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3 Financial Developments to be Thankful for in 2020

Tue, 10 Nov 2020 18:33:54 GMT

This year has been a rollercoaster ride. COVID has dominated the headlines and impacted every aspect of our lives. It has shut down businesses, schools, and workplaces. It’s changed the way we interact and socialize. And of course, it has deeply impacted the economy and the financial markets.

It can be hard in 2020 to find the good news, but there actually are a few economic developments for which we can be grateful. There’s also quite a bit of uncertainty ahead of us. As we approach the end of 2020, now may be a good time to reflect on what has transpired over the past 11 months, and what steps you may need to take to prepare for what comes next.

Below are three positive developments that you may want to consider as you prepare for 2021:

The Markets Rebound

COVID ended the longest bull market and longest economic expansion in history. The previous bull market started in 2009 and lasted for nearly a decade before crashing in just a few short weeks over February and January of this year. 1

Between February 19 and March 23, the S&P 500 fell 33.93%. Since that point, though, the markets have surged. From March 23 through October 29, the S&P 500 is up 47.94% and is nearly back to its pre-COVID levels. 2

As mentioned, though, there is still uncertainty ahead. The COVID pandemic is far from over. There’s also uncertainty about how the results of the election will impact the markets, the economy, and the country’s COVID response.

While the market's rebound is a fortunate turn of events, there’s no guarantee that it will continue. Now is a good time to evaluate your strategy and lock-in any gains before another potential downturn occurs. A financial professional can help you explore options.

GDP Surge

In the second quarter, GDP fell by 31.4%, the largest quarterly drop in history. In the third quarter, it rebounded by 33.1%, the largest quarterly gain in history. That number easily beat the previous record of 16.7% in the third quarter of 1950. 3

Much of the rebound was driven by the service industry and the reopening of much of the economy. Of course, the continuing rise in COVID cases may threaten the economic rebound. Twenty-nine states hit record levels for daily new cases in October. Forty states had an increase of 10% just in the last week of October. 4

CARES Act Financial Flexibility

The COVID pandemic and its economic fallout have created financial challenges for millions of Americans. While the government is still debating a second round of stimulus, the first round, known as the CARES Act, continues to provide financial flexibility for those facing difficulties.

As part of the CARES Act, you can withdraw up to $100,000 from your 401(k) or IRA without facing early distribution penalties. The taxes on the distribution can even be spread out over a three-year period. 5

Granted, withdrawing money from your 401(k) or IRA isn’t the best strategy for your retirement. However, it is an added measure of flexibility that didn’t exist prior to this year and it could be a blessing if you’re struggling due to the COVID pandemic.

The end of 2020 is approaching. It’s been a rollercoaster ride, but there have been some positive developments, especially in the second half of the year. Let’s talk about how to protect what you have and limit your exposure to future risk and uncertainty. Contact us today at Thomas Financial and let’s start the conversation.

1https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html

2https://www.google.com/finance/quote/.INX:INDEXSP

3https://www.cnbc.com/2020/10/29/us-gdp-report-third-quarter-2020.html

4https://www.cnn.com/2020/10/28/health/us-coronavirus-wednesday/index.html

5https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

What Does a Biden Win Mean for the Economy?

Tue, 10 Nov 2020 18:30:34 GMT

In true 2020 fashion, the presidential election has been a rollercoaster ride. On Saturday, November 7, four days after election day, most media outlets projected Joe Biden as the next President of the United States. 1

However, the call for Joe Biden didn’t come without suspense, as the country waited for days for ballots to be counted in Pennsylvania, Arizona, Georgia, and Nevada.1 As of Monday, November 9, President Trump and many members of the GOP claimed that the election had been marred by fraudulent activity, and they vowed to pursue legal options to resolve those alleged issues. 2

Barring any legal rulings that change the outcome, it appears that Joe Biden will be sworn in as the 46th president on January 20, 2021. What does a Biden presidency mean for the economy, the financial markets, and for your nest egg?

Taxes

What does a Biden win mean for the economy? It’s difficult to say. One certainty is that a Biden administration would pursue a wide range of tax increases. Biden’s tax plan includes income tax increases for those making more than $400,000 along with increases in payroll taxes, corporate taxes, and capital gains. The Tax Foundation estimates that the Biden tax plan would reduce GDP by 1.62% over the long-term. 3

COVID and Stimulus

However, there are some who think a Biden presidency could positively impact the markets and the economy. David Wessel, director of the Hutchins Center at the Brookings Institute, said that the coronavirus pandemic and any possible stimulus are the biggest near-term economic issues. 4

He added that the paths each candidate may take on those issues are substantially different. Biden is expected to push for a large stimulus package for both individuals and businesses. “In fact, that’s the scenario the stock market seems to be expecting and welcoming, even though Joe Biden is talking about raising taxes on investors,” Wessel said in an interview with NPR. 4

Energy Prices

Some also speculate that a Biden presidency may lead to higher energy prices. A recent study from GasBuddy reported that “a Joe Biden presidency would favor more environmental controls with respect to drilling and emissions, increasing fuel mileage standards, alternative vehicle power like electricity, expanded tax credits benefiting fuel efficient vehicle owners, and evolving from fossil fuels.” 5

Patrick DeHaan, head of petroleum analysis at GasBuddy, added, “Biden would end drilling, curbing U.S. oil production and end fracking, which could potentially send oil prices and thus gas prices higher.” 5

Is Biden or Trump better for the economy?

Since it’s election season, there’s always speculation about which candidate will be better for the economy and the financial markets. However, the truth isn’t so clear.

According to Michael Townsend, vice president of legislative and regulatory affairs at Charles Schwab, “Markets are not historically affected by which party wins the White House and/or control of Congress, and that seems to be the case again this year.” 6

This year has been one of uncertainty, and that will likely continue in 2021, regardless of whether Joe Biden is president or not. Let’s connect today to analyze your strategy and take action to protect you from market and tax risk. Contact us to start the conversation.

1https://www.cnn.com/2020/11/07/politics/joe-biden-wins-us-presidential-election/index.html

2https://www.theguardian.com/us-news/2020/nov/08/donald-trump-concede-legal-challenge-republicans-joe-biden-golf

3https://taxfoundation.org/joe-biden-tax-plan-2020/

4https://www.npr.org/2020/11/03/930722317/how-the-presidential-election-winner-could-effect-the-economy

5https://www.marketwatch.com/story/why-a-biden-presidency-may-lead-to-higher-gasoline-prices-11603992805

6https://www.azcentral.com/story/money/business/economy/2020/11/03/how-biden-trump-election-win-affect-stock-market/6127375002/

October Recap: Markets Stumble but GDP Surges

Tue, 10 Nov 2020 18:24:55 GMT

The recovery in the financial markets hit some turbulence in October, as investors wrestled with anxiety about increasing COVID cases. However, a surge in gross domestic product (GDP) in the third quarter may signal that the economy is on the rebound. 1

Through October 28, all major indexes had mostly recouped most of their losses from the COVID crash in March. However, all were down for the month of October. Below is each index’s return from October 1 through October 28:

S&P 500: -2.73% 2

DJIA: -4.54% 3

NASDAQ: -1.46% 4

Here are the year-to-date returns of the major indexes:

S&P 500: 0.40% 2

DJIA: -8.14% 3

NASDAQ: 21.04% 4

What spooked the markets in October? There are a few factors, but as is the case with most things in 2020, COVID may be the primary factor.

COVID Cases Ramp Up

The COVID numbers are surging in the United States, suggesting that the end of the pandemic may be nowhere in sight. On Wednesday, October 28, the seven-day average for new daily cases hit an all-time high of 71,832, an increase of more than 20% in only a week. 5

Twenty-nine states hit record levels for daily new cases in October. Forty states had an increase of 10% just in the last week of October.6 Thirty-six states had increases of at least 5% in COVID-related hospitalizations in the final week of October. 5

The surge in cases is leading to a new round of business closures and regulations. Illinois recently stopped indoor dining at bars and restaurants.7 Investors may be spooked by the prospect of a second round of closures and its impact on the economy. A new report from Yelp found that 60% of businesses that were shutdown for COVID will never reopen. 8

Stimulus Outlook

The uncertainty of a second stimulus may also be a drag on the markets. In fact, Gary Cohn, former president and CEO of Goldman Sachs and former White House National Economic Council Director, says it is a primary factor driving the markets’ poor performance in October.9

He added in a recent interview that, “no one thinks we’re going to have stimulus until after the election,” and that, “we know that the markets do not like unpredictability.” He said that there was “100% probability” that stimulus won’t happen until after November 3rd, and possibly not until after the inauguration. 9

Fund Flows

Some recent data on mutual fund flows may provide insight into how investors feel about the financial markets. Through October 21, equity funds (including mutual funds and ETFs) saw net outflows for 11 consecutive weeks. That means more money flowed out of these funds than flowed into them. 10

On the other side, taxable fixed-income ETFs have seen four straight weeks of net inflows. That may mean that investors are leaving equities for fixed income securities, even with interest rates near zero. 10

GDP Surges in 3rd Quarter

On a positive note, GDP surged by 33.1% in the third quarter, beating analyst expectations of 32%. The third quarter number is the largest quarterly GDP gain on record, easily beating the previous high of 16.7% in the third quarter of 1950. 11

Of course, the third quarter surge comes after a 31.4% decline in GDP in the second quarter. Even with the increase in the third quarter, the economy is still projected to contract by 3.5% in 2020. 11

The markets and the economy have rebounded, but the future is still uncertain. This may be a good time to explore options that can protect your assets from market volatility. Contact us today at Thomas Financial. We can help you explore these options and implement a strategy to protect your financial future. Let’s connect today and start the conversation.

1https://www.cnbc.com/2020/10/29/5-things-to-know-before-the-stock-market-opens-october-29-2020.html

2https://www.google.com/finance/quote/.INX:INDEXSP

3https://www.google.com/finance/quote/.DJI:INDEXDJX

4https://www.google.com/finance/quote/.IXIC:INDEXNASDAQ

5https://www.cnbc.com/2020/10/28/covid-cases-hospitalizations-continue-to-surge-as-us-reaches-critical-point-in-pandemic.html

6https://www.cnn.com/2020/10/28/health/us-coronavirus-wednesday/index.html

7https://www.cnbc.com/2020/10/28/5-things-to-know-before-the-stock-market-opens-october-28-2020.html

8https://nypost.com/2020/09/17/majority-of-covid-19-business-closures-are-permanent-report/

9https://finance.yahoo.com/news/stimulus-donald-trump-gary-cohn-markets-100-percent-probability-deal-wont-pass-before-the-election-214720697.html

10https://lipperalpha.refinitiv.com/2020/10/u-s-weekly-fundflows-insight-report-etf-and-fund-investors-focus-on-fixed-income-during-the-fund-flows-week/

11https://www.cnbc.com/2020/10/29/us-gdp-report-third-quarter-2020.html

What Monsters are Lurking in Your Portfolio?

Thu, 15 Oct 2020 16:14:03 GMT

It’s the scariest time of the year. Halloween is here. It’s time for trick-or-treaters, haunted houses, spooky home decorations, and more.

This may be the scariest time of the year, but it only lasts a month. The truth is there could be gaps in your investment strategy that could come back to haunt you for years or even decades. Below are a few common retirement planning mistakes that can have frightening long-term consequences. If any of these sound familiar, it may be time to meet with a financial professional.

Wrong Risk Tolerance

Asset allocation is an important part of any retirement strategy. Your allocation influences your risk exposure and your potential return. Generally, risk and return go hand-in-hand. Assets that offer greater potential return usually also have higher levels of risk. You can use asset allocation to find the right mix of assets for your goals and risk tolerance.

Having the wrong allocation can be problematic. For example, many people have less tolerance for risk as they approach retirement. As you get closer to retirement, you have less time to recover from a loss and thus less tolerance for risk. However, if you don’t adjust your allocation, you could have more risk exposure than is appropriate. A downturn could substantially impact your nest egg.

How can you make sure your allocation aligns with your risk tolerance? A consultation with a financial professional is a good first step. They can analyze your risk tolerance and your portfolio and then suggest action that can eliminate gaps and minimize risk.

No Risk Protection Tools

Asset allocation is one way to reduce risk, but it’s not the only way. You could also use tools that offer growth potential with limited downside exposure. For example, certain types of annuities offer potential growth with downside protection. You can participate in returns linked to the market without experiencing volatility and risk. Annuities aren’t right for everyone, however. Be sure to talk to a financial professional about whether they make sense for your strategy.

Impulsive Decisions

It’s natural to feel stress and anxiety when the market turns downward. Take the first quarter of 2020 for example. When the COVID pandemic began in late February, the S&P 500 declined by 33.93% in a month. You may have felt tempted to sell your investments and move to “safer” assets. However, had you done so, you may have missed out on the market’s bounce back. Since March 23, the S&P 500 has climbed 49.35%. 1

The problem with impulsive decisions to move to safety is that they can often suppress your returns over time. From 1995 through 2015, the S&P 500 averaged a return of 9.85% per year. Over that same period, the average equity investor averaged a return of only 5.19%. 2

Why the discrepancy in returns? Investors often make decisions based on emotion rather than a long-term strategy. While those decisions may feel right in the moment, they could lead to lost opportunity as the investor misses out on a market recovery. A financial professional can help you focus on the long-term and avoid decisions that may do more harm than good.

Infrequent Reviews

When’s the last time you reviewed your investment strategy with a financial professional? If it’s been a while, now may be the time to do so. A lot can change in a few months or even a year. Your goals and needs may change. Your tolerance for risk could change. Your contributions to your retirement accounts may change. This is especially true during the COVID pandemic, when economic news seems to vary on a monthly basis.

Let’s schedule a review today and find the monsters hiding in your investment strategy. Contact us today at Thomas Financial. We welcome the opportunity to consult with you and help you implement the right strategy for your needs and goals. Let’s connect today and start the conversation.

1https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_QQBhX8b3K5K-tQbo56XwCw7:0

2https://www.thebalance.com/why-average-investors-earn-below-average-market-returns-2388519

The Problem With Robo-Advisors

Thu, 15 Oct 2020 16:10:38 GMT

Technology has revolutionized every aspect of our lives, so it shouldn’t come as a surprise that tech-based investment platforms, known as robo-advisors, are becoming more popular. Robo-advisors were created in the aftermath of the 2008 financial crisis, as an alternative to traditional financial advisors and investment managers. This year, robo-advisor platforms crossed the $1 trillion threshold in assets under management. 1

These web- or app-based platforms usually use a survey to gather information about your goals, assets, and risk tolerance. Then, based on that information, the program automatically develops and implements an investment strategy. There is usually little or no interaction with an advisor, so everything is based on your answers to the survey questions.

Because there is no human interaction, the fees with robo-advisors are often lower than you might find with a traditional advisor or investment manager. However, cheaper isn’t necessarily better. There are many important functions that a robo-advisor can’t perform. Below are a few services you can’t get with a robo-advisor:

Financial Life Decisions

Your investment strategy is an important part of your financial life, but it’s just one piece of the puzzle. Many financial outcomes aren’t driven by your investment strategy, but rather the choices you make with your investments in life.

For example, how much should you contribute to your 401(k) each year? Is a traditional IRA or a Roth IRA right for you? What can you do to minimize your taxes each year? When’s the right time to file for Social Security?

A computer can’t answer these questions because it doesn’t understand your full financial picture. These questions and more are often very complex and require nuanced answers based on your unique needs and goals. Real human consultation with an experienced professional is often an effective way to find answers and develop a strategy.

Accurate Answers and Input

Like most technological strategies, a robo-advisor’s output is only as good as the input. These platforms rely on your initial answers to develop your strategy.

But what if your answers to the initial survey aren’t correct? While you may be asked about your goals or risk tolerance, it’s possible that you may not truly know the answers. Do you really know if you will retire at age 65? Do you know how you would react if the market declined by a certain percentage?

Again, a conversation with a professional can help you fully understand your goals and your feelings about risk. That way, your strategy can be based on what you truly need and desire rather than based on a quiz that took a few minutes to complete.

Protecting You from Yourself

When the COVID pandemic began in late February, the S&P 500 declined by 33.93% in a month. Did you feel tempted to sell your investments and move into cash or other less volatile assets? If so, you’re not alone. However, had you done so, you may have missed out on the market’s bounce back. Since March 23, the S&P 500 has climbed 49.35%. 2

It’s natural to feel anxious or unnerved by market declines, especially when it falls as rapidly as it did earlier this year. However, an advisor can help you look at the long-term strategy and help you determine if a change in allocation is actually warranted. A robo-advisor simply executes your order to sell without any consultation or advice. While that may be convenient, it may not be the best decision for your long-term goals.

Looking for custom advice and strategy to help you reach your biggest financial goals? Let’s talk about it. Contact us today at Thomas Financial. We can help you analyze your needs and implement a strategy. Let’s connect soon and start the conversation.

1https://www.tradersmagazine.com/news/robo-advisors-to-become-1-4t-industry-this-year/

2https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_QQBhX8b3K5K-tQbo56XwCw7:0

COVID Economic Update: Fed Chairman Says Recovery Will Take Years

Thu, 01 Oct 2020 15:02:08 GMT

On Wednesday, September 16, Federal Reserve Chairman Jerome Powell offered his assessment of the economic recovery. The press conference offered some positive news, but also a sobering prediction that a full economic recovery will take years. 1

The good news is that the Fed has cut its 2020 median unemployment rate projection to 7.6%, down from a 9.3% forecast in June. The Fed also adjusted its projected 2020 GDP reduction to 3.7%, down from a 6.5% decline that was projected in June. GDP, which stands for gross domestic product, is a broad measure of economic growth. A decline in GDP means the economy is contracting rather than expanding. 1

Powell also said that the Fed had shifted its focus to employment growth rather than inflation control. That means the Fed expects to keep interest rates at or near zero until the economy is near maximum employment and inflation is projected to exceed 2%. He added that it will likely take years before the economy has reached those thresholds. 1

While low interest rates may be good for borrowers and investors, Powell’s comments indicate that the Fed believes the economy is years away from a full recovery. He indicated that unemployment is still four times higher than the pre-pandemic level. 1

“That just tells you that the labor market has improved, but it’s a long way from maximum employment,” Powell said. 1

Stock Market Returns

The investment markets continue their recovery from the downturn that hit in March of this year. Through September 16, the indexes have the following year-to-date returns:

S&P 500: 3.39% ²

DJIA: -2.90% ³

NASDAQ: 20.19% ⁴

While the markets have mostly recovered from their losses earlier in the year, volatility can strike at any time. That’s especially true should the COVID pandemic worsen or if the economy suffers continued damage. There also may be increasing uncertainty as the election approaches.

If you're concerned about risk, let’s talk about it. There are a wide range of strategies and tools we can implement to minimize risk and protect your retirement income . Let’s connect today and discuss your needs, goals and concerns. At Thomas Financial, we welcome the opportunity to help you implement a strategy based on your objectives.

1 https://www.cnn.com/2020/09/16/economy/federal-reserve-september-meeting/index.html

2 https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_nHNjX8_WMNLKtQbPmoKICQ7:0,_BHtjX7uKPNqttQbohYywCQ7:0

3 https://www.google.com/search?q=INDEXDJX:.DJI&tbm=fin&stick=H4sIAAAAAAAAAONgecRozC3w8sc9YSmtSWtOXmNU4eIKzsgvd80rySypFBLjYoOyeKS4uDj0c_UNkgsry3kWsfJ6-rm4Rrh4RVjpuXh5AgAzsV5OSAAAAA#scso=_hH9jX4eyE5m1tAbHirPABA7:0

https://www.google.com/search?q=INDEXNASDAQ:.IXIC&tbm=fin&stick=H4sIAAAAAAAAAONgecRoyi3w8sc9YSmdSWtOXmNU4-IKzsgvd80rySypFJLgYoOy-KR4uLj0c_UNjCxMjYtyeBaxCnr6ubhG-DkGuzgGWul5Rng6AwDeg85uTgAAAA#scso=_139jX-TyCIy3tAbe4bnYBg7:0

Has 2020 Volatility Thrown Your Allocation Out of Whack?

Mon, 21 Sep 2020 17:41:11 GMT

The financial markets have been on a wild ride in 2020. The year began with a continuation of the bull market that started in 2009. The longest bull market in history, however, came to an abrupt end with the arrival of the COVID-19 pandemic. ¹

From February 20 to March 23, the S&P 500 fell by 33.67%. From that lowpoint through August 14, the index has climbed 50%. In fact, the S&P 500 has recouped all earlier losses and is now in positive territory year-to-date. ²

However, that doesn’t mean your portfolio is back where it started at the beginning of the year. Your portfolio is probably allocated across a variety of asset classes. The exact allocation should be based on your specific needs, goals and risk tolerance.

Diversification, or the allocation of funds across many different assets, helps to minimize risk exposure. If one asset performs poorly, only that portion of the allocation suffers. The loss may be offset by gains in other asset classes.

Your various asset classes are always moving in different directions. For example, consider a few asset classes and their index performance through July of this year: ³

BloomBarc US 1-5 Yr Government Idx (Short-term Government Treasuries): 4.36%

Bloomberg Commodity Index TR (Commodities): -14.80%

S&P 500 Index (Large-Cap U.S. Stocks): 2.38%

S&P 600 Smallcap (Small-cap U.S. Stocks): -14.48%

That’s just a sampling of some common asset classes that are often included in diversified portfolios. Over time, your allocation becomes out of balance. For example, your allocation to small cap stocks may have declined this year as the asset class has declined in value. Similarly, your allocation to short-term treasuries may have increased as those assets have risen in value.

The result is an allocation that may be very different than what you intended.

One strategy is to review and rebalance your portfolio regularly. In fact, you can set your account up for automatic rebalancing, so at regular periods, assets will be sold and purchased to get back to your original allocation.

If you haven’t reviewed your allocation lately, it’s possible it doesn’t align with your current goals and risk tolerance. We can help you implement the right allocation for your needs and continue to rebalance the portfolio on an ongoing basis.

Let’s connect soon and start the conversation. Contact us today at Thomas Financial .

1 https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html

2 https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_StQ2X43rM4q_tQadupGwDA1:0

3 https://personal.vanguard.com/us/funds/tools/benchmarkreturns

Fourth Quarter Preview: What to Expect for the End of 2020

Tue, 15 Sep 2020 17:26:15 GMT

It took just under five months for it to happen. On August 17th, the S&P 500 closed at 3389.78—an all-time record. That record is also significant because it means the index officially recouped all losses from the downturn that happened in March. ¹

This year has been a rollercoaster ride for investors. The S&P 500 dropped 33.92% from February 19 to March 23 as the COVID-19 pandemic hit the United States. Since March 23, the index has increased 51.51%, triggering a new bull market. ²

However, a sharp increase in the stock market doesn’t mean the U.S. economy is out of the woods. In fact, other metrics would indicate that the economy is still struggling. In the second quarter, gross domestic product contracted at an annual rate of 32.9%, the largest quarterly contraction on record. That contraction is more than three times the previous record—a 10% contraction in 1958. ³

Also, not all sectors of the stock market have participated in the recovery. The increase over the last five months has been fueled by growth in the Information Technology (IT) and Consumer Discretionary sectors, each of which are up more than 23% year-to-date. However, other sectors, particularly Financials and Energy, are negative on the year. In fact, of the 11 S&P 500 Sectors, five are still negative on the year. ⁴

The 4th Quarter is historically the best quarter for S&P 500 performance, with the index up an average of 3.51% from October through December over the past 30 years. ⁵ However, 2020 is not like other years. There are factors and risks that could threaten the market’s recovery. Below are a couple things to watch as the year comes to a close:

Election

We’re only a couple months away from the election, as if 2020 needed more uncertainty. Everyone has their own preferred candidate. However, some investment managers are saying the real risk isn’t one of the candidates winning, it’s an unclear outcome.

Bridgewater Associates, which manages more than $140 billion, recently told clients the real risk is if there is “material concern over the legitimacy of the process.” Analysis of recent options transactions show that many investors are taking protective stances through January 2021, possibly an indication they are concerned about post-election volatility. ⁶

However, UBS notes that post-election volatility is often short-lived. They point to the most recent example of an election with an unclear winner—the 2000 election between Al Gore and George W. Bush. During that time, the S&P 500 fell around 6% in the weeks after the election as litigation mounted. However, those losses were erased as soon as the election reached resolution. ⁷

COVID

Of course, the other major risk to the economy and financial markets in the fourth quarter is developments related to COVID. The pandemic is now in its seventh month. As of mid-August, the death toll in the United States exceeded 168,000, with more than 5 million confirmed cases. ⁸

The development of a vaccine in the fourth quarter could deliver a boost to the economy. The government has implemented Operation Warp Speed, an initiative to deliver 300 million vaccines by January. Moderna has a vaccine in phase 3 trials, but it is uncertain whether the company will be able to meet the government’s target date. ⁸

Ready to protect your portfolio from fourth quarter uncertainty? Let’s talk about it. Contact us today at Thomas Financial . We can analyze your needs and goals and implement a plan. Let’s connect soon and start the conversation.

1 https://www.cnbc.com/2020/08/17/stock-market-futures-open-to-close-news.html

2 https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_iyc9X5L9Eq6E9PwPt8m4mAM1:0

3 https://www.npr.org/sections/coronavirus-live-updates/2020/07/30/896714437/3-months-of-hell-u-s-economys-worst-quarter-ever

4 https://www.cnn.com/2020/08/17/investing/premarket-stocks-trading/index.html

5 https://stockanalysis.com/average-monthly-stock-returns/

6 https://www.foxbusiness.com/markets/2020-election-wall-street-stock-market

7 https://fortune.com/2020/08/18/trump-biden-stock-market-2020-election-contested-results-what-could-happen-investors/

8 https://www.washingtonpost.com/nation/2020/08/19/coronavirus-covid-live-updates-us/

COVID Economic Update: Is a Second Stimulus on the Horizon?

Mon, 31 Aug 2020 20:22:14 GMT

As the COVID-19 pandemic stretches into its seventh month, leaders in Washington are debating a second stimulus bill. On August 8, President Trump signed executive orders that extended the federal unemployment benefit, but reduced the amount from $600 per week to $400. The orders also suspended the payroll tax through the end of the year, and suspended interest on federal student loans. ¹

However, even as President Trump signed the orders, Republicans and Democrats continued to negotiate terms for a second stimulus package. Democrats support a $3 trillion package known as the HEROES Act, while Republicans have their own $1 trillion HEALS Act. ¹

It’s unclear whether the final bill will include direct stimulus payments to Americans. Both Republicans and Democrats have endorsed the idea. However, it’s difficult to predict at this point what stimulus payments may be included in the final legislation.

Market Update

Despite the uncertainty surrounding COVID, the election, and the overall economy, the financial markets continue to climb. After suffering deep losses earlier in the year, two of the three major market indexes are in positive territory. Through August 10, all index year-to-date returns are:

S&P 500: 3.53% ²

DJIA: -2.57% ³

NASDAQ: 22.24% ⁴

If you're concerned about risk, let’s talk about it. There are a wide range of strategies and tools we can implement to minimize risk and help protect your financial future. Let’s connect today and discuss your needs, goals and concerns. At Thomas Financial , we welcome the opportunity to help you implement the right strategy for your objectives.

1 https://www.forbes.com/sites/advisor/2020/08/10/does-trumps-executive-order-mean-theres-no-second-stimulus-check-coming/#170371841d71

2 https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_N64yX_KZKca7tQawrZbwAg1:0

4 https://www.google.com/search?q=NASDAQ:NDAQ&tbm=fin&stick=H4sIAAAAAAAAAONgecRoyi3w8sc9YSmdSWtOXmNU4-IKzsgvd80rySypFJLgYoOy-KR4uLj0c_UNzKtyzQyKeRaxcvs5Brs4Blr5AQkAEbRSnEgAAAA#scso=_7a0yX-q3AcyxtQbPt7HICg1:0

What's Next for a COVID-19 Economy?

Tue, 23 Jun 2020 16:29:40 GMT

The economic fallout from the coronavirus pandemic continues, even as states start to reopen restaurants, retail stores, and other businesses. The crisis brought an end to the bull market that started in 2009 and threatens to usher in a recession. 1

What does the future hold for the stock market and the economy? When will the economy recover? And how will this crisis impact your retirement and your financial future?

It’s impossible to definitively answer those questions. In many ways, this event is unprecedented. We don’t know how long the virus will present a threat, so it’s impossible to predict how or when the economy may recover.

However, it is possible to make adjustments to your strategy to minimize risk and take advantage of potential opportunities. It’s also helpful to keep in mind the long-term nature of the economy and the financial markets. Nothing lasts forever, including recessions and bear markets.

Stock Market Performance

The financial markets have been a rollercoaster since the onset of the pandemic. On February 19, the S&P 500 closed at 3386. On March 23, it closed at 2237, a drop of 33.93%. Since that time, the market S&P has climbed to 2863 as of May 15. 2

It’s important to remember that the stock market isn’t the same as the economy. A drop in the stock market doesn’t necessarily signal a recession, just like a rise doesn’t necessarily spell an economic recovery.

It’s also helpful to remember that bear markets are a natural part of investing. They aren’t always caused by global pandemics, but they do happen. There have been 16 bear markets since 1926. On average, they last 22 months and are followed by a 47% gain in the year following the market’s lowpoint. 3 We can’t predict when the market will hit its low point, or if it already has, but if history is any guide, the market will recover at some point.

Economic News

While the stock market has bounced back somewhat since its March decline, the overall economic news continues to be negative. More than 36 million people have filed for unemployment since late March. In 11 states, more than a quarter of the workforce is unemployed. 4

In the first quarter, the economy contracted for the first time since the 2008 financial crisis. GDP declined by an annualized rate of 4.8%. That’s not as steep as the GDP decline of 8.4% annualized decline in 2008. However, it’s possible the economy could face a greater decline in the second quarter. Consumer spending, which accounts for 70% of GDP, fell by an annualized rate of 7.6% in the first quarter. That’s the steepest drop for that metric since 1980. 5

While states may be starting the reopen process, there is still significant uncertainty surrounding the crisis and the economy’s future. The good news is you can take action to minimize risk. Contact us today at Thomas Financial Services. We can help you analyze your goals and needs and implement a strategy. Let’s connect today and start the conversation.

1 https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html

2 https://www.google.com/search?safe=off&tbm=fin&sxsrf=ALeKk01UjyvpIcf62vDAgyulZ3dZuL1GWg:1589832165005&q=INDEXSP:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyevq5uEYEB1gp6Hn6RQAAItD1MEkAAAA&sa=X&ved=2ahUKEwikycWrmr7pAhWWU80KHfhUBrcQlq4CMAB6BAgBEAE&biw=1536&bih=754&dpr=1.25#scso=_JerCXv0o9o70_A-NwLLYBg1:0

3 https://www.fidelity.com/viewpoints/market-and-economic-insights/bear-markets-the-business-cycle-explained

4 https://www.nytimes.com/2020/05/14/business/economy/coronavirus-unemployment-claims.html

5 https://www.npr.org/sections/coronavirus-live-updates/2020/04/29/847468328/tip-of-the-iceberg-economy-likely-shrank-but-worst-to-come

Investing After Retirement: Tips to Protect Your Nest Egg

Tue, 16 Jun 2020 05:00:00 GMT

Saving for retirement can often feel like climbing a mountain. It takes immense planning and discipline to reach the summit - the moment when you can finally retire and leave the working world behind.

Much like climbing a mountain, though, the summit isn’t the end of the story. You still have to get back down the mountain. Often, climbing down the mountain can be more dangerous than the ascent. It requires just as much planning and focus.

The same is true of continuing to grow your savings after retirement. Technically, you’ve reached the summit and retired, but you still have a long way to go. According to the Society of Actuaries, a 65-year-old man has a 50% chance of living to 87 and a 25% chance of living to 93. For a woman, those ages are 89 and 95. 1 If you retire in your mid-60s, it’s very possible that you will live another 20 to 30 years.

How do you make your savings and income last for that period of time? Your strategy should be based on your unique needs and goals, but there are a few good practices to keep in mind. Below are a few tips to keep in mind:

Be mindful of inflation.

Inflation is the increase in prices of goods and services. Annual inflation is usually modest. In fact, it hasn’t exceeded 5% since the 1980s. 2

Even modest inflation can impact your strategy over the long-term, though. Consider an average 3% inflation rate. Over 24 years, that means a doubling in prices. Could you afford to see your expenses double throughout retirement?

A strategy that leaves room for growth potential can help offset the effects of inflation. As your assets grow, you may be able to take increased income to cover the increase in prices.

Many retirees opt for strategies that have little risk exposure. However, it may be wise to allocate some portion of your savings to assets that offer growth potential so you can keep up with inflation. A financial professional can help you find the right mix.

Take the "Goldilocks" approach.

Do you remember the story of Goldilocks, the girl who finds her way into the home of a family of bears? She tries their porridge, their chairs, and even their beds until she finds the one that is just right.

A “Goldilocks” approach to growing your savings may not be a bad idea, especially after retirement. Don’t look for the portfolio that offers the most return or the least risk. Rather, look for the mix that is “just right” for your needs and goals. For instance, it may be that your “just right” strategy is one that limits risk but also offers growth potential and consistent income. A financial professional can help you find your “just right” strategy.

Have a withdrawal strategy.

If you’re like many retirees, you’ll receive Social Security and possibly even a defined benefit pension in retirement. But you also may need to take withdrawals from your savings to supplement those income sources.

What’s the right amount of income to take? If you take too little, you may not live the type of lifestyle you desire. Take too much and you could drain your savings. Before you enter retirement, you may want to plan your income strategy. Determine the right level to take without draining your savings.

Also develop backup plans. For example, how will you adjust your income if your investments decline? What if you have a costly emergency? How will you cover that expense? Should you look at tools to guarantee* your income? Again, a financial professional can help you answer these questions.

Ready to develop your post-retirement strategy? Let’s talk about it. Contact us today at Thomas Financial Services. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

1 https://www.fidelity.com/viewpoints/retirement/longevity

2 https://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx

*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. 20113 - 2020/5/26

Are "Penalty-Free" 401k Withdrawals Free?

Wed, 03 Jun 2020 17:55:12 GMT

On March 27, the government passed the Coronavirus Aid, Relief, and Economic Security Act, otherwise known as the CARES Act. The Act had a wide range of provisions to provide Americans and small businesses with economic support during the coronavirus pandemic. The bill provided stimulus payments, enhanced unemployment, and various forms of business loans.

One provision that flew under the radar was the ability for qualified individuals to take distributions from their 401(k) plans and IRAs without paying early distributions penalties. Normally, you face a 10% early distribution penalty if you take a withdrawal from these accounts before age 59 ½. 1

However, under the CARES Act you can take up to $100,000 as a penalty-free distribution from your qualified accounts, assuming you are a qualified individual.2 Are you qualified? And even if you can take a distribution, is it wise to do so?

CARES Act Qualified Plan Distributions

Under the CARES Act, you can take up to $100,000 in qualified plan distributions if you are a qualified individual. Who is qualified? Anyone who meets the following criteria:

You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;
You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;
You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or
You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19. 2

If you meet any of these criteria and you decide to take a distribution, you won’t have to pay the 10% early distribution penalty, even if you are under age 59 ½. However, you will still have to pay income taxes on the distribution. You can spread the taxes out over a three-year period, but you still have to pay them. 2

Should you take a CARES Act distribution?

A CARES Act distribution may be the right strategy if you are in a financial crisis and have limited avenues available for relief. However, just because the distribution is “penalty-free” doesn’t mean it comes without consequences.

In addition to paying taxes on the distribution, you’ll also forego any future growth on the assets you withdraw. Tax-deferred growth is one of the biggest advantages of a qualified account. However, if you pull out funds, you lose all future tax-deferred growth on that amount. That could lead to a substantial reduction in your future assets at retirement.

Instead of dipping into your 401(k) or IRA, consider what other options you may have available. For instance, perhaps you could tighten your budget. Maybe you could refinance mortgages or other loans, or even renegotiate new payment terms. You may even consider picking up additional work until the crisis passes. It may be tempting to take an IRA distribution, but you’re only taking money from your future self.

Let’s talk about strategies to help you get through this period. Contact us today at Thomas Financial Services. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

1 https://www.irs.gov/newsroom/what-if-i-withdraw-money-from-my-ira

2 https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers