If you think you’ve been experiencing financial whiplash lately, you’re not alone. The market has been extremely volatile in the past week: In the same time frame that the S&P 500 rallied over 20%, nearly 3.3 million people filed for unemployment in response to the COVID-19 pandemic (which was actually a lower number than the market anticipated).
As states across the country enact stay-at-home orders and practice social distancing to try and curb the Coronavirus outbreak, the federal government has been working on relief measures:
- The tax deadline has been moved from April 15 to July 15, 2020, giving taxpayers more time to file in response to the current outbreak.
- Note that you can still file on April 15 if you wish.
- This does not apply to state taxes - please check with your state tax agencies to confirm filing due dates. (CA extended to July 15th, 2020)
- Congress passed a $2 trillion federal stimulus package, lending aid to taxpayers across the country.
Recently, Rob Chatterton and Eric Oh participated in a video conference to answer your questions about the federal stimulus package, your investments, and the economy.
About this stimulus package…
We’ll update as we know more, but for right now, here are the basics:
Under this bill, most can expect to receive a check of at least $1,200, though these numbers vary depending on how much you actually make. For example, those who filed single and made more than $75,000 in 2019 or $150,000 for married filing joint households will not be eligible for a check. Retirees are eligible, pending income limits.
What about fees?
Furthermore, RMDs have been suspended for 2020. Likewise, 10% early withdrawal penalty fees on 401(k)s have been suspended.
Where is the money coming from?
Right now, that remains to be seen. While the focus at the moment is not how it’s going to be paid for, the assumption is that taxes will increase and future spending will have to be reduced in the future.
Investments and the Economy during Coronavirus
Many of you have reached out with questions concerning your investments and economy performance during this outbreak.
Regarding my investments: if I wanted to be more aggressive, but don’t have extra in my bank account to put toward, what are my options?
One option, if you have already diversified your portfolio, is to rebalance. Some stocks are more volatile than others - the best way to change your allocation is to speak with your financial advisor so you can discuss your options.
Should I own bonds when interest rates are so low?
When interest rates are as low as they are, long term bonds are not the best option. You may have opportunities with corporate or high-yield bonds, since some of them will be trading at a discount (but keep in mind that some businesses will go through major financial difficulty at this time).
Should I move everything to cash? Can you tell me when the bottom is and get me back in at the right time?
This strategy is not recommended. The best answer we have right now is to give it time. Remember that things don’t happen overnight, and that includes when bottoms hit - and when recoveries occur. Stick to an asset allocation that works with you and for you; chasing the markets won’t help.
Should I stop my monthly withdrawals because the investments are down?
We know that cash flow is important. Obviously, the less you can spend right now will help in this downtime, but you’re already likely spending less because your discretionary spending is down. If you have big ticket items, now is the time to hold off. However, if you need to make some bigger withdrawals we recommend talking with us first so that we can figure out which investments would have the lowest impact.
Is the market recovery that we’ve seen this past week here to stay?
Unfortunately, we can’t answer that for certain. If the Coronavirus dwindles down over the next weeks or month, then it’s possible that the stock market will recover. But if it lasts throughout the summer, then the stock market recovery will likely only be temporary. It depends on how much we can flatten the curve.
While the $2 trillion stimulus package will help, it largely depends on when businesses will be able to operate to their fullest capacity. While things are so unpredictable, it’s impossible to know.
What are the advantages of converting an IRA to a Roth IRA now when the markets are low?
Converting an IRA to a Roth IRA basically means that you're moving money from a tax-deferred account and paying your taxes now and then the Roth grows tax free as long as the roth is open for more than 5 years. The question becomes, would you rather have tax-deferred growth or tax-free growth? Most people would prefer tax-free growth, so the ideal time to convert an IRA to Roth is when the stock market is at a low point.
But no one knows when the lowest point actually is until after the fact. But it could be an option to explore.
Why do I want to do tax loss selling when the stock markets are down?
There are a couple of reasons why you’d want to sell at a loss: you could write the loss off as ordinary income up to $3000 annually, or use it to offset future capital gains. You can buy something similar (but not too similar due to washsale rules) - and if a rebound happens, you may at least participate in that. If you wish, you can always buy back your original investment after 31 days.
It’s also important to note that tax loss harvesting does not apply for retirement accounts.
How can we help?
We hope that we have addressed your questions and concerns, but as always, please don’t hesitate to reach out and let us know how we can support you. Our team is always available to speak over the phone or through video conferencing.
The Team at Chatterton & Associates
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.