Jerome Powell gave an address on the state of the U.S. economy and the Fed’s plans to help support recovery efforts, amid the ongoing COVID-19 pandemic. Powell (described by a commentator as “the Dr. Fauci” of monetary policy) said the Fed would take “whatever steps it could” and use all of the tools at its disposal to remediate the toll the pandemic has taken on economic growth. With interest rates already near zero, the Fed did not change its benchmark rate and did not telegraph plans to boost rates anytime soon.

Up until this point, the central bank has been aggressive in its approach to help secure the economy, including introducing a series of emergency programs and buying large quantities of mortgage- and government-backed debt. Powell prepared Americans in saying that second-quarter economic data will look bleak, a consequence of the pandemic and the measures we have taken to stop the spread of the virus — such as state-wide shutdowns of businesses and other revenue-generating establishments.

After Wednesday’s address, the Fed announced that it plans to expand its Main Street Lending Program, which was first unveiled on March 23 and is part of the bank’s larger push to keep credit flowing into the economy. After receiving more than 2,200 comments from businesses and banks, the Fed revised its original outline of the program and will now offer loans as small as $500,000 (down from a $1 million minimum), broaden eligibility requirements and create a new category that would allow “riskier companies” to access Fed-backed loans. A start date has not been announced, though we will continue to keep you updated on important details about the program as they arise.

Stimulus Check Delays — What to Do

According to the IRS, nearly 90 million people have received their stimulus check. If you can’t count yourself as part of that group, here are three reasons why:

1. You don’t qualify

Any individuals who earn more than $99,000 or married couples who earn more than $150,000 are not eligible to receive a stimulus check.

2. The IRS doesn’t have your direct deposit information on file 

If you didn’t receive a refund through direct deposit this year or the year before, you need to submit your banking information to the IRS through their Get My Payment tool. If you don’t file a tax return, you need to submit your banking information to the IRS website for non-filers. 

3. Glitches in the system

If you are eligible for a stimulus check and received a “Payment Status Not Available” error when attempting to login to the Get My Payment tool, it’s possible that your information has not been entered into the IRS system yet. According to the IRS website, the data gets updated once per day.

Another possible glitch has to do with national tax preparers, like H&R Block and TurboTax, that offer advances on a client’s refund by loading the money onto a debit card. If you received one of these advances, it’s possible the IRS does not have your direct deposit information on file. You can update your information by logging into the Get My Payment tool.

Are There More Stimulus Checks on the Way?

As it stands, the stimulus checks are a one-time payment. But are they enough?

According to some lawmakers, the answer is no, as they discuss new proposals for putting more income into Americans’ hands.

In response to whether a one-time stimulus check would be enough to help struggling Americans weather the economic storm of this COVID-19 crisis, White House economic advisor Kevin Hassett said on Tuesday that administration officials are studying the need for additional stimulus checks.

As always, we are here for you and will continue to keep you updated on the latest developments, changes and topics that matter most to your personal financial lives. If you have any questions about your individual situation that you’d like to discuss with our team, or you simply want to catch up (or swap Netflix recommendations!), please don’t hesitate to reach out!

Reopening and Reinvigorating the Economy in the COVID-19 Era

Published in: Resources |

Over the past week, we’ve seen more action from the federal government in response to the COVID-19 pandemic and its impact on the U.S. economy. Today, we’re summarizing some of the most significant developments you should know, especially as they relate to your personal, financial and professional situation.

But first, let’s take a quick look at how the markets fared last week. U.S. stocks saw two days of consecutive gains on Wednesday and Thursday, following new data that showed the pace of job losses is slowing down (though the number of total unemployment claims is still high, at 26 million over the past five weeks). The strong performance also came on the heels of an expected Congressional vote on additional aid for small businesses, which we’ll explore further below.

The market gained momentum heading into the end of the week, with the Dow Jones Industrial Average (DJIA) closing 1.1% higher at 256 points. The S&P 500 ended the week up 39 points (1.4%) and the Nasdaq ended the week up 140 points (1.7%).

Though the markets have generally performed well over the past couple of weeks and there has been less dramatic intra-day volatility, we can expect that more uncertainty lies ahead. The pandemic aside, this is the nature of investing in the financial markets. Remember the principles we have reiterated over the past few weeks: stay focused on the factors you can control, such as broad diversification, tax efficiency and risk management through strategies like rebalancing. And most importantly, remember that short-term market movements are footnotes in the bigger picture of your long-term goals.

A Closer Look: The Guidelines for Opening Up America Again

Recently, The White House released a three-phased approach to reopening businesses and public establishments amid the COVID-19 pandemic. The steps are intended to serve as a guidepost for state and local officials to reopen their economies and bring Americans back to work following state-wide shutdowns and shelter-in-place orders.

It’s important to note that the guidelines do not include target dates for meeting each “phase” of the plan. Officials and public health experts have said that restrictions could be put back in place if regions see a resurgence in new cases. Here is a quick overview of each phase:

Phase One: This phase would begin in communities where there is a downward trajectory in reported new cases over a 14-day period; hospitals would also need to show they can treat all patients without resorting to crisis care, and there would need to be a reliable testing program (including antibody testing) in place for all frontline health care workers.

Even if communities meet these guidelines, the most vulnerable citizens, such as the elderly or individuals with pre-existing health conditions, would still be required to shelter in place.

So long as they maintain appropriate social-distancing measures, non-high-risk citizens would be able to return to work, and venues such as sit-down restaurants, sporting arenas and places of worship would be able to reopen under more strict “physical distancing protocols.” Gyms would also re-open and elective surgeries would resume, though bars and schools would remain closed, and hospitals and senior living centers would still prohibit visitors.

Phase Two: Once communities enter phase one and there is no rebound in the number of new cases, phase two will commence, under which schools and organized youth activities would be allowed to reopen. Bars would also be allowed to reopen, but only under what the guidelines call “diminished standing-room occupancy.” High-risk individuals would still be required to shelter in place.

Phase Three: If communities have entered phases one and two without a rebound in new cases, then phase three would commence. Under phase three, high-risk individuals would be able to resume public interactions, but they would need to continue practicing social-distancing measures. Employers would be able to resume unrestricted staffing of workplaces, while large public venues would be allowed to operate under limited social-distancing protocols. Hospitals and senior living centers would also reallow visitors.

In addition to outlining the three phases, the guidelines mandate the establishment of “core state preparedness” measures. This means states will be required to show they have adequate testing and screening processes; adequate supply of protective gear and medical equipment; and plans to accommodate more beds for intensive care before they reopen their economies.

What Happens Next?

Now that the guidelines have been released, many state governments are starting to shape their own plans for adhering to the tiered approach, with the federal government recommending that officials work on a “regional basis” to move through the recovery process.

With that being said, the guidelines are voluntary, which means state and local officials can loosen or tighten the restrictions as they deem necessary. More importantly, regardless of the guidelines and loosened restrictions, the ultimate test will be whether and when the public feels safe enough to venture from their homes.

Policy Update: New Aid for Small Businesses

On Thursday, Congress officially passed a new stimulus package, worth approximately $484 billion. It is the latest attempt by lawmakers to cushion the economic blow of the ongoing COVID-19 pandemic. The package adds an additional $310 billion to the recently depleted Paycheck Protection Program (PPP); $60 billion in loans and grants for the Small Business Administration (SBA)’s relief fund; $75 billion for hospitals and health care providers; and $25 billion to expand and facilitate COVID-19 testing.

Paycheck Protection Program (PPP) Loan Forgiveness

A powerful pillar of the PPP is the loan forgiveness provisions stipulated under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Small business borrowers who comply with these provisions are eligible to have 100% of their loan forgiven, making it a loan in name only.

So, what exactly are the loan forgiveness provisions?

1. Borrowers must use at least 75% of the loan on payroll costs.

According to the U.S. Treasury Department, eligible payroll costs include salaries, wages, commissions or tips. They also include employee benefits, such as medical insurance and retirement accounts, as well as state and local taxes assessed on compensation.

2. The remaining balance of the loan must be used on permitted non-payroll expenses incurred prior to February 15, 2020.

Permitted non-payroll expenses include interest on mortgage obligations, rent under lease agreements and utilities, such as water and electric.

3. The borrower cannot reduce their number of full-time equivalent (FTE) employees.

When deciding on the number of FTE employees, borrowers have one of two options: determining the average number of FTE employees between February 15, 2019 and June 20, 2019, or the average number between January 1, 2020 and February 29, 2020.

4. The borrower cannot reduce the wages of their employees by more than 25%.

This provision does not include employees who made more than $100,000 in 2019.

5. The borrower must spend the loan eight weeks from the moment it is funded by the lender.

Lenders must fund any PPP loan within 10 days of approval.

What happens if these conditions are not met?

If any of these conditions are not met, the loan forgiveness amount will be reduced. Any portion of that loan that isn’t forgiven must be repaid over two years at an interest rate of 1%.

How do borrowers actually apply for loan forgiveness?

Borrowers apply for loan forgiveness with the lender of their loan. The lenders have 60 days to review the application and make a determination.

Are there requirements for proper tracking and documentation?

Currently, there are no set guidelines in terms of how the funds from your PPP loan should be tracked.

Our personal recommendation is to set up a separate bank account for your PPP loan funds. Proper tracking and documentation will be easier if you pay for qualified expenses directly from this new account or use it to fund your other operating accounts. For bookkeeping purposes, it may be helpful to use the subcategory, “PPP,” when tracking your PPP expenses.

Ultimately, meticulous tracking and documentation of your PPP expenses will increase the chances of your loan being forgiven.

As always, we will continue to monitor all new and relevant developments related to the COVID-19 pandemic over the coming weeks. In the meantime, we also encourage you to stay connected through your local news outlets and messages from our team. We will remain diligent about communicating our operational plans and any changes to you.

If you have any questions about the information above or would like to speak about your personal financial or business situation, please reach out to our team. We wish you continued health, safety and security during this time.

Weekly Recap: The Markets, the Economy, and Your Personal Finances

Published in: Resources |

After a long holiday weekend spent social distancing and in the comforts of our own homes, we started a new week that saw mixed results for the markets. U.S. stocks floated between positive and negative territory between Monday and Friday, following a winning streak last week.

A key reason behind the back and forth? Investors received new data this week that showed just how much the COVID-19 pandemic and the resulting shutdowns have weighed on the economy. In the past four weeks, unemployment claims have reached 20 million, while numbers from the housing industry showed slowdowns in many regions across the country and retail sales dwindled.

Stocks were buoyed by the federal government releasing new guidelines on Thursday afternoon for states to reopen amid COVID-19 shutdowns (though they don’t lay out a specific timeline). The markets ended up closing the week on a positive note, with the Dow Jones Industrial Average (DJIA) up 700 points higher at 2.99%, the S&P 500 up 2.68%, and the Nasdaq up 1.38%.

Policy Update: The Paycheck Protection Program

What’s new in terms of government policy?

On Thursday morning, the Small Business Administration announced that its $350 billion Paycheck Protection Program (PPP) has run out of funds, leaving many small businesses and nonprofits unable to apply for emergency loans that would help maintain their payroll during the ongoing COVID-19 crisis. This news comes after a notice was sent to banks Wednesday night that the program was on the verge of being depleted.

In terms of next steps, Treasury Secretary Steven Mnuchin and Democrat lawmakers intend to reconvene to discuss an interim package that would immediately add another $250 billion to the fund. We’re keeping an eye on this developing situation and will share new updates with you when they’re released.

Putting the Economic Downturn into Perspective

There is no getting around the fact that the economy is experiencing a deep contraction this quarter; it’s an event that many economists and experts have expected since the pandemic first swept across the country in March. While some industries (for instance, education and professional services) have been able to function remotely in light of widespread stay-at-home orders, other industries — such as transportation, leisure, and hospitality — have shut down completely, which significantly hampers economic growth.

But there is reason to believe that once the pandemic dissipates, businesses reopen, and more Americans return to their day-to-day routines, the economy will rebound quickly and strongly. Labor economist Edward Lazear — The Davies Family Professor of Economics at Stanford University and former Chairman of the President’s Council of Economic Advisers — recently offered some perspective on the current economic downturn and explained why our current situation is different from other crises, such as the 2008 financial crisis.

“This is a very different phenomenon,” Lazear said, noting that our current economic downturn is supply-based, as opposed to demand-based, since the COVID-19 pandemic has shut off the supply of business activity and labor to the economy. Supply-based downturns are more “V-shaped,” in that they go down quickly, and come up quickly. “In some sense, I would expect demand to be higher in the future, not lower. The reason for that is because there is a good bit of pent-up demand right now,” Lazear said, citing that many Americans would be actively participating in the economy — for instance, eating out at restaurants or frequenting shops — if not for social-distancing and stay-at-home orders, especially since the economy was on strong footing prior to the pandemic taking place.

Strong prospects for economic recovery don’t change the fact that this downturn will have long-lasting effects, such as a reduction in human capital and productivity loss. Among investment experts and economists, there is debate as to the shape and duration of the recovery when it does happen, for example, V-shaped or U-shaped. But as Lazear and other economists (such as Federal Reserve Chairman Jerome Powell) have mentioned, the sooner we are able to get the pandemic under control — either by reducing the spread of transmission through continued social distancing or treatments — the sooner the economy will be able to bounce back.

How Can You Prepare Yourself for a Downturn?

It’s true that we are facing a tumultuous time for our global and national economies. The upside is that we have been here before and have the benefits of hindsight. Not only is our team working behind the scenes to ensure your long-term investment strategy is equipped to withstand these uncertain times, but there are other planning-based actions we’re taking today in order to safeguard your personal finances from economic turmoil:

1. Make Debt Management a Priority

 Debt management is an integral part of our financial planning process, and it’s one that becomes essential during periods of economic unrest. If you have any outstanding high-interest debt, focus on paying it down now (especially while you’re staying at home and your spending has decreased). Our team can help take a look at any debt you (or your family members) have accumulated and implement a plan for paying it down within reason.

Bonus tip: If you or your (grand)children are still paying off federal student loans, the government has officially suspended payments for the next six months. Use a portion of those funds to put an even bigger dent into your higher-interest debt.

2. Focus on Building Your Emergency Fund

Preparing for the unexpected is a topic that is always part of our planning conversations with clients, as proactivity is crucial to financial security. If you or someone you know (such as a child or family member) has endured a job loss due to the pandemic, it’s important to revisit emergency-fund savings to ensure living expenses and other essentials can be covered. If you are fortunate to still be working and have no disruption in pay, then take this time to allocate extra dollars to your emergency fund to prepare for the unexpected. A good rule of thumb is to have three-to-six months of living expenses set aside in case of an emergency.

3. Revisit Your Cash Flow and Spending Plan

As part of our financial planning process, we stress-test our clients’ situations against various life scenarios, including the possibility of an economic downturn. One key item we review is spending and cash flow, including where to cut back in case of a sudden emergency, which becomes even more important to our clients who are in or nearing their retirement years. Times like these underscore why these conversations are so important, and we’ll continue to have them (albeit virtually) as the weeks go on.

4. Maintain Your Long-Term, Diversified Portfolio

This is an investment principle we repeat time and time again to our clients. Maintaining a portfolio that is broadly diversified across a wide range of international and domestic asset classes helps mitigate risk and improves your chances of achieving higher expected returns over a long-time horizon. We pair our clients’ long-term investment plans with proactive strategies like tax-loss harvesting and ongoing rebalancing to successfully navigate large market swings.

It can be hard to maintain a positive outlook when you’re faced with dismal news headlines. We just want to remind you that we are here for you as more than just your financial advisor. We are here to listen to your questions and concerns, provide guidance, and offer peace of mind in knowing your financial life is taken care of. If you have any questions or simply would like to chat, please don’t hesitate to reach out to our team. Be well and stay safe.

Disclosures

The S&P 500 is a market capitalization-weighted index that tracks the 500 largest companies listed on the New York Stock Exchange or NASDAQ Composite. It is used as a benchmark of the overall stock market’s performance.

Return data represent past performance and are not indicative of future results. Historical performance does not reflect applicable transaction, management or other applicable fees as noted, the incurrence of which would decrease hypothetical, historical returns.

Source for all charts and text contained within graphics: © 2020 Clearnomics, Inc. All Rights Reserved. The information contained herein is proprietary to Clearnomics and/or its content providers and may not be copied or distributed. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein. All reports, charts and graphics compiled by Clearnomics or any of its affiliated websites, applications or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and any commentary for any and all markets should not be construed as a recommendation to buy, sell or hold any security – including mutual funds, exchange traded funds or company stock.

Last Week: Reflecting on the Markets, Policy, and Financial and Business Tips

Published in: Resources |

Spring is the season of change — which may seem like an understatement, given our current situation. As many of us settle into our “new normal,” we’re connecting with family in new ways (mostly virtually), taking some time to refresh (spring cleaning, anyone?), and perhaps even rethinking some aspects of our professional, personal, and financial lives.

Meanwhile, there are also changes taking shape for the markets and economy. Overall, last week was a winning week for stocks — on Thursday, the Dow Jones Industrial Average (DJIA) added roughly 285 points (1.22%), while the S&P 500 and the Nasdaq Composite Indices rose 1.45% and 0.77%, respectively (markets were closed on Friday in observance of Good Friday).

This performance comes on the heels of action from the Federal Reserve, which took steps to further alleviate the economic pain of the COVID-19 pandemic with plans to provide up to $2.3 trillion in loans to support households and local governments. Last week, the central bank also shared more details about its Main Street Lending Program, which is anticipated to support up to $600 billion in loans to small- and medium-sized businesses.

In his address last Thursday, Fed Chairman Jerome Powell said that he believes the economy will bounce back once the pandemic subsides and more Americans can go back to work. “There is every reason to believe that the economic rebound, when it comes, can be robust,” he said, citing that we started the pandemic on strong economic footing and that should help the recovery effort.

Providing Perspective on Your Personal Financial Plan and Investment Strategy

Since many of the benefits announced by the federal government — including the $1,200 payments to most Americans — could take some time to be distributed, we wanted to share some steps we can help you take now to bring more certainty and security to your personal financial situation.

1. First and foremost, maintain your long-term investment plan and leverage proactive strategies as needed

Attempting to time the market to ride the next rise, or jumping ship and selling out of stocks, actually contribute to a more nerve-wracking (and often less successful) investment experience. Instead, continue to focus on what you can control in your investment strategy, such as prioritizing tax mitigation through tax-loss harvesting; minimizing turnover and unnecessary fees; maintaining a diversified asset allocation; and rebalancing your allocation back to target when the need arises.

2. Consider reprioritizing your spending

Instead of diverting from your long-term strategy to fund short-term cash needs, you might consider taking another look at your spending and savings plan. There’s a chance your discretionary spending has tapered off a bit due to the “shelter in place” orders directed by most states. Evaluate where you can direct those unused funds. And if you are receiving a check from the federal government as part of the CARES Act, try directing those dollars to your emergency fund to finance any unexpected expenses that may arise. Our team can help you evaluate and make the necessary adjustments to ensure you’re still on track to meet your goals.

3. Review your (or your children’s) student loan payments

The CARES Act has suspended federal student loan payments through September 30, which means that borrowers won’t be fined for missing payments between now and then. (Note that this provision only applies to federal loans, not private loans.) There’s no reason that you can’t continue to make payments on your or your children’s loans if you’re able to do so. However, if you or your children have suffered a job loss or disruption in pay due to the pandemic, please don’t hesitate to get in touch with our team and see if it makes sense to take advantage of the provision.

4. Don’t forget to consider the CARES Act retirement provisions

If you are a current or soon-to-be retiree, we remind you to keep these factors in mind as you think about how the CARES Act impacts your planning for 2020:

  • Required minimum distributions (RMDs) have been suspended for 2020. (Keep in mind that if you have already taken your RMD for 2020, you cannot reverse it.) You’ll hear more about this in the coming week and we’ll answer your questions about the new RMD rule and how it may affect you.
  • No penalties for early withdrawals from IRAs or other retirement accounts.
  • If you’re receiving Social Security, you aren’t required to file a tax return to receive your stimulus check.
  • You can receive extra incentives this year for making charitable contributions, including the application of a special limit for gifts to public charities of 100% of your adjusted gross income (AGI).

Contact our team if you want to further explore these CARES Act provisions and discuss which (if any) you should leverage to support your retirement planning needs.

What’s Happening on the Policy Front?

Less than two weeks after the enactment of the CARES Act, Congress is now debating an interim package that would provide an additional $250 billion in aid for small businesses. The request is in response to lawmakers’ concerns that the original $350 billion program would run out of money.

Senate Majority Leader Mitch McConnell attempted to approve the additional funding during a procedural session on Thursday, but Democrats objected, requesting that an additional $100 billion for hospitals and $150 billion for state and local governments be included in the bill. Republicans blocked the Democrats’ proposal, leaving the fate of the interim package in flux.

Further down the road, lawmakers have already discussed introducing another major stimulus package that would build on top of the recently enacted CARES Act. We’ll keep you updated as the situation changes.

Breaking Down Three Provisions for Small Businesses

As we’ve shared previously, the CARES Act contains $350 billion in funding for struggling small businesses. Today, we’re going to break down three of the available funding options:

  • Paycheck Protection Program
  • Expanded EIDL Program
  • Employee Retention Credit

At the end, we’ll discuss the documentation and information you’ll need in order to apply for these programs and credits.

Paycheck Protection Program (PPP)

Designed to help companies maintain their payrolls through June 2020, the PPP allows eligible companies to borrow up to 2.5 times their average monthly payroll costs. The maximum rate on these loans is 4% and may be forgiven if certain conditions are met. There is also no personal guarantee or collateral required, and payments are deferred for six to 12 months.

What are the eligibility requirements?

  • Must be a business or nonprofit with fewer than 500 employees, including full-time and part-time workers; self-employed workers, sole proprietors, freelancers, and gig economy workers are also eligible
  • The business or nonprofit must have been operational before February 15, 2020

What are the loan forgiveness requirements?

  • The loan must be used to cover eligible expenses, including payroll costs, employee benefits, rent, and utilities incurred before February 15, 2020
  • The business or nonprofit must not decrease wages or salaries by more than 25% for any employees that made less than $100,000 in 2019
  • The business or nonprofit must maintain its full-time employee headcount for at least eight weeks after the loan is dispersed

Expanded Economic Injury Disaster Loan (EIDL) Program

The CARES Act also includes an expansion of the EIDL, which the Small Business Administration has offered for some time. This program provides loans to small businesses and nonprofits in amounts of $2 million, with loan terms that can last up to 30 years. The interest rate is 3.75% for small businesses and 2.75% for nonprofits. An emergency request can be made for a one-time advance of $10,000. This advance is expected to be available within three days of an application being approved and does not have to be repaid.

Businesses and nonprofits that receive a disaster loan can also borrow through the PPP as long as the loans are used for different expenses.

Employee Retention Credit

Businesses that were fully or partially shut down, or whose gross receipts declined by more than 50% when compared to the same quarter from 2019, are eligible for a refundable tax credit. The credit is equal to 50% of qualified wages, up to $10,000, and is only available for wages paid from March 13 to December 31, 2020.

What Do I Need to Apply?

Here are the documents and information you’ll need on-hand when applying for these programs and credits:

  • Average monthly payroll
  • Number of employees
  • Business tax identification number
  • Purpose of the loan
  • A list of owners with more than 20% equity in the company

Our Advice

The COVID-19 pandemic has impacted every sector of business, so if you plan on applying for any of these programs or credits, do so as soon as possible. The $350 billion fund is available on a first come, first served basis and has the potential to be exhausted in a hurry.

If you have any questions about our current environment or want to discuss your personal financial situation, please do not hesitate to contact our team. We’re amazed to realize that we have now worked from home for four weeks! We are fully operational and are feeling more settled into our new circumstances — and expect to be here for a while. The inevitable hiccups are fewer and easier to troubleshoot. Like everyone else, we are adapting faster than most of us thought possible. We are staying connected with each other and our clients with the help of technology. Again, please feel free to be in touch with questions, concerns or just to chat! We love hearing from you.

The Humphreys Group: The Week in Review

Published in: Resources |

It’s a new month, and a new chapter for the global markets, economy, and policy space. Below, we’re taking a look at some of the most important updates you should know, plus tips to help you capitalize on some of the latest developments.

What Happened in the Markets?

In our last two letters, we compared the market’s recent activity to being on a roller coaster ride, with new surprises around every turn. We couldn’t think of a better symbol for the market’s performance over the past few days.

During the week of March 23, the S&P 500 recorded its best week since March 2009 — just one week after its worst week since October 2008 — and the Dow Jones Industrial Average turned in its best weekly performance since 1938. After consecutive weeks of massive declines and volatility that had investors’ nerves on edge, the surge in positivity was a welcome surprise. But it left us wondering: would the rise continue?

Last week saw mixed results. On Tuesday, the Dow soared 3,736 points (more than 20%), but ended the week more than 350 points lower, as job losses hit an 11-year high. Meanwhile, the S&P 500 started the week on a good foot, coming back from its March 23 low, but closed near 2,488 on Friday, down 38 points.

Keep in mind that there were only 23 trading days between the S&P 500’s record high in February and its recent low. It has certainly been an interesting ride the past few weeks.

What Lies Ahead?

Through all of the ups and downs we’ve endured recently, it’s important to maintain perspective. Many people often assume that the stock market’s current level offers insight into where it may head in the future. When the Dow hit a record high in February, for instance, pundits and talking heads were speculating whether it had peaked and would inevitably reverse in the coming weeks, proclaiming that the worst was yet to come. When the markets turned out a poor showing in the first few weeks of March, the prognosticators were back at it again, predicting how much further it would decline until things started to turn around. Round and round they went.

Formulating your investment decisions around predictions about the market’s current level or recent performance is just another form of market timing, which will ultimately result in a poor investment experience over the long term.

With this in mind, it’s important to consider a difficult but real possibility — that more volatility could be on the way. The most recent period to which we can compare our current state is 2008. Between September 2008 and December 2008, the S&P 500 notched six different rallies of 9% or more; however, as most of us remember, the market then bottomed out in March 2009. It was difficult to stomach, and for many investors, very unpredictable.

The COVID-19 pandemic has triggered economic disparity for many Americans across the country, which makes any positive news about the market bittersweet. Initial jobless claims spiked from 3.3 million to 6.6 million recently, further underscoring that the economic effects of this crisis will be long-lasting. Though the government has taken a major step in mitigating the impact with the Coronavirus Aid, Relief, and Economic Security (CARES) Act (more on that below), we will likely see more uncertainty until the virus has stopped spreading, and more Americans can go back to work and participate in our local and national economy.

What Should You Keep in Mind?

How can you, as a long-term investor, navigate this uncharted territory with no clear-cut map to tell you what lies around the bend? Here are three key takeaways:

1. Address Asset Allocation Drift Through Rebalancing

The recent volatility presents the perfect opportunity for you to rebalance your portfolio’s asset allocation back to target so you can increase your chances of capturing higher expected returns while maintaining your desired level of risk. This is a proactive, smart strategy that doesn’t involve timing or stock picking in an attempt to beat the market (a loser’s game).

2. Take a Second Look at Your Investment Strategy

While you’re reviewing your asset allocation, it’s also a good time to re-evaluate your portfolio guidelines overall. Remember that our asset allocation targets for you are based on your time horizon, income needs, asset base, tax profile, and the combination of your risk capacity and risk tolerance. Are you a younger investor with a long-time horizon ahead of you? Are you investing aggressively for a goal that’s taking shape within the next five years? What are your sources of income, and are they fixed or variable? We are always available to discuss whether you should perhaps adjust your strategy to better harness market volatility and leverage it to capture higher expected returns. Just like the 2008 Great Recession, this is a real-time learning lab for how we tolerate risk, as theory turns into reality.

3. Review Your Retirement Plan and Seek Opportunities to Benefit from the CARES Act

As we’ll discuss below, there are a number of provisions in the new legislation that benefit retirees and those who are nearing retirement. One of the biggest components: required minimum distributions (RMDs) have been suspended for IRAs and 401(k) plans. We’ll be discussing how you might take advantage of these provisions to boost your retirement income or fast-track your path toward achieving your savings goals. Stay tuned.

Above all, remember that a little perspective can go a long way toward improving your long-term investment experience. Bear markets are a normal aspect of the market cycle. Recessions are a normal function of the economy. We have survived poor conditions in the past, and the comeback has often been more memorable than the downturn. Whether the market rebounds, or we face more volatility in the coming weeks, your best strategy is to stay focused on your long-term financial plan and investment goals and tune out the noise.

The Latest in Policy: Breaking Down the CARES Act

On Friday, March 27, President Donald Trump officially signed into law the bipartisan CARES Act. This $2.2 trillion stimulus package — the largest in US history — is intended to provide economic relief to individuals and businesses affected by the COVID-19 pandemic.

At this point, you’re probably aware of the $1,200 direct payments to individuals, and the funds available to small and large businesses — so today, we wanted to give you a breakdown of some lesser-known provisions that could have a major impact on you and your family:

Small Businesses:

  • Employers will be allowed to delay the payment of their 2020 payroll taxes until 2021 and 2022.

Individuals:

  • Individuals will benefit from a 120-day suspension on evictions for any renters whose landlords have mortgages backed or owned by Fannie Mae, Freddie Mac, and other federal entities. Landlords also can’t charge any fees or penalties for nonpayment of rent during this time.

Unemployment:

  • Self-employed workers — including gig workers, freelancers, and independent contractors — are now eligible for unemployment benefits.
  • Part-time workers who lost their jobs and workers who can’t get to their new jobs because of the pandemic are also eligible for unemployment benefits.
  • Unemployed workers who recently exhausted their benefits are allowed to sign up again.

Retirement:

  • As we stated above, RMDs from IRAs and 401(k) plans are suspended. This provision is intended to stop retirees from being forced to sell investments that have probably decreased in value since the beginning of this pandemic.
  • The 10% early withdrawal penalty for distributions of up to $100,000 for COVID-19-related purposes will be waived. Furthermore, withdrawal taxes can be spread out over three years from the date you took the distribution or rolled back into your account before those three years are up.
  • The bill doubles the 401(k) loan limit from $50,000 to $100,000 for those affected by the pandemic.
  • If you were supposed to finish repaying a 401(k) loan before December 31, you will now get an additional year.

Student Loans:

  • Payments for student loans held by the federal government will be automatically suspended until September 30 without penalty to the borrower.
  • Interest will not accrue on the loan during the suspension period.

Charitable Contributions:

  • Donors can now deduct 100% of cash gifts to a public charity against their 2020 adjusted gross income. The old deduction rules will still apply to cash gifts to private foundations.

While the CARES Act is good news for businesses and individuals across the country who are struggling, additional legislative measures will likely be needed to stem-the-tide of this economic crisis. We’ll continue to keep an eye on the federal government’s actions in the weeks to come.

Last But Not Least — Show Us Your Space!

As we all get accustomed to our “new normal” in the world of social distancing and shelter-at-home orders, many of us are working from home and staying connected with colleagues and clients from afar. If you’re finding yourself in the same boat, we’d love for you to share a photo of your new workspace with us! We’ll be sharing some fun snapshots of our WFH arrangements on social media and hope you’ll be following along. Send your own photos to our team at katie@humphreysgroup.com — and as always, please contact us if you have any questions.

Disclosures

The S&P 500 is a market capitalization-weighted index that tracks the 500 largest companies listed on the New York Stock Exchange or NASDAQ Composite. It is used as a benchmark of the overall stock market’s performance.

Return data represent past performance and are not indicative of future results. Historical performance does not reflect applicable transaction, management or other applicable fees as noted, the incurrence of which would decrease hypothetical, historical returns.

Source for all charts and text contained within graphics: © 2020 Clearnomics, Inc. All Rights Reserved. The information contained herein is proprietary to Clearnomics and/or its content providers and may not be copied or distributed. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein. All reports, charts and graphics compiled by Clearnomics or any of its affiliated websites, applications or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and any commentary for any and all markets should not be construed as a recommendation to buy, sell or hold any security – including mutual funds, exchange traded funds or company stock.

Staying Resilient: Reflecting on Last Week in the World and the Markets

Published in: Resources |

We’re capping off yet another interesting week for the markets, the economy, the policy arena, and the ongoing Coronavirus pandemic. Below, we’re providing you with a full recap of the latest news, plus what to watch out for as we head into next week.

What Happened in the Markets?

In our most recent recap, we asked you to “remember that while the markets are designed to handle uncertainty over longer time horizons, they tend to have a habit of behaving unpredictably in the short run.” Was that ever the case last week.

When markets closed on Friday, March 20, the S&P 500 had lost roughly 30% of its value from its February 19 peak, and suffered its worst one-week decline since 2008. It had all but wiped out all gains accumulated under the Trump administration. At the time, there was a Senate stimulus bill largely expected to pass over the weekend. The Fed had already cut interest rates to 0% and announced rescue measures around its bond-buying program to the tune of $700 billion. The global health crisis around COVID-19 had started its exponential climb in reported cases in the United States, with some experts labeling New York as the new epicenter of the outbreak. In short, many expected the substantial volatility we experienced that week to continue.

Instead, last week, the major indexes rallied for one of their best weeks ever. The S&P 500 posted its biggest three-day gain since 1933 and recorded its best week since March 2009 — just one week after its worst week since October 2008. The Dow turned in its best weekly performance since 1938. Despite paring some of their gains on Friday and finishing the session in the red, the S&P 500 gained 10.3% for the week, while the Dow gained 12.8%.

We’re not saying it will be smooth sailing from here on out, but it’s worth noting — investors who attempted to time the market after the March 20th close would have missed out on the quickest bear market recovery ever.

Humphreys-Group-stock-market-chart

There were, of course, fiscal and monetary policy measures taken to stem the downward tide and ease investors’ fears. After two failed votes, the Senate passed a $2 trillion stimulus bill (full details below). The Fed announced Monday morning that there would be no limits to its bond-buying program, which had originally been capped at $700 billion, and announced new credit facilities, expanded liquidity pools, and announced the launch of a “Main Street Business Lending Program.”

But if the market performance feels disconnected from the economic reality for individuals, families, and business owners, it very well may be:

  • By mid-week, up to 54% of the U.S. population may have been ordered to stay at home. (1)
  • The services and manufacturing sectors experienced historic lows, based on early March data. Services business activity dropped to historic lows, while manufacturing experienced its sharpest drop since 2009. (2)
  • Companies reduced their workforces at the highest levels since the 2008 recovery. (3)
  • On Thursday, the Department of Labor announced that a staggering 3.283 million people had filed claims for unemployment benefits in the week ending March 21. This was the highest number of claims in U.S. history and above most economists’ expectations (around 1 million).
  • With a rough rule of thumb by economists of a 1% increase in the unemployment rate for every 1.5 million jobs lost, unemployment may nearly double from February 2020 levels.

Humphreys-Group-unemployment-rate-chart

It may be that this correction has already priced-in a sharp recession and economic distress, leading to lower expectations for consumption, production, corporate earnings and growth. It may also be the case that these are short-term fluctuations, as markets handle uncertainty and reassess expectations. We don’t speculate because we can’t predict what the future holds. We don’t know for certain how the COVID-19 public health crisis will play out, and we don’t know how the market will react to news — positive or negative — that arises from it.

Two of our last three Federal Reserve Chairmen made surprise appearances this week with the same message in mind:

Ben-Bernanke

Ben Bernanke, who oversaw the Federal Reserve’s response to the 2008 financial crisis, said on Wednesday that our current economic halt resembles more of a natural disaster than a systemic monetary or fiscal shock. Bernanke said he expects a “very sharp” U.S. recession but a “fairly quick” recovery. Most importantly, he noted that “if we don’t get the public health right,” there’s no monetary policy by the Fed or fiscal legislation to overcome that.

Jerome-Powell

Meanwhile, current Fed Chairman Jerome Powell said on Thursday that we may be in a recession already, but that he “would point to the difference between this and a normal recession.” Powell added, “there is nothing fundamentally wrong with our economy … we are starting from a very strong position.” He echoed Dr. Anthony Fauci, one of the top scientists in the Coronavirus Task Force, that the timetable of a recovery would be dictated by the virus.

We would be remiss to ask long-term investors to ignore the noise and stay disciplined when it comes to pullbacks or corrections, and not request the same of rallies and gains. With the new normal of substantial volatility for the time being, nearly every trading session feels like a new loop around the roller coaster. We continue to take a long-term perspective of what’s to come.

What Should You Keep in Mind for This Week?

The recent roller coaster ride of dramatic selloffs and forceful rebounds illustrates an important concept that all long-term investors should remember: You are equipped with a toolkit that many investors do not have. You are investing with a portfolio that is well-diversified across multiple different asset classes, one that reflects your tolerance for risk and the goals for which you are investing. Your portfolio is designed to weather turbulent market conditions (which are a sign that the market is working as it should; volatility is not an anomaly), including moments like the one we’re experiencing now.

As we stated in our last letter, we’re no stranger to crises — we’ve been through events that have instilled fear and anxiety in all of us. These climates are never easy for investors, and the barrage of the 24/7 news cycle does not make life any easier. Remember these takeaways:

  • The stress of being out of the market can be just as debilitating as the stress of being in the market. Not only do you need to pinpoint the exact time to get out of the market, you also need to predict the right time to get back in — a feat that is incredibly difficult to do.
  • The benefits of “staying in your seat” during the roller coaster ride far outweigh the benefits of getting out. History shows that market advances are more frequent, last longer, and have greater magnitude than market declines.
  • If you need another reason to stay put, let us remind you that excessive trading and turnover can result in hefty fees that could have a major impact on your ability to sustain long-term investment growth.
  • Rely on proven, proactive strategies such as tax-loss harvesting and rebalancing to capture the silver lining of market volatility and maintain your target allocation or desired level of risk.

These takeaways, combined with the support of a fiduciary financial advisor, can be your best defense against market volatility. 

What Happened on the Policy Front?

After a unanimous vote in the Senate, the House gave final approval Friday on the largest stimulus bill in modern American history. It is the latest legislative effort designed to bolster the U.S. economy during the ongoing Coronavirus pandemic.

Here is a breakdown of the bill for individuals, businesses, state and local governments, and hospitals:

For Individuals:

  • Individuals who earn $75,000 or less would get direct payments of $1,200. These payments would phase down before ending altogether for those earning more than $99,000. Families would receive an additional $500 per child.
  • They will also receive an expansion of unemployment benefits that would extend unemployment insurance by 13 weeks. Unemployed workers would also receive an additional $600 a week for four months.

For Large Businesses:

  • Large businesses grappling with the Coronavirus pandemic will benefit from $500 billion in loans.
  • Businesses that receive a government loan must halt stock buybacks for the length of the government assistance, plus one additional year. There would also be limits on executive bonuses.
  • There would be strict oversight of these loans in the form of an inspector general and a five-person panel appointed by Congress.

For Small Businesses:

  • Small businesses that keep up their payrolls during the Coronavirus crisis will receive $377 billion in loans at low or no interest.
  • Small businesses that pledged to keep their workers on the payroll would also receive cash-flow assistance structured as federally guaranteed loans. These loans would be forgiven if the business continued to pay its workers for the duration of the crisis.

For State and Local Governments:

  • $150 billion in funding, including $400 million in election assistance for 2020.

For Hospitals:

  • $130 billion in funding, which is $55 billion more than what was originally agreed upon. $100 billion would go directly to hospitals, $1 billion would go to the Indian Health Service, and the remainder would be used to increase supplies of medical equipment.

“This is not a moment of celebration, but one of necessity,” Minority Leader Chuck Schumer said on the Senate floor Wednesday. “To all Americans I say, ‘Help is on the way.’”

Keep Calm, Carry On

We hope that you are all staying safe and prioritizing your health, while following the guidelines laid out by the CDC and WHO. Let’s end this week’s recap with some positive news:

In the meantime, please continue to stay tuned for more updates on the news and events that impact your day-to-day financial life. If you have any questions or simply would like to discuss some of your concerns about our current environment, please contact us at 415-928-0401. While we are working remotely, it may take a short time for us to return your call, but we will do so before the end of the day.

 

Disclosures
1. According to data compiled by CNN using U.S. Census population estimates.
2. Based on the Markit purchasing managers’ index for the services sector and composite measure.
3. Based on data from Markit.
The S&P 500 is a market capitalization-weighted index that tracks the 500 largest companies listed on the New York Stock Exchange or NASDAQ Composite. It is used as a benchmark of the overall stock market’s performance.
Return data represent past performance and are not indicative of future results. Historical performance does not reflect applicable transaction, management or other applicable fees as noted, the incurrence of which would decrease hypothetical, historical returns.
Source for all charts and text contained within graphics: © 2020 Clearnomics, Inc. All Rights Reserved. The information contained herein is proprietary to Clearnomics and/or its content providers and may not be copied or distributed. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein. All reports, charts and graphics compiled by Clearnomics or any of its affiliated websites, applications or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and any commentary for any and all markets should not be construed as a recommendation to buy, sell or hold any security – including mutual funds, exchange traded funds or company stock.

The Humphreys Group: Week in Review

Published in: Resources |

US stocks were on a roller coaster ride last week. The S&P 500 Index fell sharply Monday morning, recovered some of its losses by close on Tuesday, dropped even further Wednesday, then climbed back up Thursday, before finishing down by 4.3% on Friday and 15% lower for its worst one-week decline since 2008. The S&P 500 has lost roughly 30% from its February 19 peak. No getting around it, it was brutal.

Things are moving quickly this morning, as the Fed announced a series of new monetary stimulus measures and markets reacted to a failed Senate vote on the $1.8 trillion package. More on both items below.

It’s clear, at least for the time being, that this type of substantial volatility is part of the new normal for investors: A new normal filled with uncertainty about the scope of the COVID-19 crisis and our response to it, with unemployment filings skyrocketing to possibly the highest levels on record, and a social restructuring of how we work, shop, go to school, and take care of our families.

As the financial media focuses on the shrinking American economy and the daily and weekly fluctuations of the S&P, Dow Jones Industrial Average (DJIA), and NASDAQ indexes, we step away from the frenzy and continue to take the long view and remember that while markets are designed to handle uncertainty, to reassess expectations for the future in real time, and to price-in risk, they tend to have a habit of behaving unpredictably in the short run.

Let’s take a look at a recent period of the market’s performance.

Stock Market Performance

We see that the past few years have not been devoid of market pullbacks or volatility. If you removed the Y-axis and zoomed in, the ups-and-downs of short-term volatility would look even flatter. But as long-term investors, “zooming in” on a particular date or time period in the market’s history is the wrong approach. Here is the eagle-eye view of the market’s performance over the past 60 years.

Stock Market Cycle

Most recently, in 2008, the stock market was nearly halved in value. At the height of the Great Recession, it was likely pretty difficult to foresee a full recovery that would transform into an 11-year bull market. That doesn’t mean it was a smooth ride — after all, volatility is a completely normal part of investing.

Annual Stock Market Returns and Pullbacks

 

Since 1980, the average year’s market performance experienced large intra-year declines while growing overall:

    • The average year saw a stock market drop of -13.5%.
    • Despite that, most years still ended in positive territory, averaging 9% gains.

When pundits and talking heads discuss market pullbacks, corrections, and recessions, they rarely give context for the inverse. “When’s the last time this happened?” is the wrong question to ask; rather, we should ask, “How have the markets typically responded to these events throughout history?” That’s not to speculate that we know or can guess how the current COVID-19 crisis will unfold, but as we mentioned in our last letter, we’ve gone through unprecedented crises in the modern era — the dot-com crash, 9/11, and the 2008 financial crisis among them.

We will not know the true economic and market impact of the COVID-19 crisis for some time. Historically, though, we’ve experienced two dozen stock market corrections since World War II, with the average correction taking the market down -14.3% from peak to trough and the average recovery taking only four months.

Market Corrections and Recovery

Meanwhile, if performance does remain in pullback territory (drops of 20% or worse), we can see that the average bear market experiences a drop of -35.8% from peak to trough, with the average recovery taking a little more than two years.

Bear Markets and Recoveries

There are investors out there who hear the financial media or the political spin and want to react immediately. They will feel the urge to “wait for the bottom” or the start of a recovery. But timing the market doesn’t work. Here’s what it looks like to hypothetically miss the best market days over the past 25 years, using the S&P 500 Index as a baseline.

 

So, What Can We Control?

We know that timing the market doesn’t work, and that we can’t possibly predict what the future holds. Looking down a “double barrel” of a physical threat combined with a financial threat is a tremendous challenge. We don’t know for certain how long the COVID-19 crisis will last, and we don’t know how the market will react to negative — or positive — news that arises from it, as it unfolds over the coming weeks.

Emotions are high, anxiety is prevalent, fear is palpable — these are all normal feelings. But there is a solution to ease the mental toll of the unknown, especially when it comes to your financial picture. Remember that the following factors are within your control:

  • Fees and Trading Costs: Excessive trading and turnover can result in hefty fees that could have a major impact on your ability to sustain long-term investment growth — growth that is necessary to achieving your goals, whether that’s living comfortably in retirement or funding a college education for your children. So, when you are tempted to move in and out of positions to try and capture the elusive “alpha,” just don’t do it; the costs outweigh the potential short-term reward.

 

  • Expense Ratios: You likely already know that mutual funds and exchange-traded funds (ETFs) come with a wide variety of costs, which affect the net return on your investment. The expense ratio is one of those costs, and it can give you a very clear idea of what you can expect to pay for an investment strategy. It’s crucial that you pay attention to these costs regularly, as even the smallest increase can actually have a significant impact on your investment growth over time.

 

  • Tax-Loss Harvesting and Rebalancing: Tax-loss harvesting is the silver lining of market volatility. Later this year, we will shift our focus, where appropriate, to how we can “harvest” investments to sell at a loss, and then use that loss to lower your tax bill for the gains you accrued over the course of the year. This is also the perfect time to rebalance your portfolio back to your target allocation or desired level of risk. Both of these strategies are proactive and will help you work toward the goals that are outlined in your financial plan, regardless of what’s happening in the markets.

 

  • Your Spending: Even in the best of times, we focus on your expenses because over time they have a tremendous impact on your long-term financial sustainability. Now is the time to consider deferring or trimming non-essential spending. If you can defer a big ticket item, consider doing so.

 

Remember that you are investing for goals that are 10, 20, and 30 years into the future. Remember that your asset allocation ensures diversification and is based on your time horizon, your income needs, your risk tolerance and capacity, your tax profile and other aspects of your financial picture. Adhering to this and other investment principles will help you achieve your investment goals, even if it feels like the world around you is uncertain.

 

Moving on From the Markets: What’s Happening on the Policy Front?

The federal government is working around the clock to help stem the tide of financial panic caused by the COVID-19 crisis. Here is a brief overview of the political and policy responses we saw last week:

The Stimulus Bill

Last Wednesday, President Trump signed into law “phase two” of the COVID-19 stimulus package, which provides free testing for everyone (including the uninsured), expands unemployment benefits, and provides two weeks of emergency paid sick leave for many workers who are being tested or treated for the virus.

On Friday, “phase three” of the stimulus package was introduced to the Senate by Senate Majority Leader Mitch McConnell. The package, which is estimated to top $1 trillion, would give $1,200 to most individuals who made less than $75,000 in adjusted gross income (AGI) on their 2018 tax returns, or $2,400 for any married couple who made less than a combined $150,000 in AGI. An additional $500 would be included for every child within a family. These payments gradually would scale down for individuals with an AGI between $75,000 and $99,000. Individuals who earn more than $99,000 and married couples who earn more than $198,000 would not be eligible for any direct assistance.

McConnell says that these direct payments “would provide some extra certainty in this uniquely uncertain time.” The package would also provide industry-specific bailouts — $50 billion in loans for airlines, $8 billion for cargo air carriers, and $150 billion for hotels, casinos, and other large businesses. It would also provide $300 billion in loans for small businesses.

On Sunday evening, the initial procedural vote fell short of the 60 votes needed to move forward, as it faced opposition from both Congressional Republicans and Democrats, with negotiations continuing through the evening. As of Monday morning, Senate leaders aimed for a new vote at 1 p.m. Eastern.

 

IRS Tax Deadline Extended

After previously announcing that the tax-filing deadline for 2019 returns would not be extended, Treasury Secretary Steven Mnuchin reversed course last Friday and announced that the filing date would be pushed back 90 days — from April 15 to July 15.

The move, which applies to all individuals and corporations, is good news for those who traditionally owe money, allowing them to retain additional liquidity for the next several months.

Secretary Mnuchin is encouraging “all taxpayers who may have tax refunds to file now to get your money.”

 

Federal Reserve Rate Cut

Last week, the Federal Reserve slashed interest rates by a full percentage point — the largest in Fed history. This reduction, which is intended to entice borrowers and jump-start spending, puts the rate somewhere between 0% and 0.25%.

On Monday morning, the Fed announced more rescue measures:

  • An unlimited bond-buying program that removed the $700B limit set last week
  • Three new credit facilities
  • Expanding the money market mutual fund liquidity and commercial paper credit facility, moves meant to stem off a credit crisis
  • The launch of a “Main Street Business Lending Program” for small and midsized businesses

 

Key Personal Takeaways

During this time period, it’s important to practice caution and due diligence when seeking help or support networks, as these types of conditions unfortunately bring out people who may not be acting with the best intentions. We have received a dramatic surge in spam calls. Watch out for so-called “advisors” who are selling or pushing products that guarantee protection against market volatility or have a history of high fees (think structured notes or hedge funds), as these claims are often too good to be true. If you are looking for a financial advisor for the first time during this climate, rely on trusted resources such as the National Association of Personal Financial Advisors (NAPFA) or Financial Planning Association (FPA) databases, which can help you find reputable advisors who are also fiduciaries, as we are.

Coronavirus-related scams are also on the rise right now, with many identity thieves, phishers, and other fraudsters looking to capitalize on the panic and fear surrounding the pandemic. Last week, the Better Business Bureau® notified consumers of a text message scam that has recently cropped up, in which the texter sends a malicious link offering money for groceries. The link draws users to a website that can steal their email address, password and credit card number, among other sensitive data.

Other states like Nevada have received reports of thieves visiting people’s homes to offer fake at-home test kits and even cleaning products claiming to expunge COVID-19.

Be extra vigilant and wary of any recommendation that has not been verified by the CDC or the WHO. A healthy dose of skepticism can go a long way toward protecting you and your loved ones.

 

What We Can Do to Flatten the Curve

Beyond the market impact and policy decisions, it’s important to recognize the real, human cost that this pandemic is causing to our neighbors domestic and abroad. We must continue to prioritize the health and safety of our families, friends, loved ones, and community members by practicing social distancing and following the guidelines laid out by the CDC and WHO.

Some of us may feel helpless when we see news headlines focusing on business closures, potential layoffs, and economic disparity caused by statewide shutdowns in response to the pandemic. If you want to give back to your local community, The San Francisco Department of Health, local news sites, and more have created resource guides on how you can stay safe, protect others, and keep your business safe financially:

We can assume that there will be periods of volatility moving forward and that more changes are in store on the economic and policy fronts. Moving forward, we are committed to updating you on the factors that impact your day-to-day life and financial situations. If you have any questions or simply would like to discuss some of your concerns about our current environment, please contact us at 415-928-0401. While we are working remotely, it may take a short time for us to return your call but we will do so before the end of the day.

 

Disclosures
The S&P 500 is a market capitalization-weighted index that tracks the 500 largest companies listed on the New York Stock Exchange or NASDAQ Composite. It is used as a benchmark of the overall stock market’s performance.
Return data represent past performance and are not indicative of future results. Historical performance does not reflect applicable transaction, management or other applicable fees as noted, the incurrence of which would decrease hypothetical, historical returns.
Source for all charts and text contained within graphics: © 2020 Clearnomics, Inc. All Rights Reserved. The information contained herein is proprietary to Clearnomics and/or its content providers and may not be copied or distributed. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein. All reports, charts and graphics compiled by Clearnomics or any of its affiliated websites, applications or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and any commentary for any and all markets should not be construed as a recommendation to buy, sell or hold any security – including mutual funds, exchange traded funds or company stock.