Happy New Year

By Investments

We are sending you a very brief summary of the recently passed Coronavirus Stimulus 2.0 along with a link to a well-done article in Business Week about how COVID-19 may be changing our lives going forward.

Six months after the expiration of the CARES Act, the Senate finally engaged in a serious process to extend badly needed benefits with a compromise bill that Congress overwhelmingly passed last week and was just signed by President Trump.  The $900 billion, 5,593-page legislation contains some well reported items as well omits some popular items from the House’s $2 trillion dollar bill that died in the Senate months ago.  Some highlights:

Emergency Payments

  • $600 non-taxable recovery rebate check (stimulus payment) which starts to phase out at $75,000 of taxable income for single filers and $150,000 for joint filers.  A family with 2 children under 17 would receive $2,400 if under the income limit.
  • $300 per week supplemental emergency unemployment was extended until March 14th as well as “regular” unemployment benefits that would have expired.

Business Support

  • PPP loan recipients can write off expenses paid by the loan.  In general, when a loan is forgiven it becomes taxable income.  The IRS issued guidelines which prohibited businesses from deducting expenses against forgiven loans.  Congress overruled the IRS and these loans will be treated as non-taxable grants for businesses qualifying for forgiveness.
  • New PPP program allows a second round of loan applications for businesses that had a least a 25% decline in any quarter in 2020 relative to 2019.  The list of allowable expenses for proceeds from the PPP loan was also expanded.
  • PPP loans, EIDLs (Economic Injury Disaster Loans) contain many other provisions and updates for those affected.

Personal Tax Changes

  • Medical expense deduction was permanently reduced to 7.5% of adjusted gross income from 10%.
  • Lifetime Learning Credit was expanded by increasing the incomes before the phaseout kicks in.  The Tuition and Related Expenses deduction was eliminated but more families are likely to benefit from the overall changes.
  • Charitable deductions for those who do not itemize will be allowed to deduct $600 ($300 for each spouse) if filing a joint return in 2021.  For 2020, the limit is $300 per return under the original CARES Act.
  • Those with unspent funds in the flex spending accounts (FSA) will be allowed extend the grace period to 12 months provided the employer adopts the change.  COVID-19 affected both planned medical expenses as well as childcare expenses.  If this affects you, reach out to your employer ASAP to encourage the change.

There is so much more in this bill and we will be able to help those who may benefit from any of these changes.

What is not contained this legislation:

  • No waiver of RMDs for 2021 so we will proceed to work with those affected to update the timing and amounts of your distributions.
  • No further student loan relief which expires on January 31, 2021.  For those individuals and family members carrying student loans, January is an important time to review your loan status.

The stimulus bill touches on so many areas that will end up having some impact on many of you.  Fortunately, none of this is particularly urgent before the end of the year.  We are here to help and answer any questions as they come up in the new year as well as provide guidance for better decision making if you or your family is affected in any way by the legislation.

Perhaps even more important at this point, we have included a well-done article from Bloomberg Businessweek entitled  “Ten Ways Covid-19 Has Changed the World Economy Forever” about what keeps us up at night.  We have an extremely bifurcated economy that is still suffering.  Substantial government spending with extraordinary increases in debt combined with aggressive Federal Reserve monetary policy are keeping the economy from collapsing.  Those with assets are doing well, but how and when will it end?  All asset prices are at high levels and may remain at elevated levels for some time.  We feel portfolios are well positioned at this point.  Growth should start to pick up substantially when the virus is under control which should help support stock prices.  However, the system is fragile and any number of events could derail the markets, including increasing interest rates.  We are prepared to adjust to changing conditions and are relatively optimistic about the near-term.
Ten Ways Covid-19 Has Changed the World Economy Forever


We end the year thankful for the opportunity to work with such great clients and are looking forward to continuing to partner with you to navigate whatever lies ahead.



Tax Talk

By Tax

In the presence of chaos and uncertainty, it is important to set strong filters to separate the noise from actionable items.  One area where taking action can possibly make a difference is taxes.

We will likely have a split government but even if both Democratic senate candidates win their run-off election in January, it will be extremely unlikely to see a major tax overhaul in 2021.  While Trump clearly lost the election, the Republicans did fairly well down ballot which is strong evidence there is no mandate for massive change.  In the midst of all the battles, there is a piece of bipartisan legislation which has a good chance of passing early next year, The Securing a Strong Retirement Act of 2020 (aka SECURE ACT 2). This bill builds on the SECURE Act which was passed in late 2019 with the intention to improve workers preparation for retirement.

Here are some of the key provisions in the bill:

  • Increase the age at which you must begin taking Required Minimum Distributions (RMDs) to age 75 (the age was just increased to 72 from 70 ½ with the passing of the SECURE Act)
  • Allow individuals to pay down student loan debt instead of contribute to their retirement plan and still get an employer match in their retirement plan
  • Allow larger catch up contributions for those age 60 and above
  • Increase automatic enrollment requirements in 401(k) plans which would force participants to take the initiative to opt out of participation if they did not want to contribute to the plan
  • Create more financial incentives for small businesses to create retirement plans through increased tax credits
  • Create an online data base that makes it easier to match old retirement plans with their owners
  • Allow for Qualified Charitable Distributions (QCDs) from qualified plans (currently only allowed out of IRAs)
  • In a break from the rules on Required Minimum Distributions, QCDs can be used starting at age 70 ½.

Items to Consider:

  • If you are over 70 ½ and do not itemize your deductions, QCD’s will likely reduce your taxes.
  • If you are any age and do not itemize your deductions (mostly affects those without mortgage debt), you can use a Charitable Gift Trust account to reduce your taxes on your charitable contributions.
  • Roth IRAs and conversions are very attractive for anyone expecting their future tax rates to increase
  • Estate taxes and gifting will be affected in future years and it is not too early to develop a gifting strategy for those likely to be affected by future limits. Certainly those with a net worth over $10 million should be looking seriously at this now.
  • 529 Education accounts are great tax shelters. In Illinois, each individual can deduct $10,000 from their Illinois taxable income ($20,000 for those filing joint returns).
  • We will be looking for opportunities for realizing tax losses and identifying appreciated assets for charitable gifts. If you have any plans to make special donations this year, please let us know so it can be done in the most tax efficient way possible.
  • Finally, for those who have a PPP loan, while the loan is forgivable, it does appear the IRS will not allow deductions for any expense paid for by the loan. Essentially, the loan forgiveness will be a taxable event. It makes sense to carefully examine whether you apply for forgiveness in 2020 or 2021.

Call us if you have any questions or interest in talking about tax issues.  More to come on the changing investment climate in light of current political events and the surging COVID infections and deaths.


Election Week Update

By Investments

Although the race has not been called, it certainly looks like Vice-President Biden will be called the winner by this evening or tomorrow morning.  These results will not be official and legal wrangling may continue over the next week.  The election result will not change.  The Senate is highly likely to stay in Republican hands.  The most probable outcome is a split government.

The market reacted favorably this week.  We have held the opinion that a Biden presidency would not be detrimental to the stock market and that seems to be playing out.  However, as the political situation becomes clearer, there may be some adjustments to make to the portfolios. Our basic outlook has not changed but there is more uncertainty about the size and timing of a necessary stimulus package.  Here are the key points:

  1. Chairman Powell said this week the Federal Reserve has capacity and intention to provide financial stability through the purchase of assets.  Interest rates will stay low for the foreseeable future.  This lends support to the stock market but does create problems for retirees looking for income.  It requires more risk to get adequate returns on investments.
  2. There is a significant amount of individual and corporate liquidity meaning there is a lot of cash on the sidelines.  Hopefully, stimulus will be directed to and get to the people and businesses that need it most.  We will address this need in future communications.  It would not be a good thing to have massive bankruptcies and homelessness in the middle of this pandemic.
  3. Shutdowns or not, COVID-19 continues to change our behavior and spending patterns.  We are in for a long winter and the economy needs help to get through it.
  4. Unemployment remains high.  Segments of the economy are recovering and there are hopeful signs in the manufacturing sector.
  5. Trade wars are likely going to be a continuing drag but there is some hope this situation will improve.
  6. There was no “blue wave” in this election and therefore no public mandate for passing major progressive legislation, including particularly large new taxes.
  7. Taxes will need to go up.  This would be true under any administration when you are spending $1.80 for every $1.00 collected in taxes.  But with a split government, the probability of any major changes went down considerably.
  8. The dollar may very well continue to weaken making international investments more attractive.

With the political situation still in flux, we will make adjustments if warranted.


Does the Election Really Matter to Markets?

By Investments

“What’s natural is the microbe. All the rest — health, integrity, purity (if you like) — is a product of the human will, of a vigilance that must never falter. The good man, the man who infects hardly anyone, is the man who has the fewest lapses of attention.”  Albert Camus, The Plague


As we head into next week, many are concerned about how the market will respond to a potential Biden win, especially if the Democrats also win a Senate majority.  It is conceivable it will have a positive economic effect, particularly with increased stimulus.  We continue to believe fiscal stimulus and monetary policy have a far greater impact on our economy (and stock market prices) than political rhetoric, even though political discourse dominates the news.  However, we do expect volatility to continue and are ready to adjust if conditions materially change.

Virus—The above quote from Camus is timely.  Those who have read The Plague will also recognize his metaphorical intent as he addresses any contagion that overtakes any society, whether it be a virus or a corrosive ideology.  Our government cannot control the fact that COVID-19 exists.  It also cannot control our psychological response to changes, even without lockdowns.  With no lockdown in Chicago, the city business districts still have drastically lower foot traffic.  Mass transit ridership is down at least 90%.  Even without restrictions, Americans (mostly) have greatly reduced indoor activities related to dining, shopping, weddings, church services, travel, etc.  COVID-19 related intensive care patients as well as last ditch respirator use are beginning to reach capacity limits in some areas with large case spikes.  While therapeutics and recoveries have improved since March, that is concerning as we move into the fall flu season which will see many more deaths.  Collectively, most of us are much more careful to avoid contracting and spreading the virus even in the absence of restrictions.  For perspective, this virus may end up killing more Americans than WW II and people are acting accordingly.  The result of behavioral changes, even when not forced, point to a slow, uneven recovery.

So how will this scenario play out in our economy?  There are factors offsetting the bad news.  Some sectors are not nearly as affected as others. Many corporations and investors who were fortunate enough not to be in sectors most affected by the virus have significant amounts of cash and savings rates increased due to decreased activity due to restrictions or behavior changes. Extraordinarily large stimulus efforts (with more to come) should provide a bridge to safely getting on the other side of the pandemic.  The key in the coming months is to get cash into the hands of those who need it most.


Investing Concerns

  1. Stock market values relative to GDP were recently at highs reached only 3 other times:1928, 1999, and 2008.
  2. Growth stocks (primarily driven by large tech) relative to value stocks are historically expensive. Historically, value stocks have outperformed growth, yet the last 11-12 years have been one of the best periods for growth stocks.   At this extreme level, it is an entirely reasonable to think value will outperform growth over the next 10 years.
  3. Technology stocks now total over 30% of the S&P 500 with just 5 companies comprising over 25% of the index at its peak. Many other asset classes are still significantly below highs reached in February 2020.
  4. US stocks versus international stocks are at a price premium based on earnings at a level last seen 40 years ago.


The next 10-12 years will most likely look significantly different than the last 10-12 years.

Economic Record of Current Policy

In 2018, we wrote about expected negative effects from starting a trade war with China.  Manufacturing employment peaked shortly after Trump’s action.  Unfortunately, the trade deficit has not been solved and the action likely contributed to a decline in U.S. exports.

The tax cuts were supposed to pay for themselves by boosting economic growth above 4%.   A good business will borrow money to expand if the expected returns are higher than the cost to borrow money so theoretically, this could be a good idea to boost economic growth. So what happened?  We increased our deficit to 4.3% of GDP before COVID-19, yet growth was not over 3%.  The cuts did not pay for themselves and the deficit was increasing at an accelerated rate before the pandemic.

Economic growth in the last quarter was 33%, fantastic, but still a ways off from recovering losses of over 35% in of the first 6 months of the year.  The math is simple in measuring the recovery by percentage:  If you start at 100% and lose 50%, you then need a 100% increase to get back to where you started.  Less people are working now and continued high unemployment will drag economic growth significantly – for context, there are more unemployed Americans now than at the worst level of the 2008 decline.  The hardest hit sectors of our economy need more help and should absolutely be the focus of additional stimulus efforts.  There are already signs of slowing growth heading into the fourth quarter following the large 3Q rebound.


We feel the following trends will be in place in 2021.  We are positioned accordingly but recognize the situation could change and we will have to make adjustments.

  1. We will get a substantial stimulus bill that will help provide a safety net for those most affected economically by COVID-19 job losses and support economic recovery
  2. The Federal Reserve will work to keep interest rates low in an attempt to prevent deflation and support economic growth
  3. Value stocks will start to outperform growth stocks
  4. The dollar will weaken and international stocks will look attractive

It has been a trying year for many.  Unexpected virus and intervention we have not seen in the past to support the securities market, otherwise we could have had a stock market crash and banking crisis exceeding the 1929 crash.


Please reach out to us with any comments or concerns.  We will see how this next week plays out and provide an update next Friday.



Will Biden’s Election be a Disaster for the Stock Market?

By Investments, Tax

The debate on Tuesday night was not productive for understanding policy changes and how they will affect markets.  While there are more investors who feel Trump’s policies are better for markets than Biden’s, there is no need to panic if Biden wins the election.  In fact, it would be difficult to discern who would be better for the stock market in the long run especially.  We thought it might help to put things into perspective with respect to economic and tax policy.

Regardless of who is our next president, there are two powerful forces driving stock market prices that are unlikely to change under either administration.

  • There is extensive fiscal stimulus. Our government may end up spending twice what it takes in this year.  Prior to COVID, government spending was more than 30% over collections.  This is not sustainable and either spending needs to be reduced or revenues increased.  This is not a communication on public policy other than to point out the factually correct statement that tax cuts overwhelmingly benefited those with higher income and wealth— i.e.: the investor class.
  • There is extensive monetary stimulus. The Federal Reserve is keeping interest rates below the rate of inflation by purchasing bonds.  In addition to purchasing government debt, the Fed is supporting the credit markets by purchasing corporate bonds as well.  This unprecedented action also has a powerful effect on other asset prices such as stocks.

The extraordinary effects are likely to continue until there is some recovery in the areas of the economy that were most affected by COVID.

Biden’s tax plan is for the most part, somewhere between where we were before the Trump tax cuts and current policy.  There are some potential new taxes which are highlighted as well.  Keep in mind, the current tax cuts are set to expire in 2026.

Income Tax Rates

  • Increase the top personal income tax rate back to 39.6% from 37%. Taxpayers making more than $400,000 would see higher taxes but the maximum rate would kick in at higher levels.
  • Cap itemized deductions at 28% and end the SALT (state and local taxes) cap. This could be beneficial for those living in states like Illinois with high property taxes.
  • Restore the Pease limitation on itemized deductions for taxpayers earning more than $400,000. This limit has been removed since 2018.

Social Security

  • Remove social security taxable wage base cap on earned income above $400,000. This would be a big change.  Social Security will not be able to pay full benefits by 2034-2035 under current estimates and it is well known that changes to the system are likely necessary.  Social security taxes are currently assessed on the first $137,700 of income.  The tax would then start to be reapplied once earned income exceeds $400,000.

Capital Gains

  • Tax long term capital gains at the top ordinary income rate of 39.6% for taxpayers with over $1 million income – a drastic increase from the current 20% rate. This probably has the least likely chance of passing and has the possibility of causing tax receipts to decline in addition to distorting markets.

Estate Taxes

  • Eliminate stepped-up basis rule which allows people to pass capital gains to heirs without tax after death. This provision has been part of tax overhaul discussions for years.   It may gain traction with the need to raise revenue, but it would be targeted to larger estates with a significant exemption for smaller estates.
  • Reduce the estate tax exemption to $5.0 million. This has a chance of passing.  A married couple with minimal planning would still be able to pass on $10 million tax-free, but the estate tax rate is 40% which is higher than income tax rates.

Corporate Taxes

  • Raise corporate income tax rate from 21% to 28%
  • Establish a 15% minimum tax on companies reporting more than $100 million in the US
  • The corporate tax rate increase is likely to affect markets the most since it reduces cash flow.

Election years in general can breed market volatility – particularly this year.  With an extremely divided political climate,  civil unrest,  a continuing pandemic with its related economic fallout, and a growing probability that election day results will be contested or delayed, short-term risks are very high.  However, with high investor and corporate cash balances combined with the stimulus mentioned above, no matter how unevenly distributed, the economy will likely stay on some growth path.   Market volatility likely will remain high leading up to and beyond Election Day.    We are both cautious and optimistic and expect the broader market to participate in the recovery.  Technology may still perform well, but the five stocks representing 25% of the S&P 500 are likely way ahead of themselves and may have limited opportunity to continue their torrid run in this environment.

Please do not hesitate to contact us with any questions or concerns.

State of the States

By Thought Pieces

Some interesting insight in this recent article from Barron’s regarding the uncertainty that cities and states are facing due to the COVID-19 pandemic. The pandemic has introduced new risk into municipal bonds and the revenue shortfalls for most states are projected to be strikingly large. Eaton Vance ranked each state’s creditworthiness based on their fiscal year ending June 2019… wondering where Illinois ranked? Dead last. Due to their financial position, Illinois is currently paying a whopping 2.23% higher interest rate on its debt than the MMD benchmark, far more than any other state. The next “worst” state, New Jersey, is only paying .74% more than the benchmark. Under the best circumstances, Illinois needs to raise revenue and residents will be able to vote on a constitutional amendment to raise taxes on higher income levels this November. The impact on states that prudently manage their budgets with reserves and lower tax rates have more flexibility to address shortfalls.


While we feel the situation is so dire that it is difficult to speak out against a tax increase (there is no way to cut enough spending), it would have been nice for the state to also address the pension system, which is by far the largest contributor to the state’s financial position. 60% of Illinois voters must vote yes to change the constitution to allow a graduated tax.  It is a big deal and may be worth getting past the political ads to look at the issue and make an informed vote. Below are a link to the full article from Barron’s and a chart showing the 5 states with the best and worst creditworthiness according to the Eaton Vance rankings, the full chart can be found towards the end of the article.


Cities and States Are Facing a $1 Trillion Budget Mess. There Will Be More Trouble Ahead.


The Death of the Stretch IRA

By Legacy

In our work with families that span generations, we plan for IRAs to be passed down to children or grandchildren so that they can continue to harness the power of tax deferral for up to another 50 years. Think of how powerful that is. Being able to stretch IRA distributions over a beneficiary’s entire lifetime led to essentially an additional lifetime of tax free growth as long as there was no immediate need for the inheritance.

In December 2019, the SECURE Act was passed into law which made some important changes to our current tax legislation, one being the introduction of the 10 Year Rule for inherited IRAs. The 10 Year Rule mandates that a non-spousal beneficiary must distribute the entire inherited IRA by the end of the 10th year after the inheritance.

There are not any requirements for when you distribute the income within those 10 years, and this opens the door for some planning opportunities in certain circumstances. The main goal of this planning strategy is to recognize income in years where you can fill up your lower tax brackets with the income. If your income will be unchanged for the entire 10 years, just taking even distributions of 1/10th of the account would likely make the most sense.

However, if you know that your income will likely have some large spikes up and down over the next 10 years, there are certain years that will be better to recognize more income. Like anything with a 10 year time horizon, you don’t know exactly what your income will be each of the next 10 years, but there are some situations where you can make some really solid predictions.

Perhaps the easiest situation to understand was if you received the inheritance shortly before you planned to retire. If you received the inheritance at age 58 and you were planning to retire at age 65, your income will drop drastically when you retire and you could then distribute the account over those next few years filling up the lower tax brackets instead of recognizing that income on top of your regular income prior to retirement.

Or you could have a situation where you are coming up on the prime of your career in the next 5 or so years and are expecting a promotion with a large pay increase. In a situation like that it would make sense to take more out in your first few years before you potentially jump up to a higher tax bracket.

Another situation would be that you are planning to make a career change or start a new business and you expect to have one or two years with little to no income over the next 10 years, in this situation you would distribute as much as you can to fill up lower tax brackets in those years with minimal income.

Regardless, if you or anyone that you know have inherited an IRA over the past 6 months, or receive one in the future, it is crucial to keep these changes in mind and we invite you to please contact us if you would like our help in formulating a strategy for your distributions. Situations like this are easy to ignore and maybe you plan to focus on it at another time, but these types of strategies are best to implement as soon as possible so that you don’t have to play catch up later down the line. If you do not make any distributions over the 10 years after you inherit the account, you will be forced to distribute the entire account at the end of that 10th year. Depending on the size of the inherited IRA, this could leave you with a large and unexpected tax burden.

Important Portfolio Update

By Investments

We are updating you on changes we are making to your investment portfolio.  You have been and will continue to receive notices of any trading via email or direct mail if you have not signed up for electronic delivery.  All records are available online for 10 years so there is no need to retain paper notices.  We recommend electronic delivery for everyone as the best way to protect your personal information, particularly when all information is easily accessible in a secure way online.

Equities:  We are increasing the allocation to stocks due to short-term factors which are supporting a rebound in prices.  The rebound was predominately led by technology stocks, particularly the largest stocks such as Apple, Amazon, Google, Facebook and Microsoft.  They are currently selling near or at all-time highs despite economic conditions.  The rest of the global market has not done nearly as well.  Many asset classes are still selling 20% or so below their highs.  We are seeing short-term opportunities to earn a decent return in these asset classes.  International stocks are looking particularly attractive due to stabilizing economies and the ECB has just announced major financial support which should improve the near-term outlook.

Fixed Income:  With extraordinarily low interest rates, we have also increased exposure to the broader bond market to try and capture some additional return.

Markets are forward looking and below is the sentiment we want to capture with the additional investments.

  • We have record levels of joblessness (exceeding levels reached in the Great Depression) but there is a promising trend in people being called back to work as the total number collecting unemployment starts to fall as evidenced by the jobs report this morning.
  • Restrictions on economic activity are loosening with a corresponding strong increase in economic activity, albeit from a very low base.
  • Deaths due to COVID-19 are trending lower. Other metrics such as ICU patients, hospitalizations and cases in high population density metropolitan areas are decreasing.
  • The national saving rate has dramatically increased with all the stimulus, much smaller job losses among higher income professionals and no place to spend money. The translation is there is a lot of cash in our economy for both a spending rebound and supporting investments.
  • Interest rates are again at record lows for borrowers, even though credit standards have tightened. This should help the real estate markets and larger consumer purchases.

But we cannot be complacent.  There are still significant risks.

  • COVID-19 infections will likely return in the fall We do not know the potential severity or breadth of any future outbreak. It is even within the realm of possibility the virus may mutate to a significantly less virulent form.  We still do not have adequate therapeutics to treat infections.  As for a vaccine, we are all hopeful the extraordinary efforts to develop a vaccine will be effective sooner rather than later.  But we also need to keep in mind this fact.  There are seven coronaviruses that are known to affect humans.  There is not an effective vaccine for any of them.  These are real risks to keep in mind to determine if human behavior – whether voluntary or mandated by guidelines and various levels of government – remains constrained and continues to drag on the economy, or how quickly consumers can return to much closer to normal.
  • The trade war with China is real. It does not matter what side you fall on the trade debate there are two underlying facts.  Any conflagration is likely to impact stock markets.
    • China is a formidable competitor and has not followed international law or conventions pertaining to intellectual property. They have aggressively been co-opting (a charitable interpretation) technology to build their domestic capabilities.  With substantial numbers of college graduates, particularly in the technology, science and engineering fields, (a larger number than our own country), they are expanding their economic power to the most profitable knowledge-based industries.  This includes their military capabilities as well.
    • Trade wars have a cost, they reduce economic activity and may not be effective.
  • Prior to COVID-19, federal government spending was 35% higher than revenue and intermediate term government bond interest rates due to Federal Reserve actions were trending at or below inflation (where 1.6%-2.4% above inflation would be the norm). With this kind of stimulus, it does not matter what political party is in power.  With nearly full employment, much of this money will find its way into investments.  With stimulus spending, the government is projected to spend about twice the expected revenue in the fiscal year ending October 2020.  Take a moment to think about those numbers.  If you were spending 35% more than you were taking in, how long could you sustain it?  What about 100% more?  One clear consequence is going to be some level of higher tax rates, potentially reversing the positive effects on asset prices from recent tax cuts.

We are in a position to try and make sure your portfolios will provide financial security over a long period of time.  As an example, think back over the last 20 years.  In the year 2000, the S&P 500 reached a new record high.  11 years later, the S&P 500 was selling below that level.  We are now going on 11 years of the S&P 500 rising from the last market crash to new records.  Stocks were priced at the high end of their historical range based on earnings and the overall size of the market to GDP.  Now some stocks are approaching those levels again.  There is virtually no chance we will not eventually see lower price levels in the stock market than we have today.  While we hope to capture more return on this upswing, we will also use our techniques to limit the effects of any large sell-off if and when it occurs.

From the start of the pandemic to the outbreak of social unrest after witnessing cell phones capture the appalling murder of George Floyd, it is also time to reflect on the state of our nation.  For all our strengths, these events underscore underlying weaknesses in our system.  From health care to equal treatment under the law, from economic opportunity to the increasing wealth gap, we need to challenge ourselves as a country to do better.  Today the market seems divorced from all the bad news, but it will not always be the case. There are no guarantees markets will always go up.  Being able to adapt to changing circumstances will make a difference in the long run.

As always, we are available if you have questions.

Markets vs Economy — Illusion vs Reality

By Investments

As we head into the end of the week, the S&P 500 is close to holding a key support level around 2950 in the face of record GDP decline and unemployment.  The global economic toll does not lend itself to a story about an only one-month bear market followed by immediate, rapid recovery as we proceed towards large scale re-openings.  You can view the current market levels as positive news—the fiscal stimulus and Federal Reserve intervention is working, and the economy will return to some normalcy in short order.  Or another possibility, that this narrow exuberance is overly optimistic and markets will crash back to reality when the stimulus effect dies out.

Indeed, looking deeper into the numbers, five firms continue to dominate the S&P 500 returns.  Apple, Google, Microsoft, Facebook and Amazon represent 20% of the market value in the 500 stock S&P index.  Looking more broadly at global markets there has been recovery, but not nearly as robust as those top five companies.  And we have just completed an earnings cycle which included only the beginning of the virus-related shutdown.  Small-caps, international developed markets, emerging markets, value stocks and real estate are well beneath their pre-pandemic highs.  Bright spots outside of technology may be commodities such as oil and gold.  Oil does not come without its risks, but may benefit from extraordinary cooperation, which includes U.S. producers, to limit supply just as demand is starting to pick up.  Low production and increasing consumption could help prices recover rather quickly if production remains voluntarily capped.

Is it time to jump back in to equities?  The answer is very likely mixed.  There has been little economic good news since March.  We still do not have a good handle on when and if we will have an effective vaccine or effective therapeutics, and most important, if we will have a significant second wave later this year.  We still do not know how the last 2-3 months will change behavior, both in the short term and the long term.  We see increasing signs that globalization is under siege with likely negative effects on global growth and cooperation.  The relationship with China is becoming increasingly unstable, partly legitimate and partly political opportunism, but there are not many defenders on either side of the political aisle.

We have been adding some risk assets to portfolios in a measured way and will continue to do so.  We are being patient not to buy the most expensive stocks that have led this interim rally from the bear market, but are looking to take positions in asset classes which we feel will have a much higher probability of better returns from this point.  Any hiccup in the economic recovery narrative will send the market tumbling and it is likely the most expensive assets relative to earnings will get hit the hardest—the same ones that are leading the S&P 500 higher.  We believe there is a high probability we will see lower stock prices in the near future.

The bond market literally froze in March with prices for investment grade bonds dropping 10% or more before the Federal Reserve stepped in.  This was a striking event as it was a larger decline and disruption to the bond markets than in October 2008.  With Federal Reserve intervention, it appears the fixed income market has stabilized enough that we are comfortable moving out of higher levels of short-term treasuries yielding less than 0.5% into diversified managed bond funds. This could help provide modest returns on this part of your portfolio.

After analyzing this week’s closing prices as well as the end of the month next week, we will have a clearer idea on what changes outside of the fixed income holdings we will be making.

We wish everyone an enjoyable and safe Memorial Day weekend!



Required Minimum Distribution (RMD) Changes Under The CARES Act

By Retirement

The CARES Act has suspended Required Minimum Distributions (RMDs) for several retirement plans, but not all. We’ve separated out what retirement plans had RMDs suspended for 2020 and which were not impacted by The CARES Act.


  • IRA RMDs (Including SEP and SIMPLE IRAs)
  • Defined Contribution Plan RMDs (401(k) and 403(b))
  • Federal Thrift Savings Plan RMDs
  • Governmental 457(b) Plan RMDs

Not Impacted:

  • Defined Benefit Plan RMDs
  • Non-governmental 457(b) Plan RMDs
  • Annuitized Annuities held in IRA, 401(k), 403(b), and other Defined Contribution Plan Accounts
  • 72(t) Distributions
  • Qualified Charitable Distributions

This is great news if you have a retirement plan requiring RMDs that you do not need.

If your first RMD was due in 2020 for year 2019, you are in luck. The CARES Act suspends any RMD regularly due in 2020, so if you had turned 70 ½ in 2019, normally your first RMD due date would be April 1, 2020. That means if you had not taken your 2019 RMD yet, you will have 2 years of RMDs suspended due to The CARES Act.

What do you do if you already took unwanted RMDs for 2020? The simplest way to fix this is to use the 60 day rollover window which allows you to roll the distribution either back into the original account or into an IRA, but only if it is within 60 days from when you received the distribution. If your took your distribution after February 1st, 2020 the 60 day rule is waived and you have until July 15th, 2020 to roll your distribution back into a retirement plan. Keep in mind you can only do this once every 365 day period.

Any distribution taken from a retirement account, including RMDs, that was distributed as a result of the Corona-virus is given 3 years to roll the distribution back into an account.

It makes sense in some cases to make a Roth conversion with your RMD. In this strategy you would still be paying taxes on the distribution now, but the money would receive tax free growth in your Roth IRA.

Contact us if you have any questions regarding your RMDs. If you would like to learn more about Corona-virus related distributions, directly from the IRS, we encourage you to do so here.