First Quarter Newsletter
Responsible Guidance: First Quarter 2020 Newsletter, April 2020
First and foremost, we hope everyone is healthy and has all the supplies they need to stay safe. If there is anything that you think we might be able to help with, please ask. Baron's Toll-Free number is 866-333-6659. Each team member's email can be found on our website (www.baron-financial.com) by clicking on the respective team member's name under "The Team" tab. At Baron, we are all working remotely from home and have access to all our resources and maintain full ability to service our clients, except for in-person meetings. Phone and video conferences continue to remain options for meetings.
For this newsletter, we are going to use a different format, but expect to return to our normal reporting for our next letter. We will have four sections: Coronavirus Aid, Relief, and Economic Security (CARES) Act, Paycheck Protection Program (PPP), Your Personal Economy and a brief section on Market Activity and Baron Investment actions.
The following is a summary of information related to the Coronavirus pandemic and is not to be considered advice. Please note that the information is on a best effort's basis and may not be all inclusive. The situation is dynamic, so please verify any information for you personally, before taking any actions.
Coronavirus Aid, Relief, and Economic Security (CARES) Act
On March 27th, the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It is estimated that CARES will provide $2 Trillion in economic stimulus. Here is how it might impact you and your family:
It is believed that all costs for testing and potential vaccines for Coronavirus will be covered at no cost to patients.
Direct Payments/Recovery Check
If you are a U.S. resident, cannot be claimed as a dependent on anyone else's tax return, have filed a 2018 or 2019 Federal Tax return, have adjusted gross income under $75,000 ($112,500 for head of household and $150,000 married) and have a work-eligible Social Security number (SSN), you are eligible for the total $1,200 ($2,400 married) rebate. If income is greater than the above levels, the rebate is reduced by $5 for each $100 in income. The total amount is phased out for single people earning over $99,000, $146,500 for head of household with one child and $198,000 for joint filers with no children. For a family of four or more, no rebate will be given for adjusted gross income amounts exceeding $218,000. If you have dependent children under the age of 17, you may also be eligible for a $500 credit per child. There are restrictions with this credit as well. These amounts are not considered to be income.
If you are unemployed, additional benefits have been approved. Also, coverage has now been extended to cover more workers such as self-employed and independent contractors. For the next four months, eligible unemployed workers will receive an additional $600 per week, above and beyond the standard benefits.
Use of Retirement Funds
Please review with us or an advisor before withdrawing these funds. In most cases, other funding options should be exhausted before using these funds.
Eligible withdrawals of up to $100,000 may be able to avoid the 10% penalty (typically applied to those under age 59 ½). Also, any normal taxes (withdrawals are taxed at ordinary income rates), may be eligible to be spread over 3 years. There is also a 3-year period where you may be able to roll the amount back into the plan/account.
For plans that allow loans (typically 401(k) plans), limits may have increased. Check with your participating plan sponsor.
Required Minimum Distributions (RMDs)
There is reporting that RMDs have been suspended for 2020. There is some confusion about what happens to those who have already taken the distribution or how inherited accounts will be impacted. Unless you have an immediate need for the funds, we would recommend waiting until later in the year when there may be more clarity to the treatment of RMDs. You may remember that at the start of the year, RMDs were extended for those who had not yet turned 70 ½, pushing the new age to 72. However, inherited IRA accounts established in 2019 and after, now have a 10-year max life where all withdrawals must be taken within that time period.
Tax Return Filing Deadlines Extended
The deadline for filing 2019 Federal Tax returns has been extended to July 15, 2020. Most states, including New Jersey, have adjusted to the Federal-filing date, but you should verify with your accountant. Florida residents typically do not need to file a state tax return, but again, you should verify with a tax professional.
Debt payments on eligible Federal Student Loans, held by the U.S. Department of Education, will be suspended for 6 months and interest payments waived until September 30, 2020. You should verify this information with the appropriate parties as it is related to your specific situation. It may also be worth it to explore student-loan payments through your employer.
Itemized charitable contributions may offer greater tax benefits and eligible contribution limits have been changed. Please review your specific situation with your tax professional.
Other Tax Items
There may be other changes to tax laws and rules, mostly related to itemized deductions, that are not listed here. As always, it's best to check with your tax professional for your personal circumstance, or as we say, your Personal Economy.
Paycheck Protection Program (PPP)
What Is It?
The Paycheck Protection Program is set up as a loan program to be accessed by small businesses, in an effort to maintain employees on their payroll. The program is offered through the U.S. Small Business Administration (SBA). We highly encourage all small business owners to investigate this program.
How to Access
Actual funding is offered through existing SBA lenders, federally insured depository institutions, federally insured credit unions and Farm Credit Institutions that are participating. There is a standardized form (which is updated from time to time, so make sure you have the current form), plus other required information. We would recommend working with your accountant and banker to determine access and availability to this program.
Loan Details and Forgiveness
Loans mature in 2 years and interest is approximately 1%. Loan Payments are expected to be deferred for 6 months and there is no need for collateral or personal guarantees. There should not be any additional fees charged by the government or lenders associated with the loan.
There is potential for a portion of or all of the loan to be forgiven, but there are restrictions. The forgiven amount will only be determined for funds used for payroll costs, interests on mortgages, rent and utilities. Also, at least 75% of the forgiven amount must be used on payroll. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Other restrictions may apply.
Your Personal Economysm
We are reviewing investment strategies and taking investment actions, some of which are listed in the following section. Also, we regularly review client financial plans, but need to hear from you when things change in your financial lives. Updating your plan will help provide guidance as to the potential path your Personal Economy may take during different financial environments. Having a plan, understanding potential outcomes and having an action plan to deal with those outcomes can actually reduce stress and bring confidence during challenging times. We encourage you to work with us to help keep you on track financially.
Liquidity is important. For our clients who use their investment portfolio to supplement lifestyle needs, we hold 6 months to 18 months' worth of cash needs to meet withdrawals. We call this our Paycheck System. This means that the cash needs for these clients, depending on time frames, are kept out of the capital markets and protected from volatility. Additionally, for all clients, most investments are set to pay dividends and interest to cash (instead of automatically reinvesting) and clients who have individual bonds and CDs will see their cash positions grow when these mature. So, cash dividends, cash interest payments and bonds maturing help replenish portions or all of their cash cushions (cash needs). Rebalancing is the action that puts everything in place and maintains the total cash cushions needed.
Another option for liquidity can be your Home Equity Line of Credit (HELOC). Over the years, we have encouraged clients with homes to establish a HELOC to be used as a possible resource for unexpected liquidity needs. As with any loan, you should be careful about how and why you are accessing it.
Though you may know the stock market is down so far this year, do you also know interest rates are down as well? That means, if you are a homeowner with a mortgage, it is time to review your mortgage versus current mortgage loans available. You may be able to lower your interest costs, extend the mortgage for liquidity or shrink the mortgage time frame to reduce overall long-term costs. If you need help reviewing your current mortgage versus what is available, please let us know.
Market Activity and Baron Investment Actions
Below is a chart of performance of benchmark indexes that we regularly follow for the first quarter of 2020. As you probably know, it was one of the worst quarterly performances for global equities on record.
In general, Investment Grade Domestic Bonds were the lone bright spot in performance for the first quarter of 2020. We think this provides strong evidence why high-quality fixed income is an essential component for most investment strategies.
With the strong performance in 2019 for most all asset classes, especially stocks, followed by the quick and significant sell-off in most asset classes in the first quarter of 2020, we have been very active with trading. We encourage clients to review not only recent activity, but the transactions that took place in December of last year, as well as January and February of 2020.
Every client's situation is different, but there were opportunities for many clients to reduce stock exposure earlier in the year, after solid performance in 2019. For those with taxable accounts, this may mean that we recognized taxable gains. We did not know the correction was coming in March, but any actions taken to reduce stock or equity exposure or improve equity investment choices, prior to March, appear to have helped reduce volatility clients may be experiencing. With most asset classes turning negative in March, we are now taking advantage of any opportunity to take losses, if available. In most cases, we are not reducing stock exposure with these actions. If there is an opportunity to take losses with stocks, we typically can find comparable investments to maintain or increase exposure, where needed. Collectively, we refer to these actions as rebalancing and tax-loss harvesting. Please review the specific actions in your portfolio and let us know if you have questions.
In addition to the actions we are taking with your portfolio, Baron is continuing in our philanthropic efforts to aid our community. We have made donations of N-95 masks and protective gloves to Valley Hospital in Ridgewood, New Jersey. We continue to support Spectrum for Living and SCARC, both of which support individuals with developmental disabilities. A recent donation to the Sarasota All Faiths Food Bank was made in March, following the Orioles/Yankees Spring Training game in Sarasota.
As you might have anticipated, our May 7th Casino Night in New Jersey has been cancelled. We plan to hold a combined Holiday Reception and Casino Night in December. In lieu of our May client appreciation event, a donation has been made to the Fair Lawn Food Pantry.
Please contact us if you would like a copy of our current registration (ADV) with the Securities and Exchange Commission. You can contact our firm at 1-866-333-6659 or at firstname.lastname@example.org. You can also find our ADV through the Investment Adviser Public Disclosure system at www.adviserinfo.sec.gov.
Stay safe and know that we are here for you!
Baron Financial Group, LLC
Sources Used for CARES and PPP information:
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of April 6, 2020, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Baron Financial Group to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client or prospective client’s investment portfolio. Historical performance results for investment indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. Inclusion of index information is not intended to suggest that its performance is equivalent or similar to that of the historical investments whose returns are presented or that investment with our firm is an absolute alternative to investments in the index (if such investment were possible). Investors should be aware that the referenced benchmark funds may have a different composition, volatility, risk, investment philosophy, holding times, and/or other investment-related factors that may affect the benchmark funds’ ultimate performance results. Therefore, an investor’s individual results may vary significantly from the benchmark’s performance.