May 2020 Newsletter
May 2020
Thank You
During these extraordinary times, I think we all have had reason—and certainly the time—to pause and reflect. I’ve been reflecting on when I started in the financial services industry and what motivated me then. It was the reward I felt in helping others.
From the beginning, I felt that if I kept to my values of putting clients first and always being honest and forthright, in time, my company would grow. I feel very fortunate to have enjoyed the success we have experienced. I owe a great deal to everyone who helped us grow: to my parents for letting me work out of their basement, and behind the scenes our broker dealer team and our marketing team. Of course, to my brother Matt for really stepping up our financial planning services and getting his CFP, and to our employees Karla and Danny for all they do every day so we can all work as a team to help our clients. And I can’t leave out my wife Sara, who has to put up with me every day (and even more now in quarantine!). She has had to do a lot of kid’s bedtimes on her own as work has me traveling or in meetings late, and it doesn’t go unnoticed or unappreciated.
I also want to extend a special message to our many clients who are on the front lines during this current crisis. To our doctor and medical professional clients, and you who are first responders and military: thank you. To our clients who are volunteers and nonprofit employees: thank you. To our clients that work in other essential industries, such as our teachers, pilots, mechanics, mail delivery and the food industry, to name a few: thank you. I hope it’s clear how much we value you.
I am on the phone a lot these days and talking to so many people. It’s reassuring to hear all of the “silver linings” and the thoughtfulness and willingness of people to help one another get through these times. Certainly, these are trying times, and we feel for everyone affected, but I do believe that together we’ll get through this. Hopefully, we’ll even come out stronger than ever and with some new perspectives and values.
I’m grateful that what motivated me when I started in this business—helping people—is still what motivates me today (and during these crazy times, I feel it perhaps more than ever!). And, because of you, I have the opportunity to keep on doing it. So, as I close this note, I want to say a big thank you to you, all of our clients and friends. We really appreciate your trust in us and how you’ve helped us grow, and we hope you know we’re always here to help you, too.
Thank you,
Nate
Market Update
Well, where should we start? There’s a lot to unpack here.
In the first quarter of 2020, the S&P 500 (SPX) dropped 23.8%, marking the worst 1st quarter return in the history of the stock market1. Even that statistic, though, doesn’t fully encapsulate the devastation that we witnessed. Many define a bear market as a 20% drop in stocks and, while we think this arbitrary line in the sand is silly (a discussion for a different day,) the metric can be useful as a measuring stick for how the pullback we saw in Q1 compares to past corrections.
In previous declines, it has taken the market an average of 255 trading days to fall 20%. In Q1, it took the SPX just 17 days to reach this benchmark. This beat the previous record of 36 sessions, which happened back in 19292. And, as we know, things didn’t end at 20%. In all, the SPX dropped 35.4% from its peak on February 19th to the bottom on March 23rd. For some perspective on that, consider that in the 2008 financial crisis, it took 250 days for the market to reach the -30% threshold3.
The swiftest decline in market history was then met with one of the biggest rallies on record. In the 20-day period from March 23rd to April 20th, the SPX gained 22.5%—the second biggest 20-day rally of all time4. By the time it was all said and done April closed with gains of 12.7%, good for the best monthly gain since 19875.
So what does all this mean for you?
We understand that trying to process what all this means can make your head swirl, but we feel there are a few vital lessons to be learned (or re-learned):
Lesson 1
Once again, the market has shown us that trying to time things is a fool’s errand. Certainly, there are participants who were able to sell before the worst of the pullback set in, but were those people able to buy back at the bottom?
The selling stopped on March 23rd and the very next day the SPX rallied 9.4%. Two days after that, it rallied 6.2%. Since that March 23rd bottom, stocks have moved aggressively higher to the tune of 28.2%. This move serves to punish those who sold on the way down and then hesitated even a little to buy back in.
To that point, we’re reminded of another vital lesson.
Lesson 2
The market is forward-looking, it’s not trading on what is happening today, but on what it expects to happen in the future.
Now what?
We believe it’s now time to look forward: what do we expect to happen and how do we plan for it? This is obviously extremely hard to say. We are dealing with a global threat, the likes of which hasn’t been seen in over 100 years. There are so many factors to consider, all with immense unknown variables.
Can we find/develop a robust treatment for the virus? Will we be able to adopt strong contact tracing measures? What might widespread serological (antibody) testing show in terms of potential herd immunity? How much reopening of the economy will lead to spikes in Covid cases? Will the virus actually fade in the summer? If so, how strongly might it come back in the fall? When will a vaccine be widely available? The reality is that even in the best-case scenarios of these questions, there’s probably a limited chance of us going back to “normal” for quite some time, and to some degree, many aspects of our lives might never be the same.
The importance of staying the course
We understand that investing in the face of this uncertainty can be a scary proposition but, historically speaking, these times don’t last forever. Previously, those who stuck with their plans and kept investing came out the other side of bear markets looking smart. We need to remember that stocks tend to do quite well following corrections.
Consider again the statistic shared above, regarding the strength of the market rally from March 23rd to April 20th. The ten largest 20-day gains in market history saw the S&P 500 continue to move higher over the next year ten out of ten times6. While of course, this is not a guarantee that stocks will be higher than current levels a year from now, we share this information to reinforce that we firmly believe staying invested and sticking to your plan is the proper course of action.
If you have any questions or want to discuss this further, please don’t hesitate to reach out.
Understanding the CARES Act
In late March, Coronavirus Aid, Relief, and Economic Security (CARES) Act passed Congress with bipartisan support and was signed into law. This economic relief package delivered $2.2 trillion to workers, families, and small businesses.
There has been a lot of public discussion around the benefits offered by the CARES Act and, if you’re not already aware, we think it’s important for you to be aware of key provisions of the law as its impact is far-reaching.
What the CARES Act Offers Individuals
Cash Payments
The CARES act has several components meant to assist individuals and families while also attempting to keep people engaged in economic activity.
Cash payments being sent by the government is coming close to “helicopter money” we studied in college economic classes.
Most individuals making less than $75,000 should expect to receive a cash payment of $1,200. Couples making less than $150,000 can each expect payments of $1,200. Families will get an extra $500 per child. Phase outs begin at income above these thresholds and do not apply if income is in excess of $99,000 individually or $198,000 as a couple.
The IRS has a helpful website that allows you to check your payment status, as well as provide banking information to have the funds direct deposited into your account. Access the website here.
Tax filing deadline delayed
The due date for filing federal income tax returns has been postponed until July 15, 2020. This also provides an opportunity for individuals to make 2019 IRA contributions until July 15th.
Waiver of RMDs
The Cares ACT temporarily waves 2020 required minimum distributions (RMDs). This is beneficial as RMDs for 2020 would be based on 2019 year-end values, so taking RMDs could have meant selling more shares at declined prices. We should note, the stock market has recently recovered substantially, which would have helped mitigate this issue as well.
Please contact us if you have questions pertaining to distributions from your IRA account.
Waiver of early distribution penalty
Typically, most distributions from IRA accounts prior to age 59 1/2 are considered premature and result in a 10% early withdrawal penalty (outside of certain exceptions). The CARES act waives this 10% penalty on distributions up to $100K in certain situations for individuals impacted by the current pandemic.
If you’re planning to take a premature distribution, please do contact us. It’s also important to consult your tax professional.
What The CARES Act Offers Workers
- More people qualify for unemployment benefits. Qualified applicants have expanded beyond W2 workers to include self-employed and 1099 workers, as well as part-time workers and someone who has already exhausted their unemployment benefits.
- Benefits have increased an additional $600 per week through July 31, 2020.
- Benefits will last longer with the CARES Act allows for an additional 13 weeks of benefits beyond what’s defined by your state.
- Waiting periods may be waived. Normally, states require a one week waiting period between the time you lose your job and when you can collect unemployment. While the CARES Act doesn’t require the individual states to waive this waiting period, it does strongly encourage it—in fact, the feds are actually funding all benefits paid by states for that waiting period.
What The CARES Act Offers Small Businesses
- The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
- This loan has a maturity of 2 years and an interest rate of 1%.
- The loan is forgivable if 75% of the loan value is used on payroll expenses.
- No collateral or personal guarantees are required.
Have more questions? Please call us at (847) 607-4976 or contact us.
Retirement Updates: The SECURE Act
On December 20, 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The law came into effect on January 1st of 2020. The Act, part of an eight-bill, $1.4 trillion spending package, impacts investors and savers in a number of different ways.
Here are some of the most notable changes, and how those changes could impact our clients:
1. The Required Minimum Distribution and Contribution Age have both been raised.
The Act changes the required minimum distribution (RMD) age to begin in the year the taxpayer turns 72 (up from age 70 ½). This adjustment will allow account holders to continue to defer their taxes for an additional year and a half before being forced to withdraw funds—and pay taxes on those withdrawals. The 70 ½ age was based on life expectancies in the early 60s and hadn’t been updated since.
The bill also eliminates the maximum age for traditional IRA contributions, which had been capped at 70 ½. As we’re living longer, more and more people continue to be employed into their 70s; therefore, account holders are now able to contribute to their IRAs as long as they have earned income.
*It’s important to note that those who turned 70 ½ in 2019 will still need to take their RMDs in 2020.
2. Inherited IRA distributions must now be taken with 10 years.
Previously, if you inherited an IRA or 401(k) you could stretch your distributions and tax payments across your life expectancy. Now, if the owners pass away on or after January 1, 2020, beneficiaries are required to withdraw those assets within 10 years following the death of the account holder. There are no minimum distributions, but the entire balance must be distributed after the 10th year.
Exceptions to the 10-year rule include assets left to a surviving spouse, a minor, a disabled or chronically ill beneficiary, and beneficiaries who are less than 10 years younger than the original account owner.
*If you have an IRA that, based on prior rules, you planned to leave to beneficiaries, you may consider reevaluating your estate planning strategy. Contact us to discuss your options.
3. Parents can withdraw funds from retirement accounts penalty-free upon birth or adoption of a child.
The SECURE Act allows for a one-time penalty-free withdrawal of up to $5,000 from an applicable defined contribution plan like a 401k or IRA. The 10% early withdrawal penalty does not apply to these withdrawals and the distribution is treated as taxable income. Each parent can make their own $5,000 withdrawal within one year from the date the child is born, or adoption finalized.
4. Funds in 529 college savings accounts can now be used for student debt.
In cases where a family has money remaining in their 529 college savings account upon graduation, those funds can be used to pay up to $10,000 of the student’s accrued debt. The law also allows for funds in 529 plans to be used to pay for certain apprenticeship programs, again up to $10,000.
5. Grad students and care providers can now contribute to IRAs.
Previously, contributions to a retirement account couldn’t exceed earned income. This prohibited graduate and post-doctoral students receiving stipends from contributing. Similarly, payments received by foster care providers of disabled people in their homes didn’t qualify either. For purposes of IRA contributions, this compensation is now qualified.
6. New advantages for small business owners to set up retirement plans.
The Act allows for small businesses to band together in order to offer Multiple Employer Plans (MEPs.) Additionally, employer-sponsored plans will now be available to long-term part-time workers. The Act drops the threshold to contribute to these plans to either one full year with 1,000 hours worked, or three consecutive years of at least 500 hours worked.
Employers will now receive a tax credit to offset the costs of starting a 401(k) plan or SIMPLE IRA with “auto-enrollment”, on top of the start-up credit they already receive.
Have more questions?
If you have any questions about the SECURE Act or your retirement plan, we’d love to help. Please call us at (847) 607-4976 or contact us.
The Kuhn Wealth Kids Charity Challenge
Since COVID-19 has come into our lives, we at Kuhn Wealth have been grappling with how to contribute. We want to help, and we want it to be meaningful.
We feel strongly that one benefit of being intentional with your financial planning is that you can purposefully build in the ability to give back. We also have clients who are doctors, nurses, mailmen, and more who are on the front line, and we can contribute for both immediate needs and those when it comes time to rebuild.
That’s why we’ve decided to give $5,000 to charity—and we want your kids, grandkids, nieces, and nephews to help decide where to send it!
Charitable giving is a learned behavior, not an inherent trait. To instill this in our children, they must be informed. Right now, a lot of people need help. Let’s teach this to our kids—with the bonus being that it will give them a fun activity to do!
How it works
- We’ll split $4,000 of the donation between four non-profit organizations:
No Kid Hungry
Operation Hope
Doctors Without Borders
Metropolitan Family Services
- Ask the child to complete one of the following activities:
- This charity worksheet
- Watch this video (for younger children)
- Explore the websites of each non-profit (click the names above)
- Talk to them about the non-profits we’ve selected and the benefits of their missions.
- Then, ask the child to write a short letter or record a video telling us which organization they would choose to donate money to and why they think this charity is important, especially as it relates to what’s going on with the pandemic. SUBMIT YOUR ANSWERS HERE.
- For every response we receive, we’ll donate an additional $20 to the non-profit the child has selected! Up to $1,000.
The deadline to submit is June 1, 2020.
(But let’s do it faster than that, ok?)
We hope this will be a fun, educational, and inspiring project, though there’s absolutely no pressure to participate—it will be what we each want to make of it! And since we think it’s important for the kids to see how their efforts are paying off, we’ll share our progress along the way.
We need 50 kids to pitch in to donate that extra money. Will yours be one of them? We hope so!
Please let us know if you have any questions. Thanks for helping us make a difference.