PFA Updates

Apr 03, 2020

Greetings Friends,

We do hope everyone is safe and healthy.  It's a crazy time.  As human beings, it feels unnatural adhering to social distancing and sheltering in place.  We all long to get back to our normal life styles - we hope it comes sooner than later.  Today, I don't want to bore everyone with economic data or market technical analysis of what might happen in the future.  Frankly, we have been dealt a bunch of lemons by this virus, so what can we do to make some financial lemonade? 

In talking with many of our clients recently, there are several strategies we have been recommending depending on their circumstances and financial situations; these could be of value to many of you. If any of you would like to discuss whether any of these could benefit you, please feel free to reach out to us to discuss what impact these might have on your individual financial position in more detail.

Planning and Investment Strategies

• For clients over the age of 70.5, the CARES Act signed on 3/27/20 waives required IRA distributions for 2020, so if you do not need the income for lifestyle, you have the option to leave the money in your IRA.  The Qualified Charitable Distribution (QCD) remains available for tax free distributions to qualified charities from an IRA.
• 2019 Income tax returns and payments are delayed until 7/15/2020, which means the same delay applies to IRA and Roth IRA contributions for 2019.  You have more time to determine if funding one of these savings vehicles makes sense.
• If you have a favorite stock you always wanted to own (Disney, Apple, McDonalds, etc) they are all "on sale" at a good price right now.  If you have extra money in the bank that you are not uncomfortable investing in the stock market it's a good time to redeploy low interest bank savings into blue chip stocks.
• Increase the stock percentage in your investment account.  If you have 50% in stock today, consider moving up to 60%.  If you have 70% consider moving to 90%.  If you believe the stock market will recover to new highs in the future, you will be glad you re-balanced to take on more risk during this bear market.
• For 401-k's: increase the amount you are saving each paycheck.  If you save 4%, move up to 6% or more.  If you have bonds in your current allocation, consider moving them to stock.  Direct 100% of new contributions to a small company fund or emerging market fund which are the two sectors down the most in the recent downturn...you will buy more shares at their current low price in a dollar cost average strategy.
• Harvest tax losses in your non-qualified investment account (non-IRA or 401k).  Example:you own a S&P 500 stock fund that you paid $10,000 for...today's it's worth $7,000.  If you sell/exchange for another growth investment, you can take the $3,000 loss on your 2020 taxes.  The money stays invested to grow in the new investment, but you get an added tax advantage.
• Convert money from a traditional IRA to a Roth IRA.  You pay taxes on the conversion, but future growth in the Roth is tax free and there is no required distribution.  Better yet, convert shares of an investment to the Roth...because prices are low, you can move more shares for a target dollar amount.
• Gift shares of stock to a grandchild.  You can gift up to $15,000 each year without reporting to the IRS.  Let's say you have 1,000 shares of IBM stock and you wanted to give some to your grandchild.  In early February the stock was worth about $160 a share, so you could have gifted them about 93 shares to equal $15,000.  Today, IBM is worth $110 per share, so you can gift them an extra 43 shares for a total of 136 shares.  When the stock price recovers, the gift is of much more value to them.
• If you have stock options, review exercising the stock option now while the stock's price is down with the intent to hold the stock for one year or longer before selling.  Depending on the type of stock option, you may save some taxes today because of the lower price and convert the taxation of future growth from ordinary income to capital gains.
• Refinance debt.  Interest rates have dropped again, so if you have a mortgage or Home Equity Line of Credit that are above 4.5% you might want to run the numbers to see if you save enough in interest and/or can shorten the duration of the loan.   

Miscellaneous Thoughts

• Your March 31, 2020 TD Ameritrade statement is in the mail.  It's not going to be very pretty, but don't panic.  While no one knows what will happen next, we do know that market downturns do not last forever.
• A favorite recent quote from Lucas Nelson, Willie Nelson's son, talking with NPR about hunkering down with his 87 year old dad and family at their Austin, TX ranch - "We are staying informed, but being careful not to get caught up in the hysteria of the media".
• I recently heard an old song on the radio and the words resonated with me - "I get knocked down, but I get up again.  You're never going to keep me down."  That's been my experience with the US economy and stock market for 40 years in this business.
• In my humble opinion, the market needs three things to happen in order to get back to the all time market high set on 2/19/20:

1. One, from a government perspective, to show leadership fighting the virus and to provide a significant financial response with an open door to do more.  It took awhile, but we can check the box on this one which is why I think we got the most recent rally in the markets.
2. Two, to see a peak and then a consistent drop in the growth rate of COVID-19 infections in the US.  The market should have a positive response to realizing this goal for all Americans.
3. Three, to see an end to the crisis because medical science finds an effective treatment.  We all line up to get our vaccine and happily wear a "VC" sticker on our shirt (like we just voted) signifying victory over COVID-19.  The market soars to new highs as the economy fully recovers.

• Dr. David Kelly, Lead Global Economist for JP Morgan said recently on a conference call, "Brains and courage are needed now."  We agree.
• Nick Murray said on 4/1/20 in a letter to clients, "We cannot know which way the equity market's next 25% move will go (up or down).  We know with crystal clarity which way it's next 100% move will be (up), and we must encourage everyone with whom we come in contact not to risk missing it.  Be of good cheer.  This too shall pass."

Stay healthy everyone and let us know if we can answer any questions about your investments or the above strategies.