March 2020 – Financial Crisis and the Prudent Investor

Financial Crises and the Prudent Investor. This issue of Investment Guide is dedicated to guiding readers through the financial disruption resulting from the ongoing coronavirus pandemic. We begin by summarizing those portions of the federal government’s economic stimulus package that are most relevant to household investors. The article that follows, “Covid-19: Are Stocks on Sale?” provides a reminder of what drives stock prices and how those prices have been affected by the epidemic. A second article describes several steps you can take to seize certain financial planning opportunities that have emerged.

Government Stimulus
The Coronavirus Aid, Relief, and Economic Security (CARES) Act aims to boost the economy with over $2 trillion in relief, ranging from individual rebates and small business loans to increased unemployment benefits and a wide variety of tax breaks.

Direct Stimulus to Households
The part of the package that will most directly impact the finances of everyday Americans are the direct payments to adults with valid Social Security numbers.

Payments to adults: Single adults with adjusted gross income (AGI) less than $75,000 and married adults with adjusted gross income less than $150,000 will receive 1,200 per adult. Amounts will be reduced for people with income above these thresholds. It is phased out entirely for single adults making more than $99,000 and married couples making more than $198,000. If you’ve already filed your 2019 taxes, you can look at line 8b on your form 1040 for your AGI. Payments for dependent children: Households will receive $500 for each dependent child under age 17.

Example: A married couple earning $100,000 with two children will receive $3,400.

When is it expected? According to Treasury Secretary Mnuchin, payments are expected within three weeks.

How will it get to me? If the IRS has your bank account information, they will transfer the payment directly to you via direct deposit. A word of caution – scammers are posing as the IRS and using the opportunity to reach out to people and try to steal personal information. Be extremely diligent and suspicious if anyone reaches out to you for personal information.

Business and Investor Relief Lending Program: For investors in the stock market, perhaps the most significant piece of the stimulus package is the $500 billion in loans that will be available to U.S. businesses (there are restrictions regarding qualifying businesses and how the principle can be used). This provision has already impacted the stock market positively. As an example of how this impacts investors, look no further than Boeing, whose stock price fell from more than $330 per share at the beginning of the year to $95 on March 20. As the nature of the stimulus became clear and its likelihood grew more apparent, the price increased to almost $180 at the close on March 26, only four trading days later.

No RMDs for 2020: Another key provision is that retired IRA owners who have not yet taken their 2020 required minimum distribution will not be required to do so. This reduces the risk of liquidating retirement assets at depressed prices and will reduce taxes for IRA owners that can afford to draw income from other sources.

Retirement plan cash for emergencies: The bill waives the 10 percent penalty on early withdrawals from qualified retirement plans such as 401(k)s for people affected by the Coronavirus. Investors should avoid such “hardship” withdrawals if taxable accounts are available. However, should you need to withdraw in 2020, this new provision
will soften the blow.

Unemployment Benefits
Unemployment claims spiked by more than 3 million for the week ending March 26. States offer unemployment benefits that range from $265 to $681 per week, depending on the state.

The federal pandemic unemployment benefit will be an additional $600 per week, more than doubling what most people get from their state. The legislation is not perfect; some unemployed workers stand to gain benefits that exceed their paychecks while working while others will receive far less.

Benefits will be available for 13 additional weeks, up to a total of 39 weeks of benefits in certain states. In addition, many “gig” workers, freelancers, and independent contractors will also be eligible for benefits.

Other Provisions
• A $300 “above-the-line” deduction for charitable donations for filers who take the standard deduction.
• The temporary suspension of student loan repayments and accrual of interest,
• Loans for small businesses (those with fewer than 500 employees),
• A tax credit for retaining employees for businesses forced to suspend operations,
• A requirement of group health plans to cover preventative services related to Coronavirus,
• A delayed payroll tax for employers,
• A delayed deadline to obtain a REAL ID,
• Additional funding for hospitals,
• New protections against foreclosures,
• Additional funding for food assistance,
• Money for evacuations of Americans visiting other countries, and
• Funding for Peace Corps, diplomatic programs, international disaster relief, refugee assistance, and USAID

Also in This Issue:
COVID-19: Are Stocks on Sale?
Opportunities for the Poised Investor
Beware: Cyber-Criminals are Exploiting COVID-19 Fears
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield
Asset Class Investment Vehicles