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Prospects for the Automotive Sector

We take a lot for granted, including the condition of the car that sits in our driveway. During the coronavirus pandemic, those cars have been sitting idle much more than usual. That’s not necessary a bad thing. It means we spend less money on gas and maintenance. Also, our risks of having an auto accident have dropped significantly. According to the Federal Highway Administration, Americans drove 163 billion fewer miles in March and April than during the same timeframe last year.1

But what does it mean for the auto industry that the entire nation has reduced its driving habits?

As it has for many industries, the pandemic has had a dramatic effect on the automotive sector. Total vehicle sales during March, April and May fell to levels comparable to the Great Recession. As many lose their jobs and find their financial security at risk, potential buyers have put off making expensive purchases, especially discretionary items like a new car, truck or SUV. Industry analysts anticipate expected sales for 2020 will be reduced by at least 3 or 4 million.2

The quandary here is two-fold. If you are worried about your job and household finances, it’s probably best to put off a new car purchase until you are on more sound economic footing. However, if your income or net worth is such that you are likely insulated from the financial woes of the pandemic, a new car purchase is one of the ways you can help grow the economy. If you’d like to explore ways to position your portfolio to protect your assets from these types of crises in the future, we can help. Contact us for more information.

Unfortunately, even those who are able to buy a car may be hampered by today’s challenges. Disruptions in the supply chain — particularly in COVID-wrought Mexico — as well as manufacturers reconfiguring factories for social distancing, are affecting production of new cars this year.

In lieu of buying a new car, many people are opting to fix older models in an effort to keep them going. This has created an opportunity for auto parts retailers and other aftermarket specialists, whose stocks may be poised for stronger than usual performance.

Another interesting component of the auto industry is the insurance market. Many insurers have issued pro-rated rebates to policy owners to align with the reduction in driving habits over the past few months. That might suggest insurers are losing money, but the reality is quite the opposite. Fewer cars on the road mean fewer accidents that insurers must cover, so auto insurers are experiencing quite a profitable year despite the refunds[KH1] .3

However, the car rental industry is hurting. Travel restrictions and an overall reluctance among people to board flights has caused the rental business to drop with a resounding thud.4

Year-to-date, the auto sector is down by approximately 20%, which is significantly worse than the performance of market indices such as the DJIA and the S&P 500. However, there are notable exceptions. As a reflection of the auto repair market, the Russell 3000 Auto & Auto Parts Index is actually up 9% this year, although industry experts credit much of that growth to Tesla.5

Some market analysts are carefully examining what the auto market will look like further into the future, and they are predicting changes. The emerging interest in environmental protections is expected to permeate the transportation industry, with fewer diesel engines produced and a higher proliferation of electric cars on the horizon. Rising consumer awareness and supportive government policies have led analysts to predict a 36% growth in electric vehicle sales in 2021. Exponential growth is expected over the next 10 years.6

Content prepared by Kara Stefan Communications.

1 Al Root. Barron’s. June 15, 2020. “Americans Are Finally Driving Again. What That Means for the Auto-Stock Universe.” https://www.barrons.com/articles/americans-are-driving-again-what-that-means-for-car-stocks-51592222401. Accessed June 23, 2020.

2 Knowledge@Wharton. June 15, 2020. “Crashing U.S. Auto Sales: Can the Industry Recover?” https://knowledge.wharton.upenn.edu/article/crashing-auto-sales-can-the-industry-recover/. Accessed June 23, 2020.

3 Quartz.com. Justin Rohrlich. April 1, 2020. “Auto insurers are collecting billions in extra profit as Americans shelter in place’’ Khttps://qz.com/1829828/auto-insurers-make-billions-as-covid-19-keeps-people-off-the-road/ Accessed July 9, 2020.

4 Al Root. Barron’s. June 15, 2020. “Americans Are Finally Driving Again. What That Means for the Auto-Stock Universe.” https://www.barrons.com/articles/americans-are-driving-again-what-that-means-for-car-stocks-51592222401. Accessed June 23, 2020.

5 Al Root. Barron’s. June 3, 2020. “Car Stocks Are Higher Because Sales Were Only Kind of Dreadful. Here’s How Far They Can Run.” https://www.barrons.com/articles/car-stocks-ford-gm-sales-saar-may-data-51591206681. Accessed June 23, 2020.

6 Luke Lango. InvestorPlace. June 12, 2020. “The 5 Best Electric Car Stocks to Buy for the Next 10 Years.” https://investorplace.com/2020/06/5-best-electric-car-stocks-buy-next-10-years/. Accessed June 23, 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.

The information contained in this material is provided by third parties and has been obtained from sources 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.1231083C


 [KH1]Citation added.

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How Might the Economic Downturn Affect Dividends?

If a large allocation of your retirement portfolio is invested in dividend-paying stocks, you might see your household income reduced this year. During the Great Recession, dividend payouts dropped by 25% and didn’t fully recover for at least four years. Today’s financial crisis brought on by the worldwide COVID-19 outbreak has once again created a potential reduction in some dividend payments.1

U.S. dividend payers are in a sticky situation. Banks and other lending institutions saw profits drop by 50% by the end of March. These losses are expected to continue as millions of Americans continue to lose jobs and struggle to make rent, mortgage and credit card payments. Other reliable dividend payers include airlines, auto manufacturers and large retailers — also companies that have been hammered by drastically reduced consumer demand. The Chicago Mercantile Exchange recently predicted that S&P 500 index dividends will fall from 2019’s $58.24 to $47.55 this year, and even further ($42.05) in 2021. The impact on retirees could be a 27% reduction in income.2

Dividend payments — or the lack of them — may have an impact on how a company is viewed by investors. Historically, a company that paid out dividends has been considered financially stable with management that was confident about future earnings.3 Conversely, investors may interpret a reduction or halt in dividend payouts as a sign that a company is in trouble.4

Given that it took four years for dividend stocks to recover from the last recession, current retirees may want to start looking at alternative income stream ideas. However, traditional alternatives may also have drawbacks in the current economy. For example, investors may consider turning to master limited partnerships (MLPs). An MLP is a company organized as a publicly traded partnership in the natural resources or real estate sector. Historically, MLPs have been considered low-risk, long-term investments that provide a steady stream of tax-sheltered distributions to investors.5 However, the combination of falling oil prices and falling transportation demand due to the COVID-19 pandemic has put many MLPs under financial stress.6

Today’s crisis has demonstrated that some traditional sources of retirement income are vulnerable to disruption. Now more than ever, it’s important that retirees and pre-retirees develop a financial plan that takes into account their need for asset preservation strategies, growth and reliable income. If you have any questions or concerns about your own financial plan, give us a call. We’ll be happy to talk.

Content prepared by Kara Stefan Communications.

1 William Baldwin. Forbes. April 16, 2020. “How Much Will Your Dividends Get Cut?” https://www.forbes.com/sites/baldwin/2020/04/16/how-much-will-your-dividends-get-cut/#17263d3319cf. Accessed June 9, 2020.

2 Ibid.

3 Amy Fontinelle. Investopedia. May 15, 2020. “Companies That Pay Dividends — And Those That Don’t.” https://www.investopedia.com/ask/answers/12/why-do-some-companies-pay-a-dividend.asp. Accessed June 9, 2020.

4 Chad Langager. Investopedia. June 4, 2020. “Why Would a Company Drastically Cut Its Dividend?” https://www.investopedia.com/ask/answers/06/dividendpaymentcut.asp. Accessed June 22, 2020.

5 James Chen. Investopedia. Aug. 28, 2019. “Master Limited Partnership – MLP.” https://www.investopedia.com/terms/m/mlp.asp. Accessed June 9, 2020.

6 Pensions & Investments. March 24, 2020. “Pipeline funds imperiled with end of MLPs in sight.” https://www.pionline.com/private-equity/pipeline-funds-imperiled-end-mlps-sight. Accessed June 9, 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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Social Security Woes

In 2000, actors Helen Hunt and Kevin Spacey starred in “Pay It Forward.” The premise of the film is that a person repays a favor by offering small acts of kindness to more people. This concept of paying it forward leads to an exponential movement of goodwill.

Social Security works a bit like that. In other words, FICA payroll taxes collected from today’s workers are used to pay Social Security and Medicare benefits for retirees. When workers retire, their benefits will be paid by tomorrow’s workforce, and so on.1

Investing works a little like that as well. You invest money as you work and hope that the stock market will grow to produce a larger nest egg in the future. However, the stock market can be volatile, so sometimes you can lose the gains you earn and even the principal you invested. There are other ways to pay yourself forward. Call us to inquire how an annuity can provide a guaranteed stream of income during retirement. That way you can be sure that the money you pay forward definitely comes back to you in retirement.

Unfortunately, there are problems with the pay-it-forward strategy used for Social Security. One glaring issue has become evident in the wake of the pandemic. With more than 40 million people out of work, there were less FICA tax revenues paying into the Social Security system. This means that, according to some estimates, the program could be insolvent by 2030.2

Then there is the issue of sustained low inflation due to the current lack of consumer demand for goods. For most people, low inflation is a good thing. However, Social Security beneficiaries receive a cost-of-living increase only when there is a correlating jump in inflation, as measured by the Consumer Price Index (CPI). Preliminary estimates for a 2021 adjustment is little to none, given today’s current environment. This situation is exacerbated by the fact that things retirees tend to spend a greater portion of their income on, such as health and long-term care, grow much faster than the rate of inflation. Since 2000, the inflation adjustment for Social Security benefits has increased by 53%, but the cost of items purchased by retirees has nearly doubled (99%).3

Then again, we have even bigger problems than benefits not keeping up with inflation. Thanks to the $2.4 trillion (so far) stimulus passed by Congress to help offset the economic impact of COVID-19, America’s debt has risen higher than ever. While it may be necessary to provide funds for individuals, small businesses, large industries and unemployment benefits to help kickstart the economy, that debt creates a long-term challenge for the federal government.4

To reduce debt, fiscal policies will need to be changed to either raise taxes, reduce spending or both. While Social Security is funded by a separate (FICA) payroll tax, legislators may look to cut benefits in the future to reallocate more money to pay down the national debt. Recent proposals to help make the Social Security more viable include reducing disability benefits, increasing full retirement age and/or raising the payroll tax cap, currently at $137,700.5

1 Jean Folger. Investopedia. April 27, 2020. “Why Is Social Security Running Out of Money?” https://www.investopedia.com/ask/answers/071514/why-social-security-running-out-money.asp. Accessed June 1, 2020.

2 Caitlin Emma. Politico. May 19, 2020. “Coronavirus could push Social Security to insolvency before 2030.” https://www.politico.com/news/2020/05/17/coronavirus-social-security-2030-261207. Accessed June 1, 2020.

3 Alessandra Malito. MarketWatch, Inc. May 30, 2020. “Social Security recipients may be in for a rude awakening later this year.” https://www.marketwatch.com/story/social-security-recipients-may-be-in-for-a-rude-awakening-later-this-year-2020-05-12?mod=retirement. Accessed June 1, 2020.

4 Jim Sergent, Ledyard King and Michael Collins. USA Today. May 8, 2020. “4 coronavirus stimulus packages. $2.4 trillion in funding. See what that means to the national debt.” https://www.usatoday.com/in-depth/news/2020/05/08/national-debt-how-much-could-coronavirus-cost-america/3051559001. Accessed June 1, 2020.

5 Aimee Picchi. USA Today. Feb. 12, 2020. “Social Security: Here’s what Trump’s proposed budget could mean for your benefits.” https://www.usatoday.com/story/money/2020/02/12/social-security-trump-budget-aims-cuts-disabled-workers-program/4738795002/. Accessed June 1, 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. Or firm is not affiliated with the U.S. government or any governmental agency. 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. Investing involves risk, including the potential loss of principal. Any references to protection of benefits, safety, security, or guaranteed lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

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 the Pandemic Is Affecting the Real Estate Market

Research has found that over a 150-year period (1870 to 2015), owning a home has proved to be one of the most stable and secure holdings compared to other types of investments. While offering the added benefits of providing shelter and leaving it as a legacy, residential property is generally viewed as a financial asset able to withstand most crises — even a pandemic.1

For years, homeowners in many areas of the country have benefited from sustained high prices in the residential real estate market, largely due to the low sales inventory of existing homes. In early March, the housing market appeared poised for a solid spring, particularly in light of high demand and low mortgage rates.2

But all that quickly changed once the coronavirus broke out in the United States. In almost no time, the busy spring season for purchasing and selling homes was cut short by buyers hesitant to venture out — or risk their savings should they lose their jobs — and homeowners not wanting strangers traipsing through their homes. Open houses were canceled, and virtual tours became virtually the only way to check out an occupied property. Some in the industry expect this disruption and its subsequent impact on the economy to shift housing prices into a downward trend.3

For retirees, or workers planning for their retirement, owning your home can be an asset. You can sell it if you need the equity for retirement, assuming you find a cheaper place to live. Or you can draw from that equity if need be while remaining in your home. During this complex time, you have options, and it’s important that you consider all of them before taking any significant financial action.

One of the biggest problems brought on by the pandemic is that business closings, bankruptcies and job losses mean that millions of Americans do not have the money to pay their mortgage or rent. To help provide relief, some states including California, Texas, New York and Florida have temporarily banned evictions. On the federal level, a provision in the $2.2 trillion coronavirus relief package passed in March allows homeowners with government-backed mortgages to defer payments for up to a year.4

However, that doesn’t help the long-term plight of renters — or their landlords, for that matter. According to the National Apartment Association (NAA), the profit margin for many landlords is very thin, around 9 cents for every $1. Furthermore, about two-thirds of residential rental properties don’t qualify for the federal mortgage deferral because they were purchased outright or through private loans. If landlords can’t make their payments, they may lose the property and tenants could still get kicked out. And in the end, cities and counties lose property tax revenue.5

On the commercial side, the real estate market could be impacted by shelter-in-place workspaces. After all, even if things do return to normal, now that employers and employees have sampled remote work as a viable option, it could become more commonplace. This means companies may need less office space. Is it possible we could see a glut of empty office parks and skyscrapers in the future? The same could apply to brick-and-mortar retailers, as quarantining has exposed the value and convenience of online shopping to even the most diehard mall rat.

But, as usual, where there are holes in the market, there are opportunities for investors willing to take a risk. Well-capitalized commercial real estate owners may look to acquire some of these distressed buildings at bargain prices.6

Content prepared by Kara Stefan Communications.

1 Ivan Anz. Utah Business. May 4, 2020. “Here’s what real estate investors should expect after COVID-19.” https://www.utahbusiness.com/real-estate-investors-covid-19/. Accessed May 29, 2020.

2 Jacob Passy. MarketWatch. April 6, 2020. “America’s housing market is showing the first signs of trouble from the coronavirus pandemic.” https://www.marketwatch.com/story/americas-housing-market-is-showing-the-first-signs-of-trouble-because-of-the-coronavirus-pandemic-2020-04-02. Accessed June 2, 2020.

3 Ana Durrani. Realtor.com. April 29, 2020. “What Your Real Estate Agent Wants You To Know About the Housing Market Right Now.” https://www.realtor.com/advice/buy/real-estate-agent-wants-you-to-know-housing-market-coronavirus/. Accessed May 29, 2020.

4 Prashant Gopal and Oshrat Carmiel. Bloomberg. May 12, 2020. “If Landlords Get Wiped Out, Wall Street Wins, Not Renters.” https://www.bloomberg.com/news/articles/2020-05-12/if-landlords-get-wiped-out-wall-street-wins-not-renters. Accessed May 29, 2020.

5 Ibid.

6 Ariel Maidansky. MarketWatch. April 29, 2020. “The future of commercial real estate – the weak get shaken out and the strong take over whole new markets.” https://www.marketwatch.com/story/the-future-of-commercial-real-estate-the-weak-get-shaken-out-and-the-strong-take-over-whole-new-markets-2020-04-29. Accessed May 29, 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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What Might Be Next — Inflation or Deflation?

Consumer prices fell by 0.8% on a seasonally adjusted basis in April, the biggest drop in more than a dozen years, the Bureau of Labor Statistics reported. Conversely, prices for grocery items jumped 2.6%, the highest one-month increase in 46 years, with eggs rising by 16%.1

What’s going on here? Well, the devil is in the details, an important lesson to learn about interpreting data. It’s true that supermarket prices are rising, mainly because of two factors: The coronavirus pandemic has disrupted supply lines, and more Americans are eating at home and buying more groceries. Together, these factors have contributed to the tight food supply, and per the economic theory of supply and demand, when supply is low and demand is high, prices rise.2

As for the drop in consumer prices, that’s the other side of the coin. With the nationwide efforts to close businesses and shelter in place, people are simply buying less. They may be out of a job or worrying about that prospect, so they’ve been hanging onto every last dollar — buying only the necessities.

The thing about falling demand is that it requires retailers and manufacturers to drop prices to entice sales. If they can’t sell what they are producing, then they cut back production, and people lose jobs. It’s a vicious circle, and one that can lead to deflation.3

Let’s face it, both inflation and deflation can have negative effects on investment portfolios, so it’s important to take steps to help protect against those risks.4 We have strategies that can help mitigate the effects of volatility on your retirement plan. Give us a call, and we’ll help tailor a plan for your personal circumstances.

Inflation usually gets top billing when discussing the economy because rising prices over the long term cut down on how much a dollar can buy. However, a little inflation, around 2% to 3%, isn’t a bad thing. It’s usually an indicator that people have jobs, spending demand is high and companies can afford to raise prices. Deflation, in contrast, can be more concerning, as it can lead to an economic recession or depression.5

The Federal Reserve, as part of its efforts to shore up the economy during the pandemic, appears just as intent on mitigating deflation as it is inflation. In early May, Fed Chair Jerome Powell said, “As long as inflation expectations remain anchored, then we shouldn’t see deflation. Needless to say, we’ll be keeping very close track of that.”6

Content prepared by Kara Stefan Communications.

1 Anneken Tappe. CNN Business. May 12, 2020. “Prices are tumbling at an alarming rate.” https://www.cnn.com/2020/05/12/economy/consumer-prices-april/index.html. Accessed May 21, 2020.

2 David Goldman. CNN Business. May 14, 2020. “Grocery prices are soaring. Here’s what’s getting more expensive.” https://www.cnn.com/2020/05/13/business/grocery-prices/index.html#:~:text=That%20was%20the%20biggest%20increase,demand%20for%20groceries%20shot%20up%20. Accessed June 5, 2020.

3 Anneken Tappe. CNN Business. May 12, 2020. “Prices are tumbling at an alarming rate.” https://www.cnn.com/2020/05/12/economy/consumer-prices-april/index.html. Accessed May 21, 2020.

4 Paulina Likos. U.S. News & World Report. May 14, 2020. “How Inflation and Deflation Impact Your Investments.” https://money.usnews.com/investing/investing-101/articles/how-inflation-and-deflation-impact-your-investments. Accessed May 21, 2020.

5 Troy Segal. Investopedia. March 25, 2020. “Inflation vs. Deflation: What’s the Difference?” https://www.investopedia.com/ask/answers/111414/what-difference-between-inflation-and-deflation.asp. Accessed May 21, 2020.

6 Paul Davidson. USA Today. May 3, 2020. “Besides millions of layoffs and plunging GDP, here’s another worry for economy: Falling prices.” https://www.usatoday.com/story/money/2020/05/03/coronavirus-us-deflation-falling-prices-new-economic-risk/3070084001/. Accessed June 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 Pandemic’s Financial Toll on Women

In April alone, the U.S. lost more than 20 million jobs — increasing the unemployment rate to 14.7%. Researchers say one of the demographics hit hardest during the pandemic is women workers. Women tend to hold a disproportionate number of jobs in industries such as hospitality, health care and education. Consequently, the unemployment rate for women jumped to 15.5%.1

The loss of one income in a two-income household is hard enough, but if a sole provider loses their income, things are even more difficult. If this happens to you, your first consideration should be to pursue any unemployment insurance options available to you. Also know that we are available to discuss your current situation and its potential impact on your long-term financial plans. Don’t hesitate to call for guidance.

For those who have remained fully employed by working at home, many have discovered a new, unexpected dynamic: working longer hours. Studies show the American workday has now increased by nearly three hours. On top of longer work hours, an in-home office may also mean juggling the roles of elementary school teacher and all-day caretaker. While this a relatively familiar issue for some families, the inability to separate work from home life is taking a higher toll on women. A recent survey found 14% of women are considering quitting their jobs due to COVID-19-related work and family conflicts.2

Despite these challenges, women have become a powerful economic force. They control nearly a third (32%) of the world’s wealth and are increasing their wealth by $5 trillion every year. While this wealth and power is clearly not universally spread across the gender, those who have accumulated significant assets are expected to weather any short-term impacts due to the current economic decline, and rise to $93 trillion by 2023.3

Content prepared by Kara Stefan Communications.

1 Charisse Jones. USA Today. May 8, 2020. “Historic layoffs take biggest toll on Blacks, Latinos, women and the young.” https://www.usatoday.com/story/money/2020/05/08/covid-19-layoffs-take-toll-women-people-color-and-young/3094964001/. Accessed May 12, 2020.

2 Joan C. Williams. Harvard Business Review. May 11, 2020. “The Pandemic Has Exposed the Fallacy of the ‘Ideal Worker.’” https://hbr.org/2020/05/the-pandemic-has-exposed-the-fallacy-of-the-ideal-worker. Accessed May 12, 2020.

3 Anna Zakrzewski, Kedra Newsom, Michael Kahlich, Maximilian Klein, Andrea Real Mattar and Stephan Knobel. Boston Consulting Group. April 9, 2020. “Managing the Next Decade of Women’s Wealth.” https://www.bcg.com/publications/2020/managing-next-decade-women-wealth.aspx. Accessed May 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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Are the Stock Market and the Economy Out of Sync?

In normal times, the stock market is often a reflection of the economy. But these are not normal times. Even though April was marked by a global shutdown of businesses, rampant unemployment and low economic growth, the S&P 500 Index ended the month up 12.9%. This represented the highest one-month gain since 1987 and posted the fastest recovery of the fastest bear-market decline in 90 years.1

It’s been a difficult time for investors, faced with the question of whether they should sell or “stay the course.” A lot depends on where you are in your timeline for achieving financial goals. You may have lost money and then regained it. You may have lost money and chose to sell. If you are near or in retirement, and unsure what you should do now, give us a call. We have many different options available to help you pursue your goals, and will help you create a financial strategy designed for your individual situation.

While the stock market and economy have an enormous influence on each other, it’s important to recognize stock prices often are driven by irrational emotions. Moreover, stock prices are forward looking, meaning they bet on future corporate profits, which do not necessarily take into account a correlation with organic growth. A good example of this was demonstrated by the 2017 corporate tax cut. Many companies used the increase in corporate earnings to buy back stocks and/or pay out dividends rather than invest in growth or worker income.

Recent volatility in the stock market is largely a result of investor optimism that the economy will survive the pandemic, followed by pessimism that it may take longer than hoped. Much of this is driven by government actions, such as the unprecedented consumer stimulus and small business “grants,” as well as the various closing and reopening phases of economies on a state-by-state basis.2

Stimulus actions may provide short-term relief, but also present a long-term drag on the economy. Reduced demand of common products and services may help ward off inflation, but the risk of deflation is just as damaging. Deflation is caused by a sustained period of falling prices, in which lower spending causes businesses to reduce staff and wages — as if that isn’t already a problem. Since consumer spending is one of the key drivers of the U.S. economy, this could lead to a long road to recovery.3

This brings us back to the stock market, with its eccentric performance that appears driven more by investor superstition, optimism and uncertainty rather than actual fundamentals. Longer term, asset prices will presumably begin to reflect the future fortunes (or losses) of corporations. It’s hard to see a scenario in which a wide swath of companies will thrive in the near term, with certain exceptions (like whichever pharmaceutical companies develop a COVID-19 vaccine).

For now, it’s important to view your portfolio within the scope of your financial goals and timeline for achieving them, as well as your risk tolerance. It’s easy to fall under the spell that a high-performing stock market will continue despite occasional blips, or that we’re in for negative returns for the foreseeable future. Regardless of which side of investor sentiment you fall on, stock market data is the same for everyone. The only differentiation is your own personal view of what will happen next.4

Meanwhile, health experts warn of a potential ramp up of contagion in states that reopen too quickly and/or in the fall when flu season commences. Given this possibility, any moves you take right now may be short-term; your view may change again if and when this actually happens. It’s possible we could have a short-term recovery, and long-term investors may want to stay in the market for exposure to that. But no one can accurately predict when the stock market could drop precipitously again, so bear that in mind.5

Content prepared by Kara Stefan Communications.

1 John Persinos. Investing Daily. May 4, 2020. “Economy Down, Stocks Up: Why The Disconnect?” https://www.investingdaily.com/55655/economy-down-stocks-up-why-the-disconnect/. Accessed May 5, 2020.

2 Barbara Kollmeyer. Marketwatch. May 5, 2020. “This is the trap awaiting the stock market ahead of a grim summer, warns Nomura strategist.” https://www.marketwatch.com/story/this-is-the-trap-awaiting-the-stock-market-ahead-of-a-grim-summer-warns-nomura-strategist-2020-05-05. Accessed May 5, 2020.

3 Paul Davidson. USA Today. May 3, 2020. “Besides millions of layoffs and plunging GDP, here’s another worry for economy: Falling prices.” https://www.usatoday.com/story/money/2020/05/03/coronavirus-us-deflation-falling-prices-new-economic-risk/3070084001/. Accessed May 5, 2020.

4 Knowledge@Wharton. Jan. 14, 2020. “How Superstition Triggers Stock Price Volatility.” https://knowledge.wharton.upenn.edu/article/wachter-superstitious-investors-research/. Accessed May 5, 2020.

5 Matt Egan. CNN. April 16, 2020. “The stock market is acting like a rapid recovery is a slam dunk. It’s not.” https://www.cnn.com/2020/04/16/investing/stock-market-dow-jones-recession/index.html. Accessed May 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 Perks and Pitfalls of Self-Employment

Sole proprietors in the U.S. caught a huge break in April. The Paycheck Protection Program, borne out of the economic hardship caused by the COVID-19 pandemic, became available to solo entrepreneurs and independent contractors on April 10, 2020.1

According to a 2017 survey, 36% of U.S. workers are part of the gig economy.2 With so many sole proprietors contributing to today’s economy, it stands to reason that the federal government would recognize these contributions through the Coronavirus Aid, Relief and Economic Security (CARES) Act’s small-business loans and unemployment insurance provisions.

Retirement planning can be difficult when you work for yourself, especially when it comes to navigating the various retirement plan options. If you’d like help creating a strategy for income in retirement, please give us a call. We’ll work with you to craft a plan that is designed to match both your needs and business model.

One of the silver linings of the recent crisis may be a greater focus on the needs of independent workers. Following the lead of recent federal government legislation, individual states are getting in on the act. California, New York and Washington already offer paid family and medical leave benefit programs in which the self-employed can participate. Meanwhile, Massachusetts, Connecticut, Oregon and the District of Columbia also are working to establish family and medical leave programs.3

Given the recent rise in unemployment numbers, it would be no surprise to see more people consider self-employment once the economy recovers. Many people don’t like having to rely on government benefits to see them through hard times, but recent experiences have shown that traditional employment may not always be reliable either. However, there are a mountain of considerations when it comes to becoming a full-time sole proprietor.

For example, it takes a broader set of business skills. Not only do you provide the product or service that you’re good at, but you also have to learn to manage the administrative functions of your business, including accounting, marketing and sales. Some of the sad truths of self-reliance are that there are often no financial safety nets, you might work long hours — even if you are sick or caring for a sick family member — and may not be able to enjoy vacations since you are “on call” nearly 24/7, 365 days a year.4

There are perks to being self-employed, however, such as the opportunity to earn unlimited income. There are also tax deductions that self-employed individuals may qualify for and potential household budget savings on things like professional business clothes and commuting expenses.5

Content prepared by Kara Stefan Communications.

1 Elaine Pofeldt. CNBC. April 10, 2020. “Paycheck Protection Program aid opens for sole proprietorships and independent contractors.” https://www.cnbc.com/2020/04/10/paycheck-protection-program-opens-for-sole-proprietorships.html. Accessed April 30, 2020.

2 Lisa Hogan. Bloomberg Law. Sept. 17, 2019. “The Gig Economy Could Change How Employers Gear for Next Recession.” https://news.bloomberglaw.com/us-law-week/insight-the-gig-economy-could-change-how-employers-gear-for-next-recession. Accessed April 30, 2020.

3 Michelle Andrews. Kaiser Health News. March 19, 2020. “Gig Economy Workers Hurt By Coronavirus Eye New Federal Funds For Relief.” https://khn.org/news/gig-economy-workers-hurt-by-coronavirus-eye-new-federal-funds-for-relief/. Accessed April 30, 2020.

4 Holly Johnson. The Simple Dollar. April 8, 2020. “Seven Truths About Self-Employment.” https://www.thesimpledollar.com/make-money/seven-truths-about-self-employment/. Accessed April 30, 2020.

5 Greg Johnson. Dough Roller. Dec. 2, 2019. “11 Financial Benefits of Being Self-Employed.” https://www.doughroller.net/small-business/11-financial-benefits-self-employed/. Accessed April 30, 2020.

Neither our firm nor its agents or representatives may give tax 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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Gender Dynamics: Pre- and Post-Pandemic

In past recessions, industries like manufacturing and construction were often the hardest hit. For example, some economists referred to the Great Recession as a “man-cession” because at the outset, more men lost jobs than women. In some households, wives were able to find employment more often than men. The recovery, however, favored men, who regained 5.5 million jobs compared to 3.6 million jobs by women.1

Today’s pandemic-led economic crisis appears to be taking a different route: Women, to date, are taking on a larger financial toll. As society has progressed, ongoing gender inequities in income and opportunity are having a far more wide-reaching impact. That’s because today, 71% of American households with children rely on women’s income for their financial well-being.2

Going forward, it may be important for people to consider their work roles and how they might weather similar crises in the future. After all, just as we diversify our investment portfolios to help protect assets, households may need to consider alternative sources of income, such as passive income streams, either through assets or other income opportunities. Give us a call if you’d like to explore this further.

The social distancing mandates characterized by COVID-19 have resulted in higher levels of female unemployment due to their concentration in jobs that require close physical contact, such as dental and medical assistants, home health aides, hair stylists and manicurists. Women also tend to work more part-time jobs, which are often the first to be laid off, and may work jobs that do not offer paid vacation or paid sick leave. Even among women who continue to earn income during this difficult period, they are generally paid less. In aggregate, women earn 69 cents for every dollar men earn.3

With schools and daycare centers shuttered nationwide, many working mothers must stay home to care for their children — particularly since care normally provided by grandparents, friends or neighbors is discouraged or prevented by shelter-in-place orders. Among essential services workers expected to remain on the job, nine out of 10 nurses and nursing assistants are women, and more than two-thirds of workers at supermarkets and fast food chains are women — so their health (and that of their families when they return home) is at higher risk.4

Some of the problems women are facing right now go beyond the economic. With people spending more time at home, there are reports of increased domestic violence. Women also require more preventive health and reproductive care, so the suspension of regular doctor’s office and well-woman visits could lead to late diagnosis of health conditions and unmonitored pregnancies.5

Generation X women, ages 40 to 55, are particularly stretched and stressed out during this difficult time. That’s because many were already sandwiched between taking care of children at home and supporting their elderly parents. Now that they are sheltering in place while trying to juggle work and home schooling, coupled by the strain of not being able to interact socially with older parents, this is bound to take a huge toll both mentally and physically.6

On the other hand, sometimes out of the ashes of great loss rises a phoenix, and such an opportunity for women could exist in this circumstance. First is the recognition of how much women’s roles contribute to the fabric of society, in terms of income, consumerism, nurturing and vital jobs — now known as “essential services.” Many husbands at home with the kids may now be realizing the extent to which their wives juggle managing a job, raising children, taking care of elderly family members and most household duties. Hopefully this appreciation will extend beyond the pandemic and outside the household, leading to more equitable pay and policies.

And then there’s likely to be a global recognition of which countries responded best to the pandemic and prevented the most deaths and economic impact. Already, the leaders of Taiwan, Germany and New Zealand are being credited for the greatest success due to early, quick action. While only 7% of the world’s leaders are female, each of these countries is led by a woman.7

Content prepared by Kara Stefan Communications.

1Arne L. Kalleberg and Till M. Von Wachter. National Center for Biotechnology Information. April 2017. “The U.S. Labor Market During and After the Great Recession: Continuities and Transformations.” https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5959048/. Accessed April 27, 2020.

2 NBC News. March 23, 2020. “Gender economist Katica Roy: If we don’t act fast, women will bear the brunt of the financial crisis caused by coronavirus.” https://www.nbcnews.com/know-your-value/feature/gender-economist-katica-roy-if-we-don-t-act-fast-ncna1166771. Accessed April 27, 2020.

3 Ibid.

4 Knowledge@Wharton. April 21, 2020. “Why the U.S. Economic Downturn Could Hurt Women More.” https://knowledge.wharton.upenn.edu/article/economic-downturn-hurt-women/. Accessed April 27, 2020.

5 Julia Travers. Inside Philanthropy. April 28, 2020. “Women Face Amplified Risks in the Pandemic. Funders Are Responding.” https://www.insidephilanthropy.com/home/2020/4/28/women-face-multiple-challenges-in-the-pandemic-funders-are-responding. Accessed April 28, 2020.

6 S. Mitra Kalita. CNN. April 20, 2020. “Gen X women were already exhausted, then came a pandemic.” https://www.cnn.com/2020/04/20/health/generation-x-coronavirus-calhoun-kalita-wellness/index.html. Accessed April 27, 2020.

7 Leta Hong Fincher. CNN. April 16, 2020. “Women leaders are doing a disproportionately great job at handling the pandemic. So why aren’t there more of them?” https://www.cnn.com/2020/04/14/asia/women-government-leaders-coronavirus-hnk-intl/index.html. Accessed April 27, 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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