Matt Peak Newsletter-Opportunity Edition
As a voice of optimism, I’ve got some stiff competition this week. The U.S. Surgeon General announced that “this week will be the hardest and saddest of most Americans’ lives.”[1] Last week, Connecticut Governor Ned Lamont said, “I think that April is going to be a horrible month.” Does anybody really feel like talking about ‘financial planning opportunities’ during a crisis?
In a speech in 1959, John F. Kennedy became the first of many Western optimists to observe that the Chinese word for “Crisis” is represented by two characters meaning “danger” and “opportunity.[2]” Though it is said to be an imperfect translation[3], I’m using it in this newsletter anyways—because I believe it. We have danger and opportunity right now.
The bad news this week seems to suggest that things aren’t getting better. There is reason to believe, though, that things are getting better. Kinsa, a thermometer company, tracks self-reported fevers across America. They accurately predicted rising coronavirus outbreaks, and now spot another trend—new virus cases are dropping nationwide.[4] Meanwhile, virtually every medical researcher on the planet is working on treatments for coronavirus, with more than 200 clinical trials in progress globally.[5] In the coming weeks, results of larger trials on everything from Remdivisir to Vitamin C will start to become known. Gilead, maker of Remdivisir, is making it’s stockpile of 1.5 million doses available at no cost.[6] In the race for solutions, I’m thinking April may be a great month.
As for the economic disruption, its real, but different than other recessions. As James Bullard of the St. Louis Federal Reserve said, “this is a planned, partial shutdown of the US economy in the 2nd quarter.”[7] The government and policy response is pretty big and its aimed at getting people through it until growth can return later this year. Morningstar economists point out 70% of the economy can still operate in the short term, either from home or without restriction and concludes that we’ll likely avoid the long-lasting effects of the 2008 recession.[8]
So do your best to stick with your plan in the coming weeks of tough headlines. If you believe, like I do, that things will get better, then now is a good time to look for opportunity
Planning Opportunities Today
The current market conditions and recent tax law changes may combine to present some planning strategies to consider.
- If you can afford to, buy more of your investments. Low prices are good for buyers.
- If you can afford to, sell less and potentially pay less tax. For example, if you are normally required to make Required Minimum Distributions (RMDs) from your IRAs know that RMDs are suspended for 2020. You can stop or reduce taking withdrawals.
- If you have taxable investments, it may be a good time to reallocate them and ‘harvest tax losses” which can help on your taxes.
- Convert IRAs to Roth IRAs. With lower market values and historically low tax levels, converting IRAs to tax-free Roth accounts ‘may be a bargain’ right now according to tax expert Ed Slott.[1](You may take nontaxable withdrawals before age 59½ if the Roth IRA is held for at least five years and you meet certain distribution guidelines. Otherwise, an early withdrawal before age 59 ½ may be subject to taxes and a 10 percent federal tax penalty. Please discuss with your tax advisor prior to making financial decisions.)
Maybe it’s just a good time to talk about your plan—job losses, life insurance reviews, retirement income planning—these are things that may be on your mind, or on the mind of someone you know. If you want to talk, email Darlene dcreed@wradvisors.com or call 860-432-8111 and she’ll schedule a time for a safe, socially distant phone or “Zoom” meeting. If you want to introduce me to a someone, copy me on an email to them at peak@wradvisors.com and I’ll connect with them.
In the meantime, I hope all of you are staying safe and healthy. Let’s not give up on the month of April just yet.
[1] https://www.washingtonpost.com/world/2020/04/06/coronavirus-latest-news/
[2] https://www.jfklibrary.org/archives/other-resources/john-f-kennedy-speeches/indianapolis-in-19590412
[3] https://workplacepsychology.net/2014/08/10/in-chinese-crisis-does-not-mean-danger-and-opportunity/
[4] https://nymag.com/intelligencer/2020/03/maps-show-fevers-are-down-a-sign-coronavirus-is-slowing.html
[5] https://www.nytimes.com/2020/04/01/world/europe/coronavirus-science-research-cooperation.html
[6] https://www.foxnews.com/science/coronavirus-gilead-update-experimental-treatment-remdesivir
[7] https://www.bloomberg.com/news/articles/2020-03-22/fed-s-bullard-says-u-s-jobless-rate-may-soar-to-30-in-2q
[8] https://www.morningstar.com/articles/976107/coronavirus-update-long-term-economic-impact-forecast-to-be-less-than-2008-recession
[9] https://www.irahelp.com/slottreport/retirement-savings-volatile-market-now-time-roth-ira-conversion
Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.
This email is meant to be general, and it is not investment or financial advice or a specific recommendation of any kind. Opinions and forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results could differ materially from those anticipated. Please consult your financial and tax advisors before making financial decisions. Waddell & Reed does not offer tax advice. (04/20)