The following newsletter was originally sent to email subscribers on March 27, 2020. If you would like to receive my email newsletter once per quarter, please sign up here:
Congress Spends $2 Trillion. It Won’t be Enough.
Hello,
I hope you are all doing well, you and your family are healthy, and you are staying sane in these strange times. It has been difficult to believe the virus is as bad as we are told. Walking around Carlsbad, it seems like there is no reason for the isolation.
However, a college friend of mine’s father died of COVID-19 last week in Kansas. That along with the news coverage showing hospitals in Italy and Spain overloaded with patients make it seem a lot more real.
The number of new cases is rising here in San Diego county. It looks like a fairly steady rise and not an exponential rise at this point. Hopefully it doesn’t turn exponential.
The shutdown could continue for a lot longer than people are thinking. Wuhan has been shuttered since January and won’t be opening for another nine days. That same time frame puts us on lockdown until June 8th. The risk of having a relapse of the disease spreading will keep the lockdown policy in effect for longer than first anticipated.
Economically, things are going to get a lot worse from here. This week, 3.3 million people filed for unemployment benefits. No one is going back to work any time soon (apart from new hires at Amazon, Costco, and grocery workers). I expect the high unemployment numbers to continue. The slew of bad economic numbers that will be coming out in the next few months will trigger another round of stock selling, in my opinion. Until the trajectory of the virus is known and understood, the stock market will test the recent low. I think there will be opportunities to buy stocks in the future.
Longer term, this ordeal is going to exaggerate the wealth gap in America. The “little guy” will have a much more difficult time without earning income. I can see a lot of small businesses not reopening this summer when the lockdown is lifted.
What steps can you take now?
The stock market selloff opens opportunities for those with a long-term outlook. The amount of money governments around the world have put into the economy means the low bond yields forcing investment into stocks for returns will continue for many more years. It should be obvious that the government will do everything it can to keep the stock market going. Long-term that means you should continue to stay invested in stocks, even if it is scary at this time.
The next couple of months may be a good time to do a Roth conversion. Converting in a down market means you will get more shares for the same amount of money. If your income will be lower than expected this year, you may be able to convert a larger amount and stay within the same tax bracket.
Those who are taking required minimum distributions (RMDs) will not be required to take this year’s withdrawal. This exception is part of the CARES Act that Congress passed today. If you have enough to live on and don’t need to take your withdrawal, you should not take it this year. Leave the money in your account to grow tax deferred.
If you have Federal student loans, your interest will automatically be set to 0% for at least 60 days. If you do not want to make a payment during this time, you should contact your loan issuer and ask for a forbearance. Making a payment now means the entire amount will be applied to the principal, which will be helpful if you can afford the payment.
Now may be a good time to refinance your mortgage. There has been a lot of volatility in the mortgage market the past few weeks, but you may be able to get a good deal right now. If not, try again in a week. Things are moving that fast.
Now is also a good time to look at your estate plan. Make sure you have a Will, Power of Attorney for both healthcare and finances, and an Advance Healthcare Directive.
If you have concerns or would like me to assess your situation, please make an appointment.