The economic fallout from the coronavirus pandemic continues, even as states start to reopen restaurants, retail stores, and other businesses. The crisis brought an end to the bull market that started in 2009 and threatens to usher in a recession.1 What does the future hold for the stock market and the economy? When will the economy recover? And how will this crisis impact your retirement and your financial future? It’s impossible to definitively answer those questions. In many ways, this event is unprecedented. We don’t know how long the virus will present a threat, so it’s impossible to predict how or when the economy may recover. However, it is possible to make adjustments to your strategy to minimize risk and take advantage of potential opportunities. It’s also helpful to keep in mind the long-term nature of the economy and the financial markets. Nothing lasts forever, including recessions and bear markets. Stock Market PerformanceThe financial markets have been a rollercoaster since the onset of the pandemic. On February 19, the S&P 500 closed at 3386. On March 23, it closed at 2237, a drop of 33.93%. Since that time, the market S&P has climbed to 2863 as of May 15.2 It’s important to remember that the stock market isn’t the same as the economy. A drop in the stock market doesn’t necessarily signal a recession, just like a rise doesn’t necessarily spell an economic recovery. It’s also helpful to remember that bear markets are a natural part of investing. They aren’t always caused by global pandemics, but they do happen. There have been 16 bear markets since 1926. On average, they last 22 months and are followed by a 47% gain in the year following the market’s lowpoint.3 We can’t predict when the market will hit its low point, or if it already has, but if history is any guide, the market will recover at some point. Economic NewsWhile the stock market has bounced back somewhat since its March decline, the overall economic news continues to be negative. More than 36 million people have filed for unemployment since late March. In 11 states, more than a quarter of the workforce is unemployed.4
In the first quarter, the economy contracted for the first time since the 2008 financial crisis. GDP declined by an annualized rate of 4.8%. That’s not as steep as the GDP decline of 8.4% annualized decline in 2008. However, it’s possible the economy could face a greater decline in the second quarter. Consumer spending, which accounts for 70% of GDP, fell by an annualized rate of 7.6% in the first quarter. That’s the steepest drop for that metric since 1980.5 While states may be starting the reopen process, there is still significant uncertainty surrounding the crisis and the economy’s future. The good news is you can take action to minimize risk. Contact us today at Binversie and Associates. We can help you analyze your goals and needs and implement a strategy. Let’s connect today and start the conversation. 1https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html 2https://www.google.com/search?safe=off&tbm=fin&sxsrf=ALeKk01UjyvpIcf62vDAgyulZ3dZuL1GWg:1589832165005&q=INDEXSP:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyevq5uEYEB1gp6Hn6RQAAItD1MEkAAAA&sa=X&ved=2ahUKEwikycWrmr7pAhWWU80KHfhUBrcQlq4CMAB6BAgBEAE&biw=1536&bih=754&dpr=1.25#scso=_JerCXv0o9o70_A-NwLLYBg1:0 3https://www.fidelity.com/viewpoints/market-and-economic-insights/bear-markets-the-business-cycle-explained 4https://www.nytimes.com/2020/05/14/business/economy/coronavirus-unemployment-claims.html 5https://www.npr.org/sections/coronavirus-live-updates/2020/04/29/847468328/tip-of-the-iceberg-economy-likely-shrank-but-worst-to-come Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20093 - 2020/5/19 On March 27, the government passed the Coronavirus Aid, Relief, and Economic Security Act, otherwise known as the CARES Act. The Act had a wide range of provisions to provide Americans and small businesses with economic support during the coronavirus pandemic. The bill provided stimulus payments, enhanced unemployment, and various forms of business loans. One provision that flew under the radar was the ability for qualified individuals to take distributions from their 401(k) plans and IRAs without paying early distributions penalties. Normally, you face a 10% early distribution penalty if you take a withdrawal from these accounts before age 59 ½.1 However, under the CARES Act you can take up to $100,000 as a penalty-free distribution from your qualified accounts, assuming you are a qualified individual.2 Are you qualified? And even if you can take a distribution, is it wise to do so? CARES Act Qualified Plan DistributionsUnder the CARES Act, you can take up to $100,000 in qualified plan distributions if you are a qualified individual. Who is qualified? Anyone who meets the following criteria:
If you meet any of these criteria and you decide to take a distribution, you won’t have to pay the 10% early distribution penalty, even if you are under age 59 ½. However, you will still have to pay income taxes on the distribution. You can spread the taxes out over a three-year period, but you still have to pay them.2 Should you take a CARES Act distribution?A CARES Act distribution may be the right strategy if you are in a financial crisis and have limited avenues available for relief. However, just because the distribution is “penalty-free” doesn’t mean it comes without consequences.
In addition to paying taxes on the distribution, you’ll also forego any future growth on the assets you withdraw. Tax-deferred growth is one of the biggest advantages of a qualified account. However, if you pull out funds, you lose all future tax-deferred growth on that amount. That could lead to a substantial reduction in your future assets at retirement. Instead of dipping into your 401(k) or IRA, consider what other options you may have available. For instance, perhaps you could tighten your budget. Maybe you could refinance mortgages or other loans, or even renegotiate new payment terms. You may even consider picking up additional work until the crisis passes. It may be tempting to take an IRA distribution, but you’re only taking money from your future self. Let’s talk about strategies to help you get through this period. Contact us today at Binversie and Associates. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation. 1https://www.irs.gov/newsroom/what-if-i-withdraw-money-from-my-ira 2https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20100 - 2020/5/20 The stock market crash of 1987. The tech bubble in the early-2000s. The financial crisis of 2008. And now, the coronavirus pandemic.
What do all of these things have in common? They all involve sharp market downturns that end a bull market and trigger a bear market. For many investors, these events create anxiety and worry about the long-term ramifications. These events all share something else in common. They offer potential opportunities. In a difficult time like this, it can be hard to see opportunities, but they do exist. Of course, not all opportunities are right for everyone. Your strategy and decisions should be based on your specific needs, goals, and risks. However, it’s possible that you could take action today to improve your financial future. Below are three examples of potential opportunities. A financial professional can help you determine the right course of action for your long-term strategy. Tax-Loss Harvesting If you have seen your portfolio suffer since late February, you are not alone. As recently as early February, we were still enjoying a strong economy. Between Friday, February 21, and Tuesday, March 16, the Dow Jones Industrial Average (DJIA) dropped by 35.87%. Since that low point, the market has recovered somewhat. However, the DJIA is still down 16.4% year-to-date.¹ If you are considering a change in strategy, you also may be able to take advantage of a potential tax deduction. A change in allocation may require you to sell assets that have declined in value. While realizing a loss is never a good outcome, you could qualify for a tax-loss deduction. Of course, this doesn’t mean you should realize losses simply for the tax deduction. Your decision should be guided by your long-term goals. A financial professional can help you determine how best to move forward. Roth IRA Conversion Do you hold a significant amount of retirement assets in a traditional IRA? One of the benefits of a traditional IRA is that you realize an upfront deduction for contributions. However, that also means that your future distributions are taxable as income. You may prefer to use a Roth IRA, which allows you to take tax-free withdrawals in retirement, assuming you are 59 ½ or older, and the account is at least five years old. You can convert your traditional IRA into a Roth, and now could be the time to do so. When you convert a traditional IRA to a Roth, you pay income taxes on the converted amount. If you have seen a decline in your IRA over the past couple of months, you now have a reduced balance. That means the tax exposure from conversion would be lower today than it was two months ago. It’s also possible that, like millions of Americans, you have been laid off, furloughed, or that you have accepted a pay cut. It’s possible that your income for 2020 will be lower than it has been in years past, which means you may be in a lower tax rate. Again, this could reduce your tax exposure in a Roth conversion. Roth conversions aren’t right for everyone. However, if you have been considering one, this may be the right time. Investing at Discounted Prices It’s never a good idea to try and predict the market’s direction, especially in the short-term. Investment decisions should always be guided by long-term strategy and specific goals and needs. However, there is no denying the fact that many assets are currently trading at prices substantially reduced from two months ago. If you have cash available to invest and have the risk tolerance to withstand potential volatility, this could be a good time to revisit your strategy. It’s always wise to hold six to twelve months in liquid, risk-free emergency reserves, even if those accounts pay very little in interest. However, if you have other funds that aren’t needed for emergency reserves, you may want to consider how best to use them in the long-term. Investing at discounted prices may allow you to more fully participate in a future recovery. As always, your decisions should be based on your unique needs, not generalized advice. Let’s talk about it and implement the right strategy for your goals. Contact us today at Binversie and Associates. We can help you analyze your needs and goals and find the right opportunities. Let’s connect soon and start the conversation. 1https://www.google.com/search?safe=off&tbm=fin&sxsrf=ALeKk006ktaTHRuJ1MB-WYLuWkeqF7PpWw:1588177817109&q=INDEXSP:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyevq5uEYEB1gp6Hn6RQAAItD1MEkAAAA&sa=X&ved=2ahUKEwjPyP0h47pAhXIWM0KHR3mBUQQlq4CMAB6BAgBEAE&biw=1536&bih=754&dpr=1.25#scso=_N6ypXpKOEYu2tAbp-I-oAQ1:0 Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20050 - 2020/4/29 |
Archives
November 2020
Categories
All
|