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Americans and Their 401(k)s

A recent survey found that working households experiencing financial strain due to the pandemic have not been inclined to make withdrawals from their 401(k)s to help make ends meet. In fact, the vast majority haven’t even changed their rate of contributions. Instead, these households are relying on the “old standbys” of surviving during economic decline: Reduced spending, using savings or an emergency fund, and maxing out credit cards.1

A reduction in spending shouldn’t be that difficult in the wake of today’s pandemic. After all, many people have cancelled vacations, no longer commute to work, and don’t spend nearly as much money going out to eat or for other entertainment activities. Some folks are even keeping their college students out of school for a semester or two, or at least taking the online route and saving on room and board. For those who remain employed, it’s actually a good time to increase savings.2

The coronavirus pandemic offers an ideal scenario to demonstrate the importance of diversifying retirement savings accounts. While some workers may defer as much salary as they can into a 401(k) to help reduce their current income taxes, others may spread those contributions over a work retirement plan and an IRA. There are a couple of strong reasons to consider including a Roth IRA in the mix. While Roth contributions do not offer a current tax deduction, remember that there are no tax consequences when you withdraw the money. Those funds have the opportunity to grow tax-free, and you’re free to tap your contributions without penalty when needed to supplement household income. However, keep in mind that you should consult with a qualified professional before taking any withdrawals from your retirement assets.

It’s also strategically key right now as income taxes are historically low. The income taxes you currently pay on Roth contributions now could be less than what you’ll have to pay on 401(k) distributions in the future. If you’d like to discuss ways to help maximize your retirement savings — including financial vehicles that allow for tax diversification and emergency funds for situations like pandemics — give us a call. We can tailor recommendations for your situation.

The Employee Benefits Security Administration (EBSA), which is an agency under the U.S. Department of Labor, recently announced an interim final rule for employers offering retirement plan benefits. The agency will require 401(k) and other types of retirement plan sponsors to provide employees with annual lifetime income illustrations. This is a customized statement designed to show each plan participant how his current account assets would likely translate into monthly income at a projected retirement age.3 This is similar to the Social Security Statement which projects future payouts for beneficiaries, updated annually.

The Labor Department also proposed a new rule this summer that is designed to incentivize more investment in fossil-fuel companies. Specifically, the rule would require pension and 401(k) plan wealth managers to always place economic interests ahead of “non-pecuniary goals” when it comes to Environmental, Social, and Corporate Governance (ESG) investing. Some money managers are investing more in renewable energy companies out of concern for the environment and for the long-term investment opportunities presented by sustainable power sources. While this new rule reflects the current administration’s position on fossil fuels, many money managers are concerned that the rule ignores evidence that ESG investing offers strong potential for favorable returns.4

One final note on Americans and their 401(k)s: Pay careful attention to how these plans are utilized in divorce settlements. Normally, dividing such a plan requires a court order separate from the divorce decree, called a Qualified Domestic Relations Order (QDRO). Also bear in mind that some plan administrators will not officially divide 401(k) assets until the plan participant retires.5

Another way to negotiate 401(k) assets in a divorce settlement is to allow one ex-spouse to retain the 401(k) plan while the other receives an asset of equal value (be sure to compare tax consequences and take those into account when determining equal value). Another option is to roll a portion of the 401(k) into a traditional IRA, which would avoid current penalties and tax liability and permit the ex-spouse to choose her own investments. However, this option is only available to those who have left their employer or are over age 59½.6 Not matter what route you choose, be sure to work with an experienced financial advisor, tax advisor and attorney to understand the full ramifications of splitting up a 401(k) account.

Content prepared by Kara Stefan Communications.

1 Mike Scarcella. BenefitsPRO. Aug. 20, 2020. “New virus-era survey shows tapping 401(k)s is ‘last resort’ for most participants.” https://www.benefitspro.com/2020/08/20/new-virus-era-survey-shows-tapping-401ks-is-last-resort-for-most-participants/. Accessed Sept. 2, 2020.

2 Fox Business. Sept. 1, 2020. “3 important 401(k) strategies to employ for the remainder of 2020.” https://www.foxbusiness.com/lifestyle/3-important-401k-strategies-to-employ-for-the-remainder-of-2020. Accessed Sept. 2, 2020.

3 Allison Bell. BenefitsPRO. Aug. 20, 2020. “5 things to know about the new 401(k) plan illustration regs.” https://www.benefitspro.com/2020/08/20/5-things-to-know-about-the-new-401k-plan-illustration-regs-for-agents-412-102799/. Accessed Sept. 2, 2020.

4 Tim Quinson. Bloomberg. Aug. 31, 2020. “Trump Plan to Block Green 401(k)s Stirs Fund Industry Fury.” https://www.bloomberg.com/news/articles/2020-08-31/trump-plan-to-limit-esg-investing-by-401-k-s-opposed-by-funds. Accessed Sept. 2, 2020.

5 Steven Wittenberg. Kiplinger. Sept. 1, 2020. “Tricky Divorce Issue: How to Divide 401(k)s, IRAs and Annuities.” https://www.kiplinger.com/personal-finance/601321/tricky-divorce-issue-how-to-divide-401ks-iras-and-annuities.  Accessed Sept. 2, 2020.

6 Ibid.

Neither our firm nor its agents or representatives may give tax or legal advice. Be sure to speak with a qualified professional about your unique situation.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Financial Advising During a Pandemic

The pandemic has been hard on nearly everyone, and it’s particularly difficult for professionals who normally meet with clients in an office setting. Fortunately, financial advisors have been able to adapt to this “new normal.”

Our goal is to be our clients’ trusted advisors. Once that relationship is established, we can work with clients by phone, email, and even via a Zoom or Facetime call if they prefer. But make no mistake — we’re still here. We understand what it’s like to go through difficult times and a big part of our job is to help you weather challenges just like the one the country is facing now.

One way we do that is by keeping you informed on topical news, from the government’s stimulus package to key factors driving the market. While our job is to build you a financial plan designed to withstand a variety of economic conditions, it’s also important to stay flexible. If you could use advice regarding appropriate financial products for your situation, feel free to contact us. We are always here for you.

Since most financial advisors have long embraced technology to help engage with clients, this has been a true advantage during this time. In fact, the head of one wealth management firm recently observed that client-satisfaction levels have increased during the pandemic because of the many ways that advisors are staying in touch with clients, including phone calls, emails, texts and social media. In many cases, the immediacy and frequency of these interactions have helped facilitate a more substantive and ongoing dialogue between advisor and client.1

As financial advisors, it’s important for us to monitor not just investment performance, but the long-term outlook of U.S. businesses. According to a recent PwC COVID-19 US CFO Pulse Survey, today’s top concerns among the nation’s finance leaders include:2

  • The financial impact on their business, including effects on operations, liquidity and capital resources
  • The potential for a global recession
  • A reduction in workforce productivity
  • A decrease in consumer confidence and reduced consumption
  • Supply chain disruptions

By tracking these trends, we can help clients stay on track toward their goals and make course corrections when necessary. Ideally, your investment portfolio is designed to meet long-term goals, so temporary economic or market fluctuations should not precipitate drastic moves. One of our biggest challenges is reassuring clients and discouraging them from making decisions about their money based on panic and fear.

While “robo” advisors have become an alternative model for offering financial recommendations, it’s times like these when you can appreciate the difference between and electronic algorithm and a real-life advisor.3

A financial advisor helps you establish a plan that incorporates a whole host of considerations, such as:

  • Focusing on your specific goals, such as asset allocation, college funding or retirement income
  • Taking a broader look at your entire financial picture, not just your investments
  • Taking into account the potential for various types of disruption, whether economic or personal
  • Helping you navigate challenges to continue moving toward financial goals despite any future challenges

Remember, our reliance on technology and digital tools is designed to help you stay connected to your accounts with 24/7 access from any device. They also enable us to stay in touch virtually in a private and safe environment.

Content prepared by Kara Stefan Communications.

1 Jason Bisnoff. Forbes. May 21, 2020. “Merrill Lynch Head Predicts Bull Market For Financial Advice After Covid-19 Stock Selloff.” https://www.forbes.com/sites/jasonbisnoff/2020/05/21/merrill-lynch-head-predicts-bull-market-for-financial-advice-after-covid-19-stock-selloff/#4118bdb39f75. Accessed Aug. 19, 2020.

2 PwC. April 22, 2020. “How COVID-19 is affecting the asset and wealth management industry.” https://www.pwc.com/us/en/library/covid-19/coronavirus-asset-and-wealth-management.html. Accessed Aug. 19, 2020.

3 Craig Hawley. June 4, 2020. “Don’t Go it Alone: 4 Benefits of Having a Financial Adviser.” https://www.kiplinger.com/article/retirement/t023-c032-s014-4-benefits-of-having-a-financial-adviser.html. Accessed Sept. 3, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Employers: Lessons From the Pandemic

We’ve learned a lot about infectious diseases this year, as well as how to adapt our lifestyles in response to a pandemic. It will be interesting to see if and how U.S. businesses adjust their operational models to account for the potential for future pandemics or other catastrophic events.

According to the employment-population ratio, nearly half of the U.S. population was out of work (which includes those no longer actively looking for work), with economists predicting 30 million jobs must be created to return the ratio to its 2000 peak.1

If your household has suffered a job loss or reduced income and you need assistance with creating a budget, or if you’re just not sure about your future retirement income and want to create an income plan, please contact us. We’re happy to evaluate your financial circumstances and provide guidance.

Work-life balance was a problem before the pandemic, but now that issue is being experienced in another context. Many employees have been able to migrate seamlessly to working from home using software to stay connected with colleagues and clients. However, with children home from school and now responsible for online learning, work-life balance can be even more difficult.

Many white-collar professionals have discovered the need for one — or two — in-home offices for spouses who are working professionals. While many are able to get their work completed independently, it is important to still be accessible to colleagues at certain points of the workday. Despite these challenges, some companies may increasingly find remote working to offer lower-cost, higher-productivity benefits if they can overcome some of the issues they currently face.2

As for working from home this year, it will be interesting to see if tax laws change before filing season next April. After all, according to a recent report from the Federal Reserve Bank of Dallas, more than 35% of Americans employed in May of this year were working entirely from home — up from just over 8% in February. Unfortunately, the Tax Cuts and Jobs Act disallowed W-2 employees from being able to deduct home office expenses.3

A work-from-home business model could also expand the net for recruiting talented employees. After all, many top companies are located in big cities where real estate sells for a premium. This is a tough life for young adults saddled with student loan debt. With a mobile workforce that allows employees to live wherever they want, companies can offer a competitive advantage when it comes to attracting top talent. In turn, Millennials and Gen Zers can move away from big city life and buy homes in less expensive areas.4 This could potentially help them save more money and turn around the fortunes of the country’s more rural areas.

It would be nice to keep your job, move somewhere with a lower cost of living and be able to keep your salary level. However, some economists claim that’s not going to be the case moving forward. Because many businesses have lost revenues due to reduced consumerism throughout this pandemic, wages are likely to stagnate for several years. Then again, the cost of living isn’t expected to increase dramatically in the near-term either.5 By moving to a less expensive locale, employees may be able to save more money even if they don’t get a salary bump in the foreseeable future.

Unfortunately, that means that any wage cuts employees received this year may not recover anytime soon. According to economists at the Federal Reserve Board, businesses initially cut wages by nearly two times as much due to the pandemic than they did during the Great Recession.6

Content prepared by Kara Stefan Communications.

1 Yung Li. CNBC. June 29, 2020. “Nearly half the U.S. population is without a job, showing how far the labor recovery has to go.” https://www.cnbc.com/2020/06/29/nearly-half-the-us-population-is-without-a-job-showing-how-far-the-labor-recovery-has-to-go.html. Accessed Aug. 12, 2020.

2 Knowledge@Wharton. May 4, 2020. “Working from Home: Navigating the Pandemic’s New Normal.” https://knowledge.wharton.upenn.edu/article/working-from-home-navigating-the-pandemics-new-normal/. Accessed Aug. 12, 2020.

3 Kelly Phillips Erb. Forbes. Aug. 12, 2020. “The Ultimate Forbes Guide to Working from Home.” https://www.forbes.com/sites/kellyphillipserb/2020/08/12/taxes-vpns-and-office-hours-the-ultimate-forbes-guide-to-working-from-home/#90a042442e7e. Accessed Aug. 12, 2020.

4 Parag Khanna and Kailash K. Prasad. Politico. May 13, 2020. “How Coronavirus Could Make People Move.” https://www.politico.com/news/magazine/2020/05/13/how-coronavirus-could-upend-human-migration-251715. Accessed Aug. 12, 2020.

5 Jessica Peres. TheDenverChannel.com. June 30, 2020. “Economists say wages will stay stagnant amid pandemic.” https://www.thedenverchannel.com/news/national/coronavirus/economists-say-wages-will-stay-stagnant-amid-pandemic. Accessed Aug. 12, 2020.

6 Carmen Reinicke. Business Insider. June 26, 2020. “Pandemic wage cuts are roughly double what they were in the Great Recession, study shows.” https://www.businessinsider.com/wage-cuts-coronavirus-pandemic-twice-great-recession-fed-study-shows-2020-6. Accessed Aug. 12, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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How High-net-worth Households are Faring

The investment markets rebounded and have proven resilient despite the economic decline resulting from the pandemic. The Federal Reserve continues to boost monetary policy with trillions in market support. Congress and President Trump support the need for further economic stimulus, even though they hadn’t settled on a number as of this writing.1

And yet, according to recent polls, Americans’ confidence in their ability to retire with sufficient income continues to weaken. A recent survey revealed that 72% of Americans say they now plan to work in retirement, which is up from 67% just last May. Only 58% of U.S. workers say they are currently earning the same amount as before the pandemic hit. And nearly one out of every four American adults (24%) say they are planning to tap their 401(k) assets this year, including 41% of people who have recently been laid off due to COVID-19.2

Retirement preparedness numbers were not particularly strong before COVID-19 settled on these shores, and recent economic events have further impacted those numbers. If you’re concerned about the future, it helps to have a plan. Not just one plan, but also contingency plans based on your employment prospects for the future and the potential direction of the markets. We suggest that the best way to plan for retirement is to seek out quality advice from a licensed financial professional and appropriate financial products for your situation. Please give us a call to discuss.

Today’s pervasive sense of financial insecurity is not relegated among only low-income workers. High-net-worth (HNW) investors are generally described as those with a net wealth in the six to seven figures.3 In a new report from Morgan Stanley and Oliver Wyman, it was found that HNW individuals’ wealth will probably fall 4% by the end of the year — a stark contrast to the previous decade of consistent annual growth.4

According to Cerulli Associates, more than three-quarters of the 33 million U.S. households that hold between $100,000 and $1 million in invested assets say they work with a financial advisor to manage their money. The traits they most appreciate from this relationship are trustworthiness, honesty and dependability, as well as knowledge and quality of service.5

HNW investors also are not shying away from their interest in buying real estate in the luxury market. In fact, interest has increased in buying second homes outside of their big-city residences as a result of the pandemic’s shelter-in-place demands. Due to travel restrictions, many are looking for extra accommodations domestically rather than overseas.6

On the downside of ample wealth, the IRS announced in July its intention to audit hundreds of high-net-worth individuals and their related entities. The campaign is expected to review returns up through Sept. 30, 2020, with audit letters to be mailed out this fall. Specifically, assets targeted for scrutiny include foreign bank accounts, trusts, business interests and overseas inheritances; associated business entities such as partnerships, trusts, S corporations, C corporations; gifting practices and private foundations.7

Content prepared by Kara Stefan Communications.

1 Jeanna Smialek. Aug. 19, 2020. The New York Times. “Fed Officials Said the Economy Needed More Help From Congress.” https://www.nytimes.com/2020/08/19/business/economy/fed-meeting-minutes-coronavirus.html. Accessed Aug. 20, 2020.

2 SimplyWise, Inc. July 13, 2020. “SimplyWise Retirement Confidence Index.” https://www.simplywise.com/blog/retirement-confidence-index/. Accessed Aug. 20, 2020.

3 Adam Hayes. Investopedia. April 19, 2020. “High-Net-Worth Individual (HNWI).” https://www.investopedia.com/terms/h/hnwi.asp. Accessed Aug. 5, 2020.

4 James Phillipps. Forbes. June 11, 2020.Coronavirus To Wipe $3.1 Trillion Off High Net Worth Wealth In 2020, Report Says.” https://www.forbes.com/sites/jamesphillipps/2020/06/11/coronavirus-to-wipe-31-trillion-off-high-net-worth-wealth-in-2020/#419ff8c833e7. Accessed Aug. 20, 2020.

5 Cerulli Associates. June 12, 2020. “SIFMA-Cerulli Individual Investor Project.” https://info.cerulli.com/rs/960-BBE-213/images/Cerulli-SIFMA%20Final%20061820.pdf. Accessed Aug. 20, 2020.

6 Miao Li. Mansion Global. July 27, 2020. “When it Comes to Property, Covid-19 Has Been ‘A Time to Reflect.’” https://www.mansionglobal.com/articles/when-it-comes-to-property-covid-19-has-been-a-time-to-reflect-217822. Accessed Aug. 5, 2020.

7 Perkins Coie. JD Supra. July 15, 2020. “IRS to Target High Net Worth Individuals, Private Foundations, and Associated Entities Beginning in July 2020.” https://www.jdsupra.com/legalnews/irs-to-target-high-net-worth-32702/. Accessed Aug. 5, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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The Future of Retirement Planning

As of the end of July, the stock market was still performing relatively well and the Federal Reserve had announced no near-term changes to interest rates.1 However, other economic news was not as rosy. According to the Bureau of Economic Analysis, the U.S. economy contracted by nearly a third (32.9% annual rate) in the second quarter of this year.2

The pandemic has taken quite a toll on the U.S. economy. While eventually the economy will recover, individuals may want to re-assess their retirement portfolios going forward. Long term, it’s important to consider what types of permanent changes may take place post-pandemic, and how to anticipate them for long-term retirement planning.

For example, one of the issues with employer-sponsored 401(k) plans is that they are designed to take advantage of tax-deferred growth. However, given today’s historically low tax rates, that is less of an advantage than it was when the idea was first introduced. Consider a median-income married couple with two children:3

  • In 1980, the marginal federal income tax rate was 43%. Today, it is 12%.
  • In 1980, the capital gains tax rate was 28%. Today, it is 0%.
  • In 1980, interest rates were around 15%. Today, they are 0%.

Tax rates could be adjusted upward in light of the debt America continues to accumulate through COVID-19 stimulus efforts. However, they may not rise as high as tax rates were back in the early ’80s.

A leading professional in retirement income research, Olivia Mitchell, executive director of the Wharton School’s Pension Research Council, recommends that more employer retirement plans incorporate an annuity option, and even mandate a 10% allocation to that annuity.4 This would establish a larger pool of insured annuitants to help fund income for retirees who live longer. Until this happens, bear in mind that anyone can incorporate an annuity into his or her personal financial strategy to receive insurer-guaranteed income during retirement. If you’d like to learn more, please contact us.

Another long-term consideration is the status of Social Security. A recent study concluded that potential cuts to benefits could come faster than expected, thanks to COVID-19. Researchers discovered the Social Security Trust Fund may be depleted up four years earlier than previously predicted — as early as 2032. This highlights the importance of saving more toward retirement.5

Post-pandemic, there may be significant changes that could impact investor portfolio opportunities. For example, this type of disruption in business models often leads to new innovations, so keep an eye on sectors and industries coming up with new ideas. Also, the newly accepted remote model for both work and school poses interesting opportunities in terms of people living much further away from their employers and colleges, even in different states. This means people could be less inclined to move to urban areas for jobs. Rural regions may see an uptick in populations where young people could purchase homes and start building equity at a younger age.6

Content prepared by Kara Stefan Communications.

1 Joseph Woelfel. TheStreet. June 29, 2020. “Stocks Close Higher as Fed Vows Continued Support for Economy.” https://www.thestreet.com/markets/stock-market-dow-jones-industrial-average-general-electric-072920. Accessed July 30, 2020.

2 Anneken Tappe. CNN. July 30, 2020. “US economy posts its worst drop on record.” https://www.cnn.com/2020/07/30/economy/us-economy-2020-second-quarter/index.html. Accessed July 30, 2020.

3 Aaron Brown. Bloomberg. July 21, 2020. “401(k) Plans No Longer Make Much Sense for Savers.” https://www.bloomberg.com/opinion/articles/2020-07-21/401-k-plans-no-longer-make-much-sense-for-savers. Accessed July 28, 2020.

4 Knowledge@Wharton. July 14, 2020. “Post-pandemic Retirement: Can We Build More Resilient Systems?” https://knowledge.wharton.upenn.edu/article/post-pandemic-retirement-can-build-resilient-systems/. Accessed July 28, 2020.

5 Lorie Konish. CNBC. June 28, 2020. “What you need to know if you’re planning to claim Social Security retirement benefits during Covid-19.” https://www.cnbc.com/2020/06/28/coronavirus-what-to-know-if-you-plan-to-claim-social-security.html. Accessed July 28, 2020.

6 CapTrust. July 18, 2020. “Planning a Post-Pandemic Portfolio.” https://www.captrust.com/planning-a-post-pandemic-portfolio/. Accessed July 28, 2020.

Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs. Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Is it Time to Go Global?

Competitive edge is a real factor. Here in the U.S., we boast that capitalism is the key to our success. Unfortunately, that key has gotten a little rusty lately thanks to the rampant spread of COVID-19 throughout the country. Some areas have locked down or experienced slowed economic growth because of safety protocols that prevented business as usual.

The principles of capitalism – such as competition and supply and demand – have been crippled.1 On the other hand, countries that were hit early on with the pandemic have managed to control the contagion and reopen their economies.2 Market analyst Carl Kawaja believes this comparative advantage gives way to more global opportunities than the U.S. can currently pursue. In his words: “I like to compare it to basketball – a sport where the U.S. historically has been fairly dominant. But then Argentina started getting better, and Greece started getting better, and Spain started getting better. And, the next thing you know, the U.S. lost the Olympics.”3

The good news is U.S. investors can take advantage if international companies pull ahead in the near-term while we struggle to flatten the curve of contagion. If you would like to consider ways to incorporate more global equity opportunity within your asset allocation, we’re happy to work with you. Don’t hesitate to reach out to schedule a consultation.

Regardless of the state of the pandemic, it’s important to recognize that not all the best investment opportunities are in the United States. According to the World Bank, in 2018 the nation represented only 44% of world stock market capitalization.4

Investing internationally does have its risks. But there are ways to do it strategically, such as investing in global mutual funds or ETFs, leaving the day-to-day stock picking to a professional money manager, whose job it is to weigh those risks, such as currency fluctuation, lack of government regulation, economic instability and the disruption of civil unrest. This means professional market analysts do the research and move assets in and out of geographic regions on your behalf.5

In recent weeks, Blackrock commented Europe has a “leg up” over the U.S. as well as other parts of the globe, citing the EU’s health care infrastructure and policy response to the pandemic. The money manager noted the region’s monetary and fiscal support provided a cushion during the pandemic that left many countries able to recover faster economically.6

Investors seeking income may consider global bonds, which have historically outperformed during short-term periods of market turmoil. They also offer the opportunity for long-term diversification benefits to U.S. investor portfolios.7

Content prepared by Kara Stefan Communications.

1 Jim Chappelow. Investopedia. April 6, 2020. “Capitalism.” https://www.investopedia.com/terms/c/capitalism.asp. Accessed July 20, 2020.

2 Ferdinando Giugliano. Bloomberg. July 6, 2020. “Why Europe’s in Better Shape Than the U.S.” https://www.bloomberg.com/opinion/articles/2020-07-06/coronavirus-recovery-why-europe-s-in-better-shape-than-the-u-s. Accessed July 20, 2020.

3 Capital Group. June 24, 2020. “Midyear Outlook: International markets on the comeback trail.” https://www.capitalgroup.com/advisor/insights/articles/international-midyear-outlook-2020.html. Accessed July 20, 2020.

4 James D. Peterson. Charles Schwab. Nov. 13, 2019. “Why Global Diversification Matters.” https://www.schwab.com/resource-center/insights/content/why-global-diversification-matters. Accessed July 20, 2020.

5 Tinesh Bhasin. LiveMint. July 24, 2020. “What to keep in mind if you want to invest in global markets.” https://www.livemint.com/money/personal-finance/what-to-keep-in-mind-if-you-want-to-invest-in-global-markets-11593015469209.html. Accessed July 20, 2020.

6 Callum Keown. MarketWatch. July 20, 2020. “Risks are mounting for U.S. stocks. Here’s where BlackRock says investors should look instead.” https://www.marketwatch.com/story/risks-are-mounting-for-us-stocks-heres-where-investors-should-look-instead-says-blackrock-2020-07-20. Accessed July 20, 2020.

7 David Wakefield. Pensions & Investment. July 13, 2020. “Investing during a pandemic: Three results a global fixed income strategy can deliver.” https://www.pionline.com/Mondrian_globalfixedincome. Accessed July 20, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Midyear Market Outlook from Wealth Managers

Lately, the economy has looked as volatile as the stock market: up for a few weeks and then back down again. This is generally attributed to the reopening of the country in early May, followed by what looks to be a gradual and sporadic reclosing due to an upswing in outbreaks of the coronavirus. In early July, Raphael Bostic, president of the Atlanta Federal Reserve Bank, observed that recent signals show the economic recovery is in danger of stalling.1

This volatile economic environment makes it difficult for money managers who publish midyear market comments, because the outlook could change by the time those reports are published. As always, whenever you read advice and predictions from financial professionals, it’s important to view recommendations within the context of your own goals, circumstances and investment portfolio. If you’d like to discuss any potential midyear changes in your strategy, please contact us to schedule a review.

Like most industry analysts, T. Rowe Price cautions that the trajectory in the equity and credit markets will depend on containment of the virus. Most analysts agree that economic recovery is dependent on “flattening the curve” of contagion. The good news is that T. Rowe analysts believe tech companies have accelerated in both growth and market power by several years due to remote-work demands. However, much depends on how well some of our global partners respond to the health crisis. This variable could cause U.S. distributors to rethink their corporate finances and supply chains.2

Charles Schwab’s midyear outlook acknowledges that much of the market’s gains since the first outbreak of COVID-19 can be attributed to the Federal Reserve’s decision to cut interest rates and the fiscal stimulus passed by Congress. However, it is unlikely that we will see additional significant fiscal initiatives moving forward, so the market is likely to start pricing based on a real growth rate that represents lost output from consumer goods and services. With that said, high unemployment rates and low inflation are likely to continue driving quantitative easing by the Federal Reserve, which is currently increasing its balance sheet by $120 billion a month in treasuries and mortgage-backed securities.3

The chief investment officer at Merrill Lynch offers a bullish perspective for the immediate future. Their analysts believe that the markets are in the early stages of another long-term bull session with above-average valuations. They favor equities relative to fixed income and cash, as well as the prospects of global equities since many countries have rebounded from the pandemic and show signs of acceleration.4

Morgan Stanley also maintains a positive outlook. Based on recent market resiliency, their analysts believe a new cycle has started and that a U.S. recovery may be more “normal” than widely predicted. In fact, analysts maintain the economy will recover by early 2021, driven by global gross domestic product with 3% growth for the year.5

The Capital Group keeps its outlook simple: The markets will remain volatile through the rest of the year. However, it believes that investors are better off weathering the storm in the market than sitting on the sidelines, as recent downturns have demonstrated that when the market does rebound, it remains stronger, longer.6

Content prepared by Kara Stefan Communications.

1 Kanishka Singh. Reuters. July 7, 2020. “Fed’s Bostic says U.S. recovery may be ‘levelling off’: FT interview.” https://www.reuters.com/article/us-usa-fed-bostic-idUSKBN2480G0. Accessed July 16, 2020.

2 Robert W. Sharps, Justin Thomson and Mark Vaselkiv. T. Rowe Price. June 30, 2020. “Managing to the Other Side.” https://www.troweprice.com/personal-investing/resources/insights/managing-to-the-other-side.html. Accessed July 16, 2020.

3 Kathy Jones. Advisor Perspectives. June 30, 2020. “2020 Mid-Year Outlook: Fixed Income.” https://www.advisorperspectives.com/commentaries/2020/06/18/2020-mid-year-outlook-fixed-income. Accessed July 16, 2020.

4 Merrill Lynch. July 2020. “The Reflation Triangle.” https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/Viewpoint_July_2020_Merrill.pdf. Accessed July 16, 2020.

5 Morgan Stanley. June 14, 2020. “2020 Midyear Investor Outlook: Unusual Times Conventional Playbook.” https://www.morganstanley.com/ideas/global-investment-strategy-midyear-outlook-2020. Accessed July 16, 2020.

6 Capital Group. June 4, 2020. “U.S. Midyear Outlook: From recession to recovery.” https://www.capitalgroup.com/advisor/insights/articles/us-midyear-outlook-2020.html?cid=p55731464801&ad_id=449175591351&ext_id=&gclid=EAIaIQobChMIhP_5lrLS6gIV5QiICR1QpQPREAAYASAAEgJ3UfD_BwE&gclsrc=aw.ds. Accessed July 16, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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The Highs and Lows of Dollar-Cost Averaging

Investors who defer the same amount of money from their paycheck into a 401(k) plan at regular intervals are practicing dollar-cost averaging. By investing the same fixed dollar amount each time, the investor buys more shares when prices are low and fewer shares when prices rise.1 The long-term effect is that the average cost of each share purchased will be lower than the average share price.2

This strategy can work great when you are trying to accumulate assets for your retirement. But what happens when you withdraw from your investments for retirement income? While dollar-cost averaging reduces the risk of investing a lump sum of money when prices peak, it increases your risk of losing previous gains if you withdraw money when prices have dropped. If a retiree receives automatic systematic withdrawals for a fixed level of income, then in months when share prices drop, he or she will likely have to sell more shares to raise the needed money. Once those shares are sold, they never have the ability to recover lost gains.3

To create a more prudent income distribution plan, you may consider incorporating some solid, reliable income in your portfolio, in addition to Social Security benefits. This could mean government-backed bonds or an insurance-backed annuity.4 If you’d like to discuss how to position your assets to combine both guaranteed income and growth opportunity, please contact us.

It’s a good idea to develop multiple streams of retirement income. Ideally, you want to have the flexibility to stop and start withdrawals strategically from accounts that are performing well, giving others time to recoup paper losses.5 Also, maintain a healthy portion of assets in a liquid account to help pay for periodic expenses when you don’t want to tap your investments.

Another option is to be flexible with your retirement budget, such as having a Plan A budget and a Plan B budget. When the markets take a downturn, you can switch to budget B and downsize your expenses, perhaps by cutting out vacations, large purchases and eating out for a while. This shouldn’t be too hard given the way people have had to reign in their lifestyle throughout the past few months; you could call it your Pandemic Budget.6

Content prepared by Kara Stefan Communications.

1 James Chen. Investopedia. March 16, 2020. “Dollar Cost Averaging.” https://www.investopedia.com/terms/d/dollarcostaveraging.asp. Accessed July 10, 2020.

2 Dan Burrows. Kiplinger. April 17, 2020. “Dollar-Cost Averaging: How Does DCA Work, And Should You Do It?” https://www.kiplinger.com/article/investing/t052-c008-s001-dollar-cost-averaging-how-does-dca-work-should-you.html. Accessed July 10, 2020.

3 Matt Becker. The Simple Dollar. April 9, 2020. “The Truth About Dollar Cost Averaging.” https://www.thesimpledollar.com/save-money/the-truth-about-dollar-cost-averaging/. Accessed July 27, 2020.

4 Dennis Ho. The Street. July 2, 2020. “How to Use a Deferred Income Annuity to Avoid Running Out of Money in Retirement.” https://www.thestreet.com/retirement-daily/planning-living-retirement/how-to-use-a-deferred-income-annuity-to-avoid-running-out-of-money-in-retirement. Accessed July 10, 2020.

5 Jeff Rose. Forbes. Nov. 2, 2017. “5 Ways To Generate Different Sources Of Income.” https://www.forbes.com/sites/jrose/2017/11/02/different-sources-income/#42d46f7137bb. Accessed July 10, 2020.

6 Rebecca Moore. Plan Sponsor. June 22, 2020. “Clearing Up Confusion About Retirement Timing.” https://www.plansponsor.com/in-depth/clearing-confusion-retirement-timing/. Accessed July 10, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference. 7/20 – 1246007C

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Recovery: COVID-19 First, Then the Economy

The World Health Organization recently reported that while some countries have made effective inroads to contain COVID-19 within their borders, the pandemic is still well on the rise throughout the world.1 Perhaps one of the most debilitating impacts of today’s global economy is that one country’s problem is now every country’s problem. Because business and personal travel is so pervasive today, it appears the only answer to economic recovery is to contain and eradicate the virus – everywhere.

Fortunately, the medical news on the COVID-19 front is starting to look up. In early June, the nation’s top infectious disease expert, Dr. Anthony Fauci, announced that the U.S. government was helping fund and conduct research for three different coronavirus vaccines and hopes to have at least one available early 2021. The World Health Organization reports that, globally, 10 vaccines are currently undergoing human trials with 126 others in development.2

Then later in June, researchers in the UK reported that a very common, affordable drug available worldwide has been found to be effective for hospitalized coronavirus patients on ventilators. Apparently, dexamethasone has no impact on milder symptoms of coronavirus, but it has been shown to help reduce mortality for some higher-risk patients.3

These recent advancements are a big step in the fight against the pandemic, but it’s important to realize that it will take time to get control of it. However, these words from Dr. Fauci may provide comfort, “Don’t despair. This will end, and we will get control over it.”4

In the meantime, it’s important that we each plan for a future in which medical conditions and economic downfalls are more common. If you’d like help to reassess your portfolio with the goal of generating a higher sense of financial confidence for the future, please give us a call.

It is understandable that long-term investors want to look beyond the pandemic for economic recovery and glean ideas on how to invest in the future. Clearly, one industry that’s hard at work is the health technology market. Digital health has taken off as a means of coping with patients who are better off staying at home, and health innovation funding is rapidly expanding.5

Bank of America Global Research, Israel anticipates several global megatrends that will have the greatest impact on the post-pandemic recovery. These include: 6

  • A further shift away from reliance on Chinese manufacturing, particularly in the tech and pharma industries
  • A greater focus by consumers on technology and digital media – a lingering influence borne out of today’s stay-at-home recommendations
  • Bigger government influence at all levels, particularly in relation to tracking and preventing health crises, business models with a higher emphasis on worker benefits and more aggressive action for climate-friendly environmental initiatives

Speaking of the environment, some leaders are predicting that the pandemic may lead to more sustainable business practices. Initially, business owners are expected to be more focused on the short-term health and welfare of their businesses and employees. However, some industry leaders and policymakers insist that future investment should be channeled toward real change for a low-carbon, more sustainable future.7

Content prepared by Kara Stefan Communications.

1 Scott Neuman. NPR. June 29, 2020. “WHO Chief On COVID-19 Pandemic: ‘The Worst Is Yet To Come.’” https://www.npr.org/sections/coronavirus-live-updates/2020/06/29/885049691/who-chief-on-covid-19-pandemic-the-worst-is-yet-to-come. Accessed July 2, 2020.

2 Jim Sciutto, Jamie Gumbrecht and Chandelis Duster. CNN. June 10, 2020. “US government to fund and conduct studies on three possible coronavirus vaccines, Fauci says.” https://www.cnn.com/2020/06/10/politics/vaccine-trials-funding/index.html. Accessed June 16, 2020.

3 Michelle Roberts. BBC. June 16, 2020. “Coronavirus: Dexamethasone proves first life-saving drug.” https://www.bbc.com/news/health-53061281. Accessed June 16, 2020.

4 Moira McCarthy. Healthline. June 8, 2020. “Dr. Anthony Fauci: COVID-19 Will End and We Will Get Control Over It.” https://www.healthline.com/health-news/dr-anthony-fauci-this-will-end-and-we-will-get-control-over-it#1. Accessed July 2, 2010.

5 Heather Landi. Fierce Healthcare. July 1, 2020. “Investors double down on health technology as funding reaches $9.1B in 2020.” https://www.fiercehealthcare.com/tech/investors-double-down-health-technology-as-funding-reaches-9-1b-2020. Accessed July 2, 2020.

6 Merrill/Bank of America Global Research. May 22, 2020. “5 Trends That Could Define Our Post-Coronavirus Lives.” https://www.ml.com/articles/post-coronavirus-life-investing-opportunities-5-trends.html. Accessed June 16, 2020.

7 Knowledge@Wharton. June 8, 2020. “How the Pandemic Can Lead to a More Sustainable Future.” https://knowledge.wharton.upenn.edu/article/how-the-pandemic-can-lead-to-a-more-sustainable-future/. Accessed June 16, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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U.S. Virus Response Compared to the World

The COVID-19 pandemic has been a struggle around the world, and the United States is no exception. It is worth looking at individual factors to gauge just where we stand now.

The foremost concern is how the U.S. is weathering the pandemic. Initially, the crisis was concentrated in larger urban areas, which makes sense. A virus is more likely to spread among crowded populations. But the U.S. consists of 50 states that citizens may freely travel between without a passport or visa. Unfortunately, that means spread of the virus eventually made its way to rural areas. Now, it seems very few areas of the U.S. are immune, if any.

As of the end of June, there were more than 10 million confirmed cases worldwide and more than a half million deaths resulting from COVID-19. There were more than 2.5 million confirmed cases and 126,203 deaths in the U.S. alone.1

The U.S. is not only having trouble containing the virus. Economists and market analysts are now emphasizing the correlation between containment and economic recovery.2 If you are concerned your personal financial situation may suffer, give us a call. We can help brainstorm ideas to keep you and your portfolio afloat.

According to the International Monetary Fund (IMF), the pandemic has had a significant effect on the global economy, with the recovery expected to be more gradual than previously forecasted. Assuming we can find a way to quickly contain the virus domestically, the strength of the U.S. economy throughout the past six years provided a cushion that few other countries have enjoyed. On a global scale, the IMF projects -4.9% growth this year. The U.S. is expected to contract by -8.0%, but that is better than some other developed countries, such as France (-12.5%), the UK (-10.2%) and Canada (-8.4%). However, other countries appear to be better positioned: Germany (-7.8%), Japan (-5.8%) and China (1.0%).3

The U.S. also has fallen among competitive world economies, dropping from third to 10th this year, according to the annual ranking report conducted by the Institute for Management Development. The underlying data attributes this decline to the collapse of U.S. global trade agreements rather than the coronavirus.4

Since the pandemic is taking its toll on nearly every aspect of societal, economic and individual lives, it’s worth considering where the U.S. stacks up in its overall health-care responsiveness. On average, our nation spends $10,246 per person. Here are the spending totals in a few other developed countries:5

  • Australia: $5,331/person
  • Germany: $5,033/person
  • Canada: $4,754/person
  • United Kingdom: $3,858/person
  • Japan: $4,168/person
  • Singapore: $2,618/person

As of the end of June, the U.S. is considered a bit of an outlier among other wealthy nations. As our infection rate increases, there is a poor correlation with the amount of money the nation spends on health care, especially compared to other developed nations.6

Content prepared by Kara Stefan Communications.

1 World Health Organization. June 30, 2020. “Coronavirus disease (COVID-19) Situation Report – 162.” https://www.who.int/docs/default-source/coronaviruse/20200630-covid-19-sitrep-162.pdf?sfvrsn=e00a5466_2. Accessed June 30, 2020.

2 Jonathan Garber. Fox Business. June 30, 2020. “Mandating coronavirus face masks would strengthen US economy: Goldman Sachs.” https://www.foxbusiness.com/markets/coronavirus-mask-mandate-boost-economy-goldman-sachs. Accessed June 30, 2020.

3 International Monetary Fund. June 2020. “World Economic Outlook Update, June 2020.” https://www.imf.org/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJune2020. Accessed June 30, 2020.

4 Michelle Jamrisko and Eric Martin. BloombergQuint. June 17, 2020. “U.S. Slumps to 10th Spot in World Competitiveness Rankings.” https://www.bloombergquint.com/global-economics/u-s-slumps-to-10th-spot-in-world-competitiveness-rankings. Accessed June 30, 2020.

5 Huo Jingnan and Pranav Baskar. NPR. June 13, 2020. “Pandemic Perspective: What The 20 Poorest And Richest Countries Spend On Health Care.” https://www.npr.org/sections/goatsandsoda/2020/06/13/864563401/pandemic-perspective-what-the-20-poorest-and-richest-countries-spend-on-health-c. Accessed June 30, 2020.

6 Dante Chinni. NBC News. June 28, 2020. “Why are similar countries experiencing COVID-19 so differently?” https://www.nbcnews.com/politics/meet-the-press/why-are-similar-countries-experiencing-covid-19-so-differently-n1232358. Accessed June 30, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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