Personally Invested In Your Future™

  1. Exit Strategies for Business Owners

    After years spent launching and growing your business, the day will finally arrive when you can sit back and enjoy the fruits of your labor. But, just as starting your business involved hard work and planning, the process of exiting your firm can be a long and challenging process.

    Many entrepreneurs put off making decisions about the disposition of the business until their departure is imminent. Waiting until the last minute to put together an exit strategy can, however, prove to be an expensive mistake. Unanticipated events—such as a health crisis, a divorce, or the death of a business partner—may force you to dispose of the business quickly, and at a loss. Having a transition plan in place can greatly improve the chances that you will be able to draw income from the business to support your retirement needs, and help ensure that the business is passed on as you had intended.

    Closely-held companies often have in place a business succession plan that establishes a monetary value for each owner’s business interest before the need arises. A succession plan typically has at its center a buy-sell agreement, or a contract that obligates the owner’s estate to sell his or her shares for a predetermined price to partners or shareholders, to the business itself, or to both. Buy-sell agreements are often financed with life insurance.

    If you wish to pass on the business to family members, consider in advance the best succession method. Transferring ownership of the business to a relative at no cost can result in substantial gift or estate taxes if it is done all at once. To take advantage of gift tax exclusions, start giving stock in the company to future heirs years before the expected transition. This could reduce or eliminate the taxes owed when the business finally changes hands. You can also sell the company to family members, though there may be tax obligations for the seller if the business is sold at a reduced rate.

    A private annuity can provide a tax-efficient means of transferring ownership to the next generation. Under the terms of a private annuity contract, the heir agrees to pay the owner a certain sum of money at set intervals, usually for the duration of the owner’s lifetime, in exchange for receiving the property. This type of arrangement can help you to secure a retirement income, but carries the risk that the heir will default on the annuity obligations.

    If there is no co-owner or family member prepared to take over the business, you could sell the firm to current employees. This can be the best option for smaller businesses with low cash flow levels that might have difficulties attracting the interest of third-party buyers. Employees already involved in the management of the business will have a good idea of what the company is worth, and have the knowledge necessary to keep the business running after your departure. It may be possible to structure the sale so that the agreed price is paid off over time, thus producing an income for the former owner.

    If you are considering selling to employees in the future, you may want to establish an employee stock ownership plan (ESOP). In addition to serving as a performance incentive, there are substantial tax advantages associated with selling a business to an ESOP.

    It may also be possible to recruit an outside buyer for your company. This route can be especially lucrative if the business is growing quickly and market conditions are favorable. A business appraiser can help you determine what price you might achieve on the open market, and a business broker can assist you in locating a buyer. Keep in mind, however, that preparing a company for sale can involve a great deal of work. Carefully review your financial statements and operations for any weaknesses that could make the company less attractive to a potential buyer. With sufficient preparation, you may be able to greatly enhance the value of your company before putting it up for sale.

    Regardless of which exit strategy you choose, it is best to make the transition a gradual one. If you intend to pass on the business to family members or employees, appoint a successor to take over as head of the company while you are still involved in the business. In some cases, you may want to make arrangements to remain involved in the business as a consultant or employee even after the firm has been sold or otherwise transitioned to a new owner. If the business is owned by family members, your connection with the company may never be completely severed.

    Planning for the day when you will leave your business is a complex undertaking. Call us to discuss how you might be able to maximize your gain from the disposition of your business, and enjoy a comfortable retirement.

    This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

     

  2. Market Update

    Markets higher after holiday – Following the big gains in US equities last week, the S&P 500 Index opened above the 3000 level for the first time since early March. Asian and European markets fared better as well, with Japan a standout. Moreover, WTI crude prices are higher after a solid four-week showing. Meanwhile markets remain supported by signs of recovery as more of the US economy reopens

    Fed buys $1.5 billion in bond ETFs –  The Federal Reserve’s (Fed) purchases of bond ETFs accelerated in the week ending May 20, raising the total to $1.8 billion. The purchases have helped keep corporate credit markets orderly and have helped narrow corporate credit spreads, while representing only a small fraction of the Fed’s $11 billion in bond purchases for the week. We discuss the Fed’s bond purchases and the state of corporate credit markets later today on the LPL Research blog.

    Concentrated earnings decline –  With 480 companies having reported results, first quarter S&P 500 Index earnings are tracking to a 14.6% year-over-year decline. Consumer discretionary and financial companies have driven all but one percentage point of the overall decline. Consensus estimates for the next 12 months’ earnings have been cut by 20% since March 31, as nearly 40% of S&P 500 companies have withdrawn guidance amid heightened uncertainty around the economic recovery (sources: FactSet, JPMorgan Chase). Only 11 S&P 500 companies will report results this week. We recap earnings season in our latest Weekly Market Commentary, available later today.

    Corporate credit spread narrow –  The average credit spread for investment-grade corporate bonds broke below 2% last week for the first time since early March, ending the week at 1.86%. That is well below the recent March 23 peak of 3.73% and is slowly closing in on the 15-year median of 1.36%, with the help of Fed purchases. We are neutral overall on investment-grade corporates, with income attractive and valuations still better than neutral, but with some concerns about vulnerability to potential downside-risk scenarios.

     

    IMPORTANT DISCLOSURES

    This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

    References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

    Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

    This Research material was prepared by LPL Financial, LLC.

    Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

    The credit spread is the yield the corporate bonds less the yield on comparable maturity Treasury debt. This is a market-based estimate of the amount of fear in the bond market Bass-rated bonds are the lowest quality bonds that are considered investment-grade, rather than high-yield. They best reflect the stresses across the quality spectrum.

    Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

    Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

    Not Insured by FDIC/NCUA or Any Other Government Agency
    Not Bank/Credit Union Guaranteed
    Not Bank/Credit Union Deposits or Obligations
    May Lose Value

  3. Are You Prepared for Another Market Downturn?

    We have experienced a significant rebound in investment returns since late March, but if current conditions worsen are you prepared for another market downturn?

    The S&P 500 Index is up roughly 30% from its low on 3/23/2020. The chart below from CNBC is a visual representation of the last eight months. That is a remarkable rebound, and we are encouraged to see that. See the chart below from CNBC for a visual representation of this.

    From an investing standpoint, however, it is quite possible that the market will experience another downturn going forward. Depending on the amount of time it takes to develop a widespread treatment and vaccine, additional downside for equities is certainly a real possibility.

    When professional asset managers were recently asked about the state of the markets, 68% believe that we are experiencing a “bear market rally.” In other words, more than two-thirds of professional investors believe that the recent market rebound is not yet the beginning of a new bull market, but instead feel that there will be another downturn.

    Historical Comparison

    For some historical perspective, this is the tenth bear market since 1950. The average duration of the other nine was 16 months. Previously, the shortest recovery was three months back in October 1987 which was the global market crash known as “Black Monday.”

    While it is certainly possible that pent-up demand would lead to a V-shaped recovery in the fairly near future, we are inclined to think that there will be considerable volatility for several more months in the midst of disappointing corporate earnings announcements and a continuation of historical levels of unemployment.

    Three Things to Do Now

    Ultimately, we cannot predict what will happen in the stock market, but we can prepare for it. Here are the things we would recommend doing in order prepare.

    1. Determine how much money you can afford to take from your portfolio.

    We have developed our Withdrawal Stress Test in order to show the relationship between your withdrawal rate and the allocation of your portfolio. The lower the rate of withdrawal from the investment portfolio, the stronger and more sustainable it is over the term; a low withdrawal rate also provides more flexibility in terms of the allocation of the portfolio. We give more information in this article about how to determine a sustainable withdrawal rate.

    2. Create a plan that has enough cushion to weather a downturn.

    Our top priority as a firm is preparing our clients to achieve a successful retirement. That means that our clients can behave with poise and calm, even when most investors are resorting to panic.

    We do this primarily through the use of a tool we call the Retirement Shock Absorber®. It is a surplus of capital above the minimum amount of assets required to fund your retirement.

    The Retirement Shock Absorber® is most important during those times of inevitable volatility and market decline. Now that we’ve had a significant rebound in the markets, it can be a particularly good time to reassess your financial situation and determine if you are on the right track.

    3. Develop a Plan B™ to help you adapt to changes in circumstances.

    We know that as life happens, plans change. Nothing works out exactly as planned.  Whoever thought the entire country would be shut down for a virus?

    Wealth planning is all about contingencies. The main reason people lie awake at night worrying about stuff is fear of the unknown.

    That’s why we want to identify these unknowns ahead of time and consider the potential impact on your plans. It doesn’t guarantee a positive outcome, but it does decrease the chance that your goals will be derailed by something unexpected.

    We call this our Plan B™. It is designed to help anticipate the unexpected by modeling the effects of various “what if?” scenarios that are out of your control.

    How would your portfolio hold up if we were to experience another big downturn? Do you know the answer? More importantly, do you know how those losses could affect your plans to retire?

    We can’t predict the future, but we can prepare for it. If you’d like a complimentary second opinion of your financial situation, just click here to request an initial conversation.

     

  4. Retiring Business Owners – Plan for Succession

    If you’re a small business owner, you’ve invested a great deal of time and effort into building your company. With day-to-day demands, it may be difficult to imagine your eventual transition into retirement. Yet, if you want to build personal financial security and ensure business continuation, it is important to plan ahead. Business succession planning can help create retirement income for a retiring business owner and facilitate the transfer of operations and/or ownership to family or another entity. A succession plan can also provide a strategy to handle unforeseen events, such as death or disability.

    Laying the Foundation

    It is never too early to begin planning for succession. An early start can allow you ample time to develop an appropriate exit strategy, choose the right person to be your successor, and train your successor to manage the daily operations of your company. Consider the following points to create a foundation for a successful plan:

    Valuate Your Business
    A key aspect of planning for continuation is calculating the worth of your business. There are a variety of techniques for business valuation, and the most appropriate will depend on your business circumstances. A qualified professional can help you choose strategies for valuation.

    Plan Your Exit Strategy
    It is important for a retiring business owner to plan his or
    her departure from the day-to-day operations of the business. A solid plan can help ensure this transition will go smoothly, as well as facilitate the transfer of ownership.

    Choose a Successor
    If you plan to keep ownership and control of your business within your family, start by assessing your family members’ interests and qualifications, and how well they match the needs of the business. Discuss with family members who will participate in the company and in what capacity. Then, determine how working members will be compensated and what will be given to nonparticipating members.

    If you expect unrelated parties to carry on the business, meet with the key people involved for an in-depth discussion about the company and its future. If succession involves the sale of the business, be prepared to address such issues as what the purchase price will be, how it will be paid, and when the succession plan will be activated.

    Develop a Business Plan for the Future
    Through your business plan, you can outline clear-cut, short-, medium-, and long-term business goals for your successor, along with an action plan for achieving them.

    Include budgets and financial forecasts that can be modified according to changing conditions in both the industry and the economy.

    Choose a Transfer Strategy
    Depending on the type of business, its value, and your personal financial situation and goals, determine the best ownership transfer strategy for your business. There are a variety of ways to structure and fund buy-sell agreements. For transfers to family members or charity, gifting may be an appropriate option. Consult your tax and legal professionals for specific guidance.

    Plan for Contingencies
    Regardless of your intentions for succession, it can be helpful to compile current information in case an unforeseen event, such as a death or disability, occurs before you have finalized your succession plan. This information should include the following:

    • A copy of your current business plan.
    • Job descriptions for all positions within the company, including details regarding areas of responsibility and delegation of duties.
    • A list of potential successors.
    • A plan to ensure extensive “hands-on” training for your designated successor.
    • An estate plan that addresses any Federal and state estate tax obligations.

    Other Considerations

    A comprehensive succession plan involves strategies to handle a number of financial, legal, and tax issues. For instance, how will a successor secure funds to buy out a retiring, deceased, or disabled owner’s share of the business? What are the estate planning issues? How can an owner minimize gift taxes resulting from the transfer of company stock to family members? Such situations can be addressed in a succession plan, with the guidance of qualified legal, tax, financial, and insurance professionals.

    You owe it to yourself to ensure that your business will continue to flourish after your retirement, as well as in the event of death or disability. Proper planning through a business succession plan can help provide long-term security for your retirement, your company’s future, and your family.

     

    Important Disclosures

    The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

    The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

    Guarantees are based on the claims paying ability of the issuing company.  Please keep in mind that insurance companies alone determine insurability and some people may be deemed uninsurable because of health reasons, occupation, and lifestyle choices.

    LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

    LPL Tracking # 1-951091

     

  5. The Small Business’s Guide to Surviving the Coronavirus Pandemic

    Whether your business has been temporarily closed by a state shelter-in-place order or is still operating as a provider of essential services, balancing your revenue needs with protecting the safety of your employees and customers can be an unprecedented challenge. Learn more about some of the resources available to help small businesses survive this pandemic, as well as steps businesses can take to keep employees healthy and safe.

    Using Federal and State Resources

    The federal government has announced two programs to help businesses keep employees on the payroll and cover certain costs on an emergency basis. The Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan Program, both administered through the Small Business Administration, can provide short-term forgivable loans to businesses that are suffering as a result of the pandemic.1

    Other small business grant and loan programs are administered at the state level, and often have more streamlined qualification and application processes than similar federal programs.2

    Revisiting Your PTO Policies 

    Now may be a good time to review your company’s paid time off (PTO) policies. Because coronavirus is so highly communicable and it can take up to two weeks after exposure before symptoms begin, employees who show symptoms of COVID-19 can quickly spread this illness to other staff members and customers.

    Relaxing some common PTO restrictions, such as the requirement that employees show a doctor’s note when they’ve taken sick leave for more than a few days in a row, can go a long way toward minimizing the risk to others in your business. Now may also be a good time to temporarily expand PTO or work to stagger schedules to better allow your employees and customers to maintain social distancing guidelines.

    Managing Employee Morale

    Employees of businesses that are temporarily closed are often worried about how to pay their bills and when they’ll be able to return to work. Employees working remotely can feel cut off from their coworkers and may crave interpersonal interaction. And employees of open businesses are often worried about potential exposure to the coronavirus. Regardless of which category your employees fall into, business owners must work to boost employee morale during these trying times.

    Company-wide contests, virtual “happy hours” or team-building meetings, and milestone celebrations can all go a long way toward easing employees’ stresses and helping them feel more connected to other members of their team. As a business owner, the more you can keep employee morale up during this time, the more likely you are to end the COVID-19 shutdown with a loyal, connected group of employees who will always have each others’ backs.

    All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

    LPL Tracking # 1-05001029

     

    https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

    https://www.forbes.com/sites/advisor/2020/04/10/list-of-coronavirus-covid-19-small-business-loan-and-grant-programs/#7cff7f19cc4b

  6. What You Need to Know About Enrolling for Medicare

    It is important to stay in the know about knowing when to enroll in Medicare.

    According to Medicare.gov, when you’re first eligible for Medicare, you have a 7-month Initial Enrollment Period to sign up for Part A and/or Part B.

    If you’re eligible for Medicare when you turn 65, you can sign up during the 7-month period that:

    • Begins 3 months before the month you turn 65
    • Includes the month you turn 65
    • Ends 3 months after the month you turn 65

    Remember that if you aren’t automatically enrolled, you can sign up for free Part A (if you’re eligible) any time during or after your Initial Enrollment Period starts. Your coverage start date will depend on when you sign up. If you have to buy Part A and/or Part B, you can only sign up during a valid enrollment period. If you wait until the month you turn 65 (or the 3 months after you turn 65) to enroll, your Part B coverage will be delayed. This could cause a gap in your coverage.

    In most cases, if you don’t sign up for Medicare Part B when you’re first eligible, you’ll have to pay a late enrollment penalty. You’ll have to pay this penalty for as long as you have Part B and could have a gap in your health coverage.

    Between January 1st and March 31st every year, you can sign up for Part A and/or Part B during the General Enrollment Period between January 1–March 31 each year if both of the following apply:

    • You didn’t sign up when you were first eligible.
    • You aren’t eligible for a Special Enrollment Period (see below).
    • You must pay premiums for Part A and/or Part B. Your coverage will start July 1. You may have to pay a higher premium for late enrollment in Part A and/or a higher premium for late enrollment in Part B.

    However there are some special circumstances and special enrollment periods – once your Initial Enrollment Period ends, you may have the chance to sign up for Medicare during a Special Enrollment Period (SEP). If you’re covered under a group health plan based on current employment, you have a SEP to sign up for Part A and/or Part B anytime as long as:

    • You or your spouse (or family member if you’re disabled) is working.
    • You’re covered by a group health plan through the employer or union based on that work.

    You also have an 8-month SEP to sign up for Part A and/or Part B that starts at one of these times (whichever happens first):

    • The month after the employment ends
    • The month after group health plan insurance based on current employment ends

    Usually, you don’t pay a late enrollment penalty if you sign up during a SEP. You may also qualify for a Special Enrollment Period for Part A and Part B if you’re a volunteer, serving in a foreign country.

    Please also note that COBRA and retiree health plans aren’t considered coverage based on current employment. You’re not eligible for a Special Enrollment Period when that coverage ends. This Special Enrollment Period also doesn’t apply to people who are eligible for Medicare based on having End-Stage Renal Disease (ESRD).

    If you have a Health Savings Account (HSA) with a High Deductible Health Plan (HDHP) based on your or your spouse’s current employment, you may be eligible for an SEP. To avoid a tax penalty, you should stop contributing to your HSA at least 6 months before you apply for Medicare. You can withdraw money from your HSA after you enroll in Medicare to help pay for medical expenses (like deductibles, premiums, coinsurance or copayments). If you’d like to continue to get health benefits through an HSA-like benefit structure after you enroll in Medicare, a Medicare Advantage Medical Savings Account (MSA) Plan might be an option.

    Tracking # 1-05003467

  7. Negative Oil Futures Price Creates Confusion

    Headlines had oil selling at -$37.63 per barrel at close on Monday, April 20. The negative sign in front? Sellers had to pay buyers $37.63 to take the oil off their hands. Except this wasn’t the price of oil. It was the price of a useful financial instrument, called a futures contract, in this case a contract for delivery of oil in May at a particular price. The nearest futures contract in date is often used as a proxy for the price of oil, since it trades regularly and usually tracks the price of oil well. But on Monday, quirks in the futures market created an artificial price that, while historic and capturing the extreme stress we’re seeing in the oil market, was not quite the same as the actual price of oil.

    “Many people were shocked to see that oil prices turned negative,” said LPL Research Senior Market Strategist Ryan Detrick. “Futures contracts were about to expire, oil is tough to sell, and expensive to store right now.” Speculators tried to close positions as industry buyers blindsided by the collapse in demand stepped away, creating a situation where the loss was preferable to taking delivery of the oil.

    The combination of an expiring contract, plummeting oil demand, little available storage, and very light volume all conspired to create the historic day. But that was for futures contracts for delivery in May. As shown in the LPL Chart of the Day, later delivery dates were still above $20 / barrel on Monday. But even these prices represent tough times for oil producers and oil producing regions. Yesterday’s price anomaly is another example of how efforts to contain the COVID-19 pandemic, even if necessary, are creating unprecedented shocks in the economy and financial markets. Combine that with high levels of production, and current struggles in the oil market are little surprise.

     

    IMPORTANT DISCLOSURES

    This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

    References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

    The term Futures refers to future contracts, a financial contract obligating the buyer to purchase an asset (or the seller to sell an asset) at a predetermined future date and price. Contracts detail the quality and quantity of the underlying asset, and are standardized to facilitate trading on a futures exchange. Futures are used to either hedge or speculate on the price movement of an underlying asset, such as a physical commodity or financial instrument.

    The fast price swings in commodities will result in significant volatility in an investor’s holdings. Futures and forward trading is speculative, includes a high degree of risk, and may not be suitable for all investors.

    All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

    This Research material was prepared by LPL Financial, LLC.

    Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

    Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

    If your representative is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor.  Registered representatives of LPL may also be employees of the bank/credit union.

    These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union.  Securities and insurance offered through LPL or its affiliates are:

    • Not Insured by FDIC/NCUA or Any Other Government Agency
    • Not Bank/Credit Union Guaranteed
    • Not Bank/Credit Union Deposits or Obligations
    • May Lose Value

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  8. The Importance of Financial Planning During a Bear Market

    Financial planning is never more valuable than it is during times like these. But it needs to be an ongoing process rather than a one-time event.

    The best way to illustrate this is to get specific. Here is a short video that explains how we’ve been working with our clients and the type of planning we’ve done:

     

    Recession Preparation

    For more than a year now, we’ve been beating the drum on the need to prepare for a recession, including customized tools like our Recession Prep Scorecard™.

    The framework we created for that is just as applicable now as it was before this pandemic because it unpacks the essence of effective planning.

    We’ve found that one of the most helpful ways to think about your retirement security in light of negative contingencies is to organize potential changes into three categories:

    • First, there are the things you have total control over like your investment allocation and discretionary expenses.
    • Next are those things over which you have some control such as your income tax bill or the total amount of assets available to fund your goals.
    • The last category covers those events over which you have no control. These are events such as the ongoing global pandemic. Now, more than ever, we are all well aware of the extent to which broad events outside of our control can have a major impact on our personal finances.

    The beauty of comprehensive wealth planning in a time like this is that it addresses all three categories. It’s action-oriented so that you don’t just have to passively sit back and feel helpless in the midst of whatever bad news continues to arise. Instead you have a plan which gives context for good decision-making and a means for evaluating how a drop in your investment values has impacted the ability for you to meet your goals.

     

    Retirement Shock Absorber®

    We use what we call our Retirement Shock Absorber® which compares your total capital available with your total capital needed, which is the net present value of all your future expenses. The Retirement Shock Absorber® is the amount of excess capital which provides a buffer against unexpected circumstances like we’re currently experiencing.

    As the plan is updated, a market downturn like we’ve had will diminish the amount of their Shock Absorber but for the majority of our clients they still have a cushion remaining. They are still okay because they had a plan that was built to withstand even this type of volatility.

    (You can learn more about the Retirement Shock Absorber® by reviewing this section of our proprietary tools page.)

    If you need to make changes, you can re-evaluate your level of spending or find opportunities to invest in high quality companies selling at a discount. You can also find the silver lining of tax minimization by trading accounts to harvest losses.

     

    Creating a Personalized Score

    We’ve distilled all of this down into a one pager we call our Recession Prep Scorecard™

    We’ve used this methodology for all of our clients and, even if you’re not a client, we’d be happy to provide a complementary scorecard for you to help assess your situation.

    If you’re interested in a second opinion, just take a few minutes to complete this questionnaire.

     

    Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

    This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

  9. How the Stock Market Moves Ahead of the Economy

    As an investor, you may be observing a couple things. First, the stay-at-home orders and the timeline pertaining to COVID-19 are being extended out. Second, there is a general sense that the news is going to get worse before it gets better. So, given that, why not take some money out of the market and wait for things to start to turn around?

    Sit on the Sidelines?

    That sounds logical enough, but the problem is the market moves ahead of the overall economy. As we all know, March was a horrible month for stocks. It was one of the worst in history. But the stock market didn’t move down in a straight line.

    Here is a video that explains our thinking:

     

    On March 23, the S&P 500 was up nearly 10% in one day. This was the same day we received one of the worst jobs reports in history. We learned that 3.3 mil people filed for unemployment in one week, and yet the stock market soared. Why?

    The bad news was already priced in. Now there may be bad news that’s not priced in yet, but the fact is we just don’t know. Historically, the best and worst days for stocks tend to be within 2 weeks of each other.

    And here’s what makes it so detrimental to try to determine a bottom. A bear market is kind of like pushing a beach ball under water. When you let go, it doesn’t just gradually drift up to the surface. It pops up out of the water. Rebounds in the stock market tend to act like that.

    Missing the Best Days

    By far the best time period for stocks in recent history was the rebound in the aftermath of the financial crisis (as shown in the chart below).

    In less than 10 months, the market was up nearly 70% From March 9, 2009 through December 31, 2009, the S&P 500 Index appreciated by 67.8%. But if you missed just the five best days out of roughly 250 trading days, you would have earned only 31.8% and missed out more than half of the return. If you missed the ten best days, you would have lost out on more than three-quarters of the return.

    And the thing about 2009 is the headlines were still pretty awful for most of that year. In the midst of a historical surge for stocks, the ongoing economic news and jobs reports were pretty discouraging.

    This whole phenomenon was summed up well by famed value investor Shelby Davis decades ago. He said:

    “You make most of your money during bear markets, you just don’t realize it at the time.” 

    And that’s exactly what we need to be aware of in a time like this.

    To learn more, check out our compilation of resources, tools, and content pertaining to COVID-19 at https://brownandco.com/coronavirus-resources/

     

    Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

    This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

  10. An Economy in Hibernation

    With 90% of the country now in lockdown to slow the spread of COVID-19, large swaths of the economy and small businesses are in dire need of assistance for survival. To provide this support, a slew of policies are being implemented by the government, including the CARES Act that was signed into law on Friday, March 27.

    We have some practical recommendations we want to share with you, but first we’re going to provide our perspective on the markets and the economy at this moment in time. Here’s a short video that summarizes it:

     

     

    The Goals of Government Intervention

    Neither this legislation nor actions by the Fed can prevent the economy from falling into a recession in the second quarter. Nor can they prevent the unemployment rate from soaring in the weeks and months ahead. However, they should be able to sustain the economy as it goes into “hibernation” for some time.

    Hibernation is a lethargic state in nature when animals or plants are in a deep sleep for a period of time but then wake up without suffering any harm. It has never been a term used to describe a global economy but we think it’s applicable.

    The intended effect of the government’s actions is that when the pandemic is over, the economy will spring back into action, like a bear awakening from its slumber. In other words, the objective of the legislation is sustenance rather than stimulus.

    At a time of immense uncertainty, a hope of returning to normal is vital. We all need to know that once the pandemic has moved on, there will be jobs and commerce.

    In this transitional economy, workers should be able to pay their bills and feed their families, despite being unemployed. Many businesses, both large and small, should be able to avoid bankruptcy, despite having little or no income.

     

    Assessing the Time Frame

    Timelines and expectations are really critical. Animals do not hibernate indefinitely; it lasts for a specific period of time (3 months for bears) and then normal life resumes. The current fiscal relief is seemingly based on a three-month time frame. The one-time stimulus checks and temporarily enhanced unemployment benefits appear to be based on the idea that the need for social distancing will fade substantially by the summer.

    This time frame may be overly optimistic, since any success that we have today in slowing the spread of the virus may simply delay the peak in terms of cases and mortality. If this turns out to be the case, we expect that Washington will follow up this bill with a further fiscal package to maintain workers and businesses in place until medical science can produce and distribute effective treatments and a vaccine.

    Instinctively, bears know what they need to do after their hibernation. How the U.S. economy comes out of its enforced sleep is more questionable.

     

    What Now?

    What is not uncertain are three things we recommend you do right now:

    1) Minimize income taxes by actively trading taxable accounts to harvest losses. Tax loss harvesting is the silver lining in a market downturn like we’re seeing. You do it by selling investments that have incurred losses and, at the same time, buy very similar investments so that you remain invested but are able to realize losses that can be carried forward to offset future capital gains.

    2) Look for opportunities to buy solid companies at a good value. One of the things that happens in quick downturns like we have been experiencing is indiscriminate selling. On days were the market sells off, even the stocks of high-quality companies tend trade lower. We have already begun to buy and will continue to look for opportunities to buy large, high quality companies at a discount.

    3) Have a personal financial plan that gives context about how the drop of investment values is affecting your ability to meet your financial goals. We’ve developed tools like our Retirement Shock Absorber™ and the Withdrawal Stress Test™ for exactly the types of adverse conditions we are now experiencing.

    If you’d like a second opinion on your situation, we’d be happy to provide a complementary review of your portfolio. Just let us know.

     

    Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

    This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

  11. How Should You Invest Cash in a Volatile Market?

    If you have cash to invest – now or in the near future – what is the best way to do that?

    This is a common question we’ve heard over the years, and it is particularly important at this point in time. The major market indices are down roughly 20% year-to-date and smaller company stock indices have lost 30%. But, even more importantly, the volatility index (or VIX) is trading near historically high levels.

    Should you invest it all-at-once in a lump sum or invest gradually over a period of time? Given the current conditions of the market, we advocate for investing the proceeds systematically over time. That time frame can be anywhere from three months to 18 months.

    Whether you have a liquidity event coming up or you already have cash from the sale of an illiquid asset (such as real estate or a business), we believe that investing it gradually makes the most sense given the volatility we’re seeing. Even though the markets are down considerably (despite improvements in the last week), things could still get worse from here. Conversely, even if market trends continue upward from here, it is likely that the high levels of volatility we’re seeing will continue for some time.

    In other words, that path will likely be very jagged regardless of the general direction of the market. And the advantage with a systematic – or opportunistic – investment plan is that you can take advantage of that volatility. A plan for investing equal amounts over a period of time means that the swings in the market will generally work in your favor because you are buying less shares at higher prices and more shares at lower prices.

    Here is a comparison that shows how that works:

    For purposes of comparison, we considered the 08/09 timeframe, which was the last time we had levels of volatility similar to what we’re currently experiencing. We assumed the availability of funds from a liquidity event in June of 2008.

    What you can see in the top section labeled, “Lump Sum Purchase,” is if you had $4.5 Million and invested it all at once, you could buy about 35,000 shares of a proxy representing the S&P 500 Index. If, on the other hand, you invested it systematically with six quarterly investments of $750,000, you end up buying 10,000 more shares with the identical total amount invested.

    If you look at the examples pertaining to the “Systematic Purchases,” you’ll see that there are more shares purchased when the price is low and less shares purchased when the price is high. That is the concept behind a systematic purchase plan, and it works really well in a market that is extremely volatile. That is why we believe that this is a point in time where that approach will succeed.

    The chart below compares the dollar value of the lump sum investment with the systematic purchase plan. The small circles represent purchases. The blue line shows a lump sum investment at the end of June 2008 through the end of 2009 as compared to quarterly buys over an 18-month period represented by the red line.

    You can see there is a significant difference in final balances. The total amount invested is shown by the black line ($4.5 mil). There is more than a $1.1 million difference between the two approaches. The lump sum investment lost value from $4.5 mil to less than $4.0 mil at the end while the systematic – or opportunistic – buys appreciated from $4.5 mil to $5.1 mil.

    Given the heightened levels of volatility in the markets, our bias at this particular moment in time is a strategy of opportunistically buying in over a period of time rather than investing all at once. It is important to note that this is not always the case. There are times when the opposite is true, and a lump sum investment can outperform. But right now, if you’ve had a recent liquidity event or expect to have one soon, we would recommend investing it gradually.

    To learn more about our current market outlook, check out this web page which aggregates all of our COVID-19 related commentary.

     

    This is a hypothetical example and is not representative of any specific investment. Your results may vary.

    Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

  12. The CARES Act Key Components

    Here are the key components of The CARES Act:

    INDIVIDUAL ASSISTANCE

    Recovery Rebates

    • Provides all U.S. residents with an adjusted gross income of $75,000 or less $1,200 for singles and heads of households ($2,400 for married couples filing joints returns).
    • The rebate is phased out by $5 for every $100 over $75,000 that an individual receives, and phased-out completely for incomes exceeding $99,000 (single), $146,000 (head of household with one child) or $198,000 (joint with no children).
    • Those with children are eligible to receive an additional $500 per child.
    • Those with no income, or income that comes from non-taxable benefits such as SSI, are still eligible for the rebate.
    • Checks will be sent to the address or bank account used on 2018 or 2019 tax returns. No action will be required for most eligible recipients.

    Unemployment Compensation

    • Expands eligibility to include self-employed individuals and independent contractors.
    • Expands eligibility to 39 weeks (through the end of 2020).
    • Increases the maximum amount available by $600 per week.
    • Allows for individuals who quit their jobs due to coronavirus related concerns to be eligible for unemployment assistance.

    RETIREMENT ASSISTANCE

    Required Minimum Distributions

    • RMDs for 2020 are waived completely for IRAs and DC plans. They do not need to be made up next year.
    • We are waiting for IRS guidance related to putting distributions already taken back. It was allowed in 2009.

    Plan Withdrawals

    • Waives the 10% penalty tax on early withdrawals up to $100,000 for coronavirus related hardship distributions.
    • Exempts coronavirus related distributions from the 402(f) notice requirements and mandatory 20% withholding applicable to eligible rollover distributions.
    • Permits the individual to recontribute the coronavirus related distribution within three years.
    • Coronavirus related distributions are distributions made during 2020 to an individual who is diagnosed with COVID-19, who has a spouse or dependent diagnosed with COVID-19 or who experiences financial consequences as a result of COVID-19.

    SMALL BUSINESS ASSISTANCE

    Paycheck Protection Program

    • A new, $349 billion lending program administered by the SBA for small businesses, nonprofits, independent contractors, sole proprietors and self-employed individuals.
    • Loans are fully guaranteed and 250% of an average monthly payroll from Feb. 15 – June 30, 2019. There is a $10 million cap on loans.
    • Eligible uses include employee compensation, compensation of an independent contractor or sole proprietor no greater than $100,000 in one year, rent or utility payments or a mortgage interest payment.

    Employee Retention Credit

    • A refundable payroll tax credit equal to 50% of employee wages paid by certain employers during the coronavirus crisis, up to $10,000 in wages.
    • Employers are eligible for the tax credit if their operations were affected by government order limiting commerce, travel or group meetings due to coronavirus or whose quarterly receipts are less than 50% for the same quarter in the prior year.
    • Wages paid to employees during which they are furloughed or have reduced hours are eligible.
    • Businesses receiving a loan through PPP are not eligible.

    Delay of Payment of Employment Payroll Taxes

    • Employers and self-employed individuals can defer the payment of their portion of social security tax.
    • The taxes must be paid over the following two years, with half due before December 31, 2021 and the other half by December 31, 2021.
    • Businesses receiving a loan through PPP are not eligible for this deferral.

    Excess Business Losses

    • Pass through corporations and sole proprietors are able to deduct more business losses on their taxes, freeing up cash for immediate expenses.
    • The cap, first imposed in the Tax Cuts & Jobs Act, will be effective after December 31, 2020.

     

    This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

    This material was prepared by LPL Financial.

    Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment
    advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.

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    May Lose Value

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    MC-92153-0320 Tracking #1-975127

  13. Market Commentary: The Good, the Bad & the Ugly

    It is anything but business as usual in the U.S. and around the world today. With 1 in 3 Americans in lock down and most of the population trying to stay at home and practice social distancing, our wallets are shut not because we want them to be, but out of necessity for health reasons.

    Here are our most recent market commentary and thoughts on COVID-19 broken out into three categories: The Good, the Bad, and the Ugly.  (You can find all of our commentary and resources on COVID-19 here).

    The Good

    Regardless of how you feel about government intervention and involvement, it is precisely in times like these that the Federal Government should intervene.  The Federal Reserve announced over the weekend that it will provide “whatever it takes” to support the economy and the markets.  They did not put a number on the amount of liquidity they will provide to keep the markets functioning properly.  This is usually done with purchases of government bonds, but has now extended to municipal bonds and corporate bonds as well.

    The bond market had been seized up due to a lack of liquidity, and we believe this move will get things normalized sooner rather than later.  This statement goes to show the Fed is very worried about the economy, and it should be.  The Fed has taken aggressive action quickly rather than dragging its feet as it did in 2008.  The amount of borrowing by the Fed (i.e., printing money) will be astronomical which will cause future challenges.  However, given the urgency of the situation, the higher calling is alleviating problems now.

    South Korea showed that this pandemic can be successfully managed with a combination of widespread testing and quarantines.  From a cultural and governing standpoint, our country will not have the ability to implement the degree of the lock-down that China or South Korea have done, but we can still avoid the fate of a country like Italy with the aggressive measures already underway.

    The lack of testing capabilities and resources available in the U.S. had been very disappointing, but in the last week, we’re starting to see a significant improvement.  One week ago, we were conducting only just over 10,000 tests per day (3/16), but that number has risen to more than 60,000 tests per day one week later (as of 3/23).  That is very encouraging because it means we’re getting enough data to start to know what we’re up against.

    The (Potentially) Bad

    Like the TARP (Troubled Asset Relief Program) vote all over again, the White House and the Senate has agreed upon a $2 Trillion dollar safety net program to help with the massive layoffs occurring now.  It is absolutely necessary and we are relieved to learn that the two sides have come together to reach an agreement.

    This package has been compared to “business interruption insurance.”  If it works effectively, it will provide money to businesses and individuals where losses have occurred due to no fault of their own.  The goal of this massive economic relief package is to bridge the gap between now and normalization, by allowing struggling small businesses owners and individuals to sustain through this unprecedented period.

    The fate we are trying to avoid is a downward spiral for the economy.  If unemployment gets out of control, personal spending and consumption will be cut way back, which would affect the health of companies which would lead to further cuts and more unemployment, and on it goes.  That’s the reason why the performance of the equity markets so far this week has been linked so closely to the fate of this legislation.

    The Ugly

    The “ugly” part of this has to do with the headlines we expect to see going forward.  We think the unemployment numbers could be staggering this next quarter, along with a significant decline in corporate earnings and profit.

    We have to be fully prepared for grave news reports about the spread of the contagion as well as the death rate.  But while we believe the news will get worse from here, its ability to shock us will diminish.

    We believe a recession is a certainty at this point; the question is how deep it will be.  Some of the economic numbers comparing March relative to February will look so bad they may seem like typos.  The main question pertaining to the headlines is to what extent they are already priced-in to the markets.

    The thing to keep in mind is that the stock market moves ahead of the overall economy.  So, for instance, when the market began a massive rally in 2009, the economy did not start to turn around until several months later. The recession officially ended in June 09 (three months after the market started a sharp rebound), but we did not even see substantial improvement in the economy for quite some time after.

    The economic news about the US economy was not getting better at the end of the financial crisis.  But stocks stopped going down every time that bad news hit.  It took a lot of pain to get to that point, but eventually, bad news fatigue had set in.  This happened with regards to potential terror threats in the wake of 2001.  And we fully expect it will happen again.

    A bear market like we’re experiencing is like pushing a beach ball underwater…  When it starts to re-emerge, it doesn’t gradually drift upward, it pops up out of the water.  The bottom of the market is not determined by extensive analysis; it’s more of a feeling that sets in.  The news is still bad at that point when the recovery gets underway, but it’s ability to shock us is gone.

    Concluding Thoughts

    We’ll continue to watch the current situation and look for opportunities to buy equities.  But for now, we hope you feel confident about proactive planning we’ve done to help create a stronger plan for you and your family.

    It is exactly for times like these that we have developed the Retirement Shock Absorber® to help insulate your financial security from unforeseen events.

  14. The Retirement Tax Filter

    In retirement, most people have much more control over taxes than they did prior to retiring. The reason for that is that there are a number of different buckets in which to pull money from; each with their own type of tax treatment. We’ve developed a tool called the Retirement Tax Filter to help ensure you maximize your lower tax bracket without creeping into higher tax brackets. Here’s a video that explains how that works:

     

  15. Eleven Ways to Help Yourself Stay Sane in a Crazy Market

    Keeping your cool can be hard to do when the market goes on one of its periodic roller-coaster rides. It’s useful to have strategies in place that prepare you both financially and psychologically to handle market volatility. Here are 11 ways to help keep yourself from making hasty decisions that could have a long-term impact on your ability to achieve your financial goals.

    1. Have a game plan

    Having predetermined guidelines that recognize the potential for turbulent times can help prevent emotion from dictating your decisions. For example, you might take a core-and-satellite approach, combining the use of buy-and-hold principles for the bulk of your portfolio with tactical investing based on a shorter-term market outlook. You also can use diversification to try to offset the risks of certain holdings with those of others. Diversification may not ensure a profit or guarantee against a loss, but it can help you understand and balance your risk in advance. And if you’re an active investor, a trading discipline can help you stick to a long-term strategy. For example, you might determine in advance that you will take profits when a security or index rises by a certain percentage, and buy when it has fallen by a set percentage.

    2. Know what you own and why you own it

    When the market goes off the tracks, knowing why you originally made a specific investment can help you evaluate whether your reasons still hold, regardless of what the overall market is doing. Understanding how a specific holding fits in your portfolio also can help you consider whether a lower price might actually represent a buying opportunity.

    And if you don’t understand why a security is in your portfolio, find out. That knowledge can be particularly important when the market goes south, especially if you’re considering replacing your current holding with another investment.

    3. Remember that everything is relative

    Most of the variance in the returns of different portfolios can generally be attributed to their asset allocations. If you’ve got a well-diversified portfolio that includes multiple asset classes, it could be useful to compare its overall performance to relevant benchmarks. If you find that your investments are performing in line with those benchmarks, that realization might help you feel better about your overall strategy.

    Even a diversified portfolio is no guarantee that you won’t suffer losses, of course. But diversification means that just because the S&P 500 might have dropped 10% or 20% doesn’t necessarily mean your overall portfolio is down by the same amount.

    4. Tell yourself that this too shall pass

    The financial markets are historically cyclical. Even if you wish you had sold at what turned out to be a market peak, or regret having sat out a buying opportunity, you may well get another chance at some point. Even if you’re considering changes, a volatile market can be an inopportune time to turn your portfolio inside out. A well-thought-out asset allocation is still the basis of good investment planning.

    5. Be willing to learn from your mistakes

    Anyone can look good during bull markets; smart investors are produced by the inevitable rough patches. Even the best investors aren’t right all the time. If an earlier choice now seems rash, sometimes the best strategy is to take a tax loss, learn from the experience, and apply the lesson to future decisions. Expert help can prepare you and your portfolio to both weather and take advantage of the market’s ups and downs. There is no assurance that working with a financial professional will improve investment results.

    6. Consider playing defense

    During volatile periods in the stock market, many investors reexamine their allocation to such defensive sectors as consumer staples or utilities (though like all stocks, those sectors involve their own risks, and are not necessarily immune from overall market movements). Dividends also can help cushion the impact of price swings.

    7. Stay on course by continuing to save

    Even if the value of your holdings fluctuates, regularly adding to an account designed for a long-term goal may cushion the emotional impact of market swings. If losses are offset even in part by new savings, your bottom-line number might not be quite so discouraging.

    If you’re using dollar-cost averaging — investing a specific amount regularly regardless of fluctuating price levels — you may be getting a bargain by buying when prices are down. However, dollar cost averaging can’t guarantee a profit or protect against a loss. Also consider your ability to continue purchases through market slumps; systematic investing doesn’t work if you stop when prices are down. Finally, remember that the return and principal value of your investments will fluctuate with changes in market conditions, and shares may be worth more or less than their original cost when you sell them.

    8. Use cash to help manage your mind-set

    Cash can be the financial equivalent of taking deep breaths to relax. It can enhance your ability to make thoughtful decisions instead of impulsive ones. If you’ve established an appropriate asset allocation, you should have resources on hand to prevent having to sell stocks to meet ordinary expenses or, if you’ve used leverage, a margin call. Having a cash cushion coupled with a disciplined investing strategy can change your perspective on market volatility. Knowing that you’re positioned to take advantage of a downturn by picking up bargains may increase your ability to be patient.

    9. Remember your road map

    Solid asset allocation is the basis of sound investing. One of the reasons a diversified portfolio is so important is that strong performance of some investments may help offset poor performance by others. Even with an appropriate asset allocation, some parts of a portfolio may struggle at any given time. Timing the market can be challenging under the best of circumstances; wildly volatile markets can magnify the impact of making a wrong decision just as the market is about to move in an unexpected direction, either up or down. Make sure your asset allocation is appropriate before making drastic changes.

    10. Look in the rear-view mirror

    If you’re investing long term, sometimes it helps to take a look back and see how far you’ve come. If your portfolio is down this year, it can be easy to forget any progress you may already have made over the years. Though past performance is no guarantee of future returns, of course, the stock market’s long-term direction has historically been up. With stocks, it’s important to remember that having an investing strategy is only half the battle; the other half is being able to stick to it. Even if you’re able to avoid losses by being out of the market, will you know when to get back in? If patience has helped you build a nest egg, it just might be useful now, too.

    11. Take it easy

    If you feel you need to make changes in your portfolio, there are ways to do so short of a total makeover. You could test the waters by redirecting a small percentage of one asset class to another. You could put any new money into investments you feel are well-positioned for the future, but leave the rest as is. You could set a stop-loss order to prevent an investment from falling below a certain level, or have an informal threshold below which you will not allow an investment to fall before selling. Even if you need or want to adjust your portfolio during a period of turmoil, those changes can — and probably should — happen in gradual steps. Taking gradual steps is one way to spread your risk over time, as well as over a variety of asset classes.