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  • Writer's pictureJulie Skye

this 4th Week of July 2020 thoughts

Updated: Feb 4, 2021

The range of possibilities on the economic side are still extraordinarily wide: we do not know exactly what happens when you voluntarily shut down a substantial portion of your society. In 2008 and 2009, our economic train ran off the tracks. This time we just pulled the train off the tracks and I don't really know of any parallel. Warren Buffett at the virtual annual meeting of Berkshire Hathaway in May 2020

Stock markets around the world welcomed the COVID-19 fiscal stimulus that propped up global economies and markets from late March til today. Now that these programs are starting to expire, how will the economy…and markets…react? Without another stimulus plan very soon we are at risk of a double-dip recession. In the U.S. those on unemployment have received an additional $600 per week that will expire next Friday without a new stimulus plan approved by Congress and the Senate. With 32 million Americans receiving unemployment insurance right now, this would be a two-thirds cut to their income. In Europe, furloughed worker programs that replace 60-90% of workers’ incomes are expiring in coming months. Why does this matter to you? Our well-being is inter-twined and more than ever, we are all connected. Some of those unemployed are making more than when they worked, but the trillions of dollars printed, and plowed into our economy has kept us all afloat. We need an economic / infrastructure plan that creates good paying jobs: every day I read about the possibilities and I believe we will find the political will to do this.

Outspoken billionaire, Dallas Mavericks owner and Shark Tank regular, Mark Cuban, says that the stock market’s recent technology-driven run-up from coronavirus-lows has many of the hallmarks of the bubble that rocked markets in the late 1990s and early 2000s. One big difference: this time the Federal Reserve is pouring fuel, in the form of freshly printed money, on the pandemic-battered economy. In some respects, it is different this time because of the Fed and this cash sloshing around, acting like a life saver. He says, “In reality, it’s so similar. I have to keep reminding myself that the internet bubble lasted for years.…and so it’s difficult to have patience and recognize that there’s still money that can be made.” Why does this matter to you? “Don’t stop believing” is more than a song…trusting your “gut” matters more, now than ever. Yes, “a bull market climbs a wall of worry” but when you think that Wall Street is out of sync with real life, follow your instincts. Preserving capital means you will always be able to sleep at night and will have the reserves to add to your stocks when you feel more confident of the future. Our ace in the hole is the cash we have accumulated from the last few years’ worth of dividends, and the higher-than-normal level of cash in your portfolio. This means you have what you need to keep your lights on.

Back in January 2020 B.C. (Before Coronavirus), it looked like it would be a banner year for dividend investors and dividends were expected, for the first time ever, to top $500 billion! “It would take a major event to stop a record for this year,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, wrote, as the year began. Oops…Howard should have knocked on wood. Today we are seeing the biggest dividend-decline since the first quarter of 2009 as many companies have slashed dividends to preserve cash. To meet their retirement cash needs, retirees who are fully invested might be forced to sell stocks at lower values…or worse yet, sell bonds…the cash cows of their portfolio. “Selling stocks at an inconvenient time is adding insult to injury,” says Marguerita Cheng, CEO of Blue Ocean Global Wealth, a Maryland RIA. Consider other ways to improve cash flow: consider refinancing your mortgage or taking out a home-equity loan; evaluate a reverse mortgage and if you don’t own a home, consider if you should start taking Social Security. Try to increase what’s coming in while reducing what’s going out. A little bit here and a little bit there could give you the breathing room you need in a very difficult time. Why does this matter to you? I am sorry, but I am laughing at Ms. Cheng’s advice: she did not prepare her clients very well for “9th Inning Investing.” My Retirement-Cash-Flow-Plan is a two-pronged strategy: 1st you begin building up your next 2-YEAR’S income before you retire. 2nd you reduce portfolio risk by lowering your risk profile one or two levels. The most dangerous years are the year before you retire, and the two years after you retire. Get these years right and you can be inoculated against being caught in the perfect storm that arrives at the worst possible time.

The 401(k)-retirement plan in the Revenue Act of 1978 sold investors on putting the maximum amount into tax deferred retirement plans to pay lower taxes, today. The benefits of the tax advantage depended on four factors, all of which have changed since 1980 to the detriment of many of today’s retirees: 1. The marginal federal income tax rate was 43% in 1980, it is 12% today. 2. The capital gains tax rate was 28% in 1980, it is 0% - 12% (for many investors) today. 3. The likely retirement bracket tax rate was 15%-25% in 1980, today, often 12% - 15%. 4. Interest rates in 1980 were 15%, compared to 0% today. Instead, investors can build tax-efficient portfolios that are taxed at the lower capital gains rates when withdrawn. In 1980, the government offered a huge tax savings to encourage retirement savings, while today it does not offer many of those advantages. Why does this matter to you? Almost every client I work with will benefit by NOT over-funding tax deferred retirement plans. Our goal is to reduce your taxes paid…over your lifetime. We already have tax-advantaged portfolios let’s talk more about ROTH IRAs.

Questions or want to talk? Book time on my calendar:

Constancy noun con·stan·cy | \ ˈkän(t)-stən(t)-sē

Steadfastness of mind under duress: fortitude, fidelity, loyalty. A state of being constant or unchanging: steadfastness of mind under duress; dedication and devotion. In short supply. Synonym - Skye Advisors

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