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How High-net-worth Households are Faring

The investment markets rebounded and have proven resilient despite the economic decline resulting from the pandemic. The Federal Reserve continues to boost monetary policy with trillions in market support. Congress and President Trump support the need for further economic stimulus, even though they hadn’t settled on a number as of this writing.1

And yet, according to recent polls, Americans’ confidence in their ability to retire with sufficient income continues to weaken. A recent survey revealed that 72% of Americans say they now plan to work in retirement, which is up from 67% just last May. Only 58% of U.S. workers say they are currently earning the same amount as before the pandemic hit. And nearly one out of every four American adults (24%) say they are planning to tap their 401(k) assets this year, including 41% of people who have recently been laid off due to COVID-19.2

Retirement preparedness numbers were not particularly strong before COVID-19 settled on these shores, and recent economic events have further impacted those numbers. If you’re concerned about the future, it helps to have a plan. Not just one plan, but also contingency plans based on your employment prospects for the future and the potential direction of the markets. We suggest that the best way to plan for retirement is to seek out quality advice from a licensed financial professional and appropriate financial products for your situation. Please give us a call to discuss.

Today’s pervasive sense of financial insecurity is not relegated among only low-income workers. High-net-worth (HNW) investors are generally described as those with a net wealth in the six to seven figures.3 In a new report from Morgan Stanley and Oliver Wyman, it was found that HNW individuals’ wealth will probably fall 4% by the end of the year — a stark contrast to the previous decade of consistent annual growth.4

According to Cerulli Associates, more than three-quarters of the 33 million U.S. households that hold between $100,000 and $1 million in invested assets say they work with a financial advisor to manage their money. The traits they most appreciate from this relationship are trustworthiness, honesty and dependability, as well as knowledge and quality of service.5

HNW investors also are not shying away from their interest in buying real estate in the luxury market. In fact, interest has increased in buying second homes outside of their big-city residences as a result of the pandemic’s shelter-in-place demands. Due to travel restrictions, many are looking for extra accommodations domestically rather than overseas.6

On the downside of ample wealth, the IRS announced in July its intention to audit hundreds of high-net-worth individuals and their related entities. The campaign is expected to review returns up through Sept. 30, 2020, with audit letters to be mailed out this fall. Specifically, assets targeted for scrutiny include foreign bank accounts, trusts, business interests and overseas inheritances; associated business entities such as partnerships, trusts, S corporations, C corporations; gifting practices and private foundations.7

Content prepared by Kara Stefan Communications.

1 Jeanna Smialek. Aug. 19, 2020. The New York Times. “Fed Officials Said the Economy Needed More Help From Congress.” https://www.nytimes.com/2020/08/19/business/economy/fed-meeting-minutes-coronavirus.html. Accessed Aug. 20, 2020.

2 SimplyWise, Inc. July 13, 2020. “SimplyWise Retirement Confidence Index.” https://www.simplywise.com/blog/retirement-confidence-index/. Accessed Aug. 20, 2020.

3 Adam Hayes. Investopedia. April 19, 2020. “High-Net-Worth Individual (HNWI).” https://www.investopedia.com/terms/h/hnwi.asp. Accessed Aug. 5, 2020.

4 James Phillipps. Forbes. June 11, 2020.Coronavirus To Wipe $3.1 Trillion Off High Net Worth Wealth In 2020, Report Says.” https://www.forbes.com/sites/jamesphillipps/2020/06/11/coronavirus-to-wipe-31-trillion-off-high-net-worth-wealth-in-2020/#419ff8c833e7. Accessed Aug. 20, 2020.

5 Cerulli Associates. June 12, 2020. “SIFMA-Cerulli Individual Investor Project.” https://info.cerulli.com/rs/960-BBE-213/images/Cerulli-SIFMA%20Final%20061820.pdf. Accessed Aug. 20, 2020.

6 Miao Li. Mansion Global. July 27, 2020. “When it Comes to Property, Covid-19 Has Been ‘A Time to Reflect.’” https://www.mansionglobal.com/articles/when-it-comes-to-property-covid-19-has-been-a-time-to-reflect-217822. Accessed Aug. 5, 2020.

7 Perkins Coie. JD Supra. July 15, 2020. “IRS to Target High Net Worth Individuals, Private Foundations, and Associated Entities Beginning in July 2020.” https://www.jdsupra.com/legalnews/irs-to-target-high-net-worth-32702/. Accessed Aug. 5, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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The Future of Retirement Planning

As of the end of July, the stock market was still performing relatively well and the Federal Reserve had announced no near-term changes to interest rates.1 However, other economic news was not as rosy. According to the Bureau of Economic Analysis, the U.S. economy contracted by nearly a third (32.9% annual rate) in the second quarter of this year.2

The pandemic has taken quite a toll on the U.S. economy. While eventually the economy will recover, individuals may want to re-assess their retirement portfolios going forward. Long term, it’s important to consider what types of permanent changes may take place post-pandemic, and how to anticipate them for long-term retirement planning.

For example, one of the issues with employer-sponsored 401(k) plans is that they are designed to take advantage of tax-deferred growth. However, given today’s historically low tax rates, that is less of an advantage than it was when the idea was first introduced. Consider a median-income married couple with two children:3

  • In 1980, the marginal federal income tax rate was 43%. Today, it is 12%.
  • In 1980, the capital gains tax rate was 28%. Today, it is 0%.
  • In 1980, interest rates were around 15%. Today, they are 0%.

Tax rates could be adjusted upward in light of the debt America continues to accumulate through COVID-19 stimulus efforts. However, they may not rise as high as tax rates were back in the early ’80s.

A leading professional in retirement income research, Olivia Mitchell, executive director of the Wharton School’s Pension Research Council, recommends that more employer retirement plans incorporate an annuity option, and even mandate a 10% allocation to that annuity.4 This would establish a larger pool of insured annuitants to help fund income for retirees who live longer. Until this happens, bear in mind that anyone can incorporate an annuity into his or her personal financial strategy to receive insurer-guaranteed income during retirement. If you’d like to learn more, please contact us.

Another long-term consideration is the status of Social Security. A recent study concluded that potential cuts to benefits could come faster than expected, thanks to COVID-19. Researchers discovered the Social Security Trust Fund may be depleted up four years earlier than previously predicted — as early as 2032. This highlights the importance of saving more toward retirement.5

Post-pandemic, there may be significant changes that could impact investor portfolio opportunities. For example, this type of disruption in business models often leads to new innovations, so keep an eye on sectors and industries coming up with new ideas. Also, the newly accepted remote model for both work and school poses interesting opportunities in terms of people living much further away from their employers and colleges, even in different states. This means people could be less inclined to move to urban areas for jobs. Rural regions may see an uptick in populations where young people could purchase homes and start building equity at a younger age.6

Content prepared by Kara Stefan Communications.

1 Joseph Woelfel. TheStreet. June 29, 2020. “Stocks Close Higher as Fed Vows Continued Support for Economy.” https://www.thestreet.com/markets/stock-market-dow-jones-industrial-average-general-electric-072920. Accessed July 30, 2020.

2 Anneken Tappe. CNN. July 30, 2020. “US economy posts its worst drop on record.” https://www.cnn.com/2020/07/30/economy/us-economy-2020-second-quarter/index.html. Accessed July 30, 2020.

3 Aaron Brown. Bloomberg. July 21, 2020. “401(k) Plans No Longer Make Much Sense for Savers.” https://www.bloomberg.com/opinion/articles/2020-07-21/401-k-plans-no-longer-make-much-sense-for-savers. Accessed July 28, 2020.

4 Knowledge@Wharton. July 14, 2020. “Post-pandemic Retirement: Can We Build More Resilient Systems?” https://knowledge.wharton.upenn.edu/article/post-pandemic-retirement-can-build-resilient-systems/. Accessed July 28, 2020.

5 Lorie Konish. CNBC. June 28, 2020. “What you need to know if you’re planning to claim Social Security retirement benefits during Covid-19.” https://www.cnbc.com/2020/06/28/coronavirus-what-to-know-if-you-plan-to-claim-social-security.html. Accessed July 28, 2020.

6 CapTrust. July 18, 2020. “Planning a Post-Pandemic Portfolio.” https://www.captrust.com/planning-a-post-pandemic-portfolio/. Accessed July 28, 2020.

Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs. Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Is it Time to Go Global?

Competitive edge is a real factor. Here in the U.S., we boast that capitalism is the key to our success. Unfortunately, that key has gotten a little rusty lately thanks to the rampant spread of COVID-19 throughout the country. Some areas have locked down or experienced slowed economic growth because of safety protocols that prevented business as usual.

The principles of capitalism – such as competition and supply and demand – have been crippled.1 On the other hand, countries that were hit early on with the pandemic have managed to control the contagion and reopen their economies.2 Market analyst Carl Kawaja believes this comparative advantage gives way to more global opportunities than the U.S. can currently pursue. In his words: “I like to compare it to basketball – a sport where the U.S. historically has been fairly dominant. But then Argentina started getting better, and Greece started getting better, and Spain started getting better. And, the next thing you know, the U.S. lost the Olympics.”3

The good news is U.S. investors can take advantage if international companies pull ahead in the near-term while we struggle to flatten the curve of contagion. If you would like to consider ways to incorporate more global equity opportunity within your asset allocation, we’re happy to work with you. Don’t hesitate to reach out to schedule a consultation.

Regardless of the state of the pandemic, it’s important to recognize that not all the best investment opportunities are in the United States. According to the World Bank, in 2018 the nation represented only 44% of world stock market capitalization.4

Investing internationally does have its risks. But there are ways to do it strategically, such as investing in global mutual funds or ETFs, leaving the day-to-day stock picking to a professional money manager, whose job it is to weigh those risks, such as currency fluctuation, lack of government regulation, economic instability and the disruption of civil unrest. This means professional market analysts do the research and move assets in and out of geographic regions on your behalf.5

In recent weeks, Blackrock commented Europe has a “leg up” over the U.S. as well as other parts of the globe, citing the EU’s health care infrastructure and policy response to the pandemic. The money manager noted the region’s monetary and fiscal support provided a cushion during the pandemic that left many countries able to recover faster economically.6

Investors seeking income may consider global bonds, which have historically outperformed during short-term periods of market turmoil. They also offer the opportunity for long-term diversification benefits to U.S. investor portfolios.7

Content prepared by Kara Stefan Communications.

1 Jim Chappelow. Investopedia. April 6, 2020. “Capitalism.” https://www.investopedia.com/terms/c/capitalism.asp. Accessed July 20, 2020.

2 Ferdinando Giugliano. Bloomberg. July 6, 2020. “Why Europe’s in Better Shape Than the U.S.” https://www.bloomberg.com/opinion/articles/2020-07-06/coronavirus-recovery-why-europe-s-in-better-shape-than-the-u-s. Accessed July 20, 2020.

3 Capital Group. June 24, 2020. “Midyear Outlook: International markets on the comeback trail.” https://www.capitalgroup.com/advisor/insights/articles/international-midyear-outlook-2020.html. Accessed July 20, 2020.

4 James D. Peterson. Charles Schwab. Nov. 13, 2019. “Why Global Diversification Matters.” https://www.schwab.com/resource-center/insights/content/why-global-diversification-matters. Accessed July 20, 2020.

5 Tinesh Bhasin. LiveMint. July 24, 2020. “What to keep in mind if you want to invest in global markets.” https://www.livemint.com/money/personal-finance/what-to-keep-in-mind-if-you-want-to-invest-in-global-markets-11593015469209.html. Accessed July 20, 2020.

6 Callum Keown. MarketWatch. July 20, 2020. “Risks are mounting for U.S. stocks. Here’s where BlackRock says investors should look instead.” https://www.marketwatch.com/story/risks-are-mounting-for-us-stocks-heres-where-investors-should-look-instead-says-blackrock-2020-07-20. Accessed July 20, 2020.

7 David Wakefield. Pensions & Investment. July 13, 2020. “Investing during a pandemic: Three results a global fixed income strategy can deliver.” https://www.pionline.com/Mondrian_globalfixedincome. Accessed July 20, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Midyear Market Outlook from Wealth Managers

Lately, the economy has looked as volatile as the stock market: up for a few weeks and then back down again. This is generally attributed to the reopening of the country in early May, followed by what looks to be a gradual and sporadic reclosing due to an upswing in outbreaks of the coronavirus. In early July, Raphael Bostic, president of the Atlanta Federal Reserve Bank, observed that recent signals show the economic recovery is in danger of stalling.1

This volatile economic environment makes it difficult for money managers who publish midyear market comments, because the outlook could change by the time those reports are published. As always, whenever you read advice and predictions from financial professionals, it’s important to view recommendations within the context of your own goals, circumstances and investment portfolio. If you’d like to discuss any potential midyear changes in your strategy, please contact us to schedule a review.

Like most industry analysts, T. Rowe Price cautions that the trajectory in the equity and credit markets will depend on containment of the virus. Most analysts agree that economic recovery is dependent on “flattening the curve” of contagion. The good news is that T. Rowe analysts believe tech companies have accelerated in both growth and market power by several years due to remote-work demands. However, much depends on how well some of our global partners respond to the health crisis. This variable could cause U.S. distributors to rethink their corporate finances and supply chains.2

Charles Schwab’s midyear outlook acknowledges that much of the market’s gains since the first outbreak of COVID-19 can be attributed to the Federal Reserve’s decision to cut interest rates and the fiscal stimulus passed by Congress. However, it is unlikely that we will see additional significant fiscal initiatives moving forward, so the market is likely to start pricing based on a real growth rate that represents lost output from consumer goods and services. With that said, high unemployment rates and low inflation are likely to continue driving quantitative easing by the Federal Reserve, which is currently increasing its balance sheet by $120 billion a month in treasuries and mortgage-backed securities.3

The chief investment officer at Merrill Lynch offers a bullish perspective for the immediate future. Their analysts believe that the markets are in the early stages of another long-term bull session with above-average valuations. They favor equities relative to fixed income and cash, as well as the prospects of global equities since many countries have rebounded from the pandemic and show signs of acceleration.4

Morgan Stanley also maintains a positive outlook. Based on recent market resiliency, their analysts believe a new cycle has started and that a U.S. recovery may be more “normal” than widely predicted. In fact, analysts maintain the economy will recover by early 2021, driven by global gross domestic product with 3% growth for the year.5

The Capital Group keeps its outlook simple: The markets will remain volatile through the rest of the year. However, it believes that investors are better off weathering the storm in the market than sitting on the sidelines, as recent downturns have demonstrated that when the market does rebound, it remains stronger, longer.6

Content prepared by Kara Stefan Communications.

1 Kanishka Singh. Reuters. July 7, 2020. “Fed’s Bostic says U.S. recovery may be ‘levelling off’: FT interview.” https://www.reuters.com/article/us-usa-fed-bostic-idUSKBN2480G0. Accessed July 16, 2020.

2 Robert W. Sharps, Justin Thomson and Mark Vaselkiv. T. Rowe Price. June 30, 2020. “Managing to the Other Side.” https://www.troweprice.com/personal-investing/resources/insights/managing-to-the-other-side.html. Accessed July 16, 2020.

3 Kathy Jones. Advisor Perspectives. June 30, 2020. “2020 Mid-Year Outlook: Fixed Income.” https://www.advisorperspectives.com/commentaries/2020/06/18/2020-mid-year-outlook-fixed-income. Accessed July 16, 2020.

4 Merrill Lynch. July 2020. “The Reflation Triangle.” https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/Viewpoint_July_2020_Merrill.pdf. Accessed July 16, 2020.

5 Morgan Stanley. June 14, 2020. “2020 Midyear Investor Outlook: Unusual Times Conventional Playbook.” https://www.morganstanley.com/ideas/global-investment-strategy-midyear-outlook-2020. Accessed July 16, 2020.

6 Capital Group. June 4, 2020. “U.S. Midyear Outlook: From recession to recovery.” https://www.capitalgroup.com/advisor/insights/articles/us-midyear-outlook-2020.html?cid=p55731464801&ad_id=449175591351&ext_id=&gclid=EAIaIQobChMIhP_5lrLS6gIV5QiICR1QpQPREAAYASAAEgJ3UfD_BwE&gclsrc=aw.ds. Accessed July 16, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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The Highs and Lows of Dollar-Cost Averaging

Investors who defer the same amount of money from their paycheck into a 401(k) plan at regular intervals are practicing dollar-cost averaging. By investing the same fixed dollar amount each time, the investor buys more shares when prices are low and fewer shares when prices rise.1 The long-term effect is that the average cost of each share purchased will be lower than the average share price.2

This strategy can work great when you are trying to accumulate assets for your retirement. But what happens when you withdraw from your investments for retirement income? While dollar-cost averaging reduces the risk of investing a lump sum of money when prices peak, it increases your risk of losing previous gains if you withdraw money when prices have dropped. If a retiree receives automatic systematic withdrawals for a fixed level of income, then in months when share prices drop, he or she will likely have to sell more shares to raise the needed money. Once those shares are sold, they never have the ability to recover lost gains.3

To create a more prudent income distribution plan, you may consider incorporating some solid, reliable income in your portfolio, in addition to Social Security benefits. This could mean government-backed bonds or an insurance-backed annuity.4 If you’d like to discuss how to position your assets to combine both guaranteed income and growth opportunity, please contact us.

It’s a good idea to develop multiple streams of retirement income. Ideally, you want to have the flexibility to stop and start withdrawals strategically from accounts that are performing well, giving others time to recoup paper losses.5 Also, maintain a healthy portion of assets in a liquid account to help pay for periodic expenses when you don’t want to tap your investments.

Another option is to be flexible with your retirement budget, such as having a Plan A budget and a Plan B budget. When the markets take a downturn, you can switch to budget B and downsize your expenses, perhaps by cutting out vacations, large purchases and eating out for a while. This shouldn’t be too hard given the way people have had to reign in their lifestyle throughout the past few months; you could call it your Pandemic Budget.6

Content prepared by Kara Stefan Communications.

1 James Chen. Investopedia. March 16, 2020. “Dollar Cost Averaging.” https://www.investopedia.com/terms/d/dollarcostaveraging.asp. Accessed July 10, 2020.

2 Dan Burrows. Kiplinger. April 17, 2020. “Dollar-Cost Averaging: How Does DCA Work, And Should You Do It?” https://www.kiplinger.com/article/investing/t052-c008-s001-dollar-cost-averaging-how-does-dca-work-should-you.html. Accessed July 10, 2020.

3 Matt Becker. The Simple Dollar. April 9, 2020. “The Truth About Dollar Cost Averaging.” https://www.thesimpledollar.com/save-money/the-truth-about-dollar-cost-averaging/. Accessed July 27, 2020.

4 Dennis Ho. The Street. July 2, 2020. “How to Use a Deferred Income Annuity to Avoid Running Out of Money in Retirement.” https://www.thestreet.com/retirement-daily/planning-living-retirement/how-to-use-a-deferred-income-annuity-to-avoid-running-out-of-money-in-retirement. Accessed July 10, 2020.

5 Jeff Rose. Forbes. Nov. 2, 2017. “5 Ways To Generate Different Sources Of Income.” https://www.forbes.com/sites/jrose/2017/11/02/different-sources-income/#42d46f7137bb. Accessed July 10, 2020.

6 Rebecca Moore. Plan Sponsor. June 22, 2020. “Clearing Up Confusion About Retirement Timing.” https://www.plansponsor.com/in-depth/clearing-confusion-retirement-timing/. Accessed July 10, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference. 7/20 – 1246007C

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Recovery: COVID-19 First, Then the Economy

The World Health Organization recently reported that while some countries have made effective inroads to contain COVID-19 within their borders, the pandemic is still well on the rise throughout the world.1 Perhaps one of the most debilitating impacts of today’s global economy is that one country’s problem is now every country’s problem. Because business and personal travel is so pervasive today, it appears the only answer to economic recovery is to contain and eradicate the virus – everywhere.

Fortunately, the medical news on the COVID-19 front is starting to look up. In early June, the nation’s top infectious disease expert, Dr. Anthony Fauci, announced that the U.S. government was helping fund and conduct research for three different coronavirus vaccines and hopes to have at least one available early 2021. The World Health Organization reports that, globally, 10 vaccines are currently undergoing human trials with 126 others in development.2

Then later in June, researchers in the UK reported that a very common, affordable drug available worldwide has been found to be effective for hospitalized coronavirus patients on ventilators. Apparently, dexamethasone has no impact on milder symptoms of coronavirus, but it has been shown to help reduce mortality for some higher-risk patients.3

These recent advancements are a big step in the fight against the pandemic, but it’s important to realize that it will take time to get control of it. However, these words from Dr. Fauci may provide comfort, “Don’t despair. This will end, and we will get control over it.”4

In the meantime, it’s important that we each plan for a future in which medical conditions and economic downfalls are more common. If you’d like help to reassess your portfolio with the goal of generating a higher sense of financial confidence for the future, please give us a call.

It is understandable that long-term investors want to look beyond the pandemic for economic recovery and glean ideas on how to invest in the future. Clearly, one industry that’s hard at work is the health technology market. Digital health has taken off as a means of coping with patients who are better off staying at home, and health innovation funding is rapidly expanding.5

Bank of America Global Research, Israel anticipates several global megatrends that will have the greatest impact on the post-pandemic recovery. These include: 6

  • A further shift away from reliance on Chinese manufacturing, particularly in the tech and pharma industries
  • A greater focus by consumers on technology and digital media – a lingering influence borne out of today’s stay-at-home recommendations
  • Bigger government influence at all levels, particularly in relation to tracking and preventing health crises, business models with a higher emphasis on worker benefits and more aggressive action for climate-friendly environmental initiatives

Speaking of the environment, some leaders are predicting that the pandemic may lead to more sustainable business practices. Initially, business owners are expected to be more focused on the short-term health and welfare of their businesses and employees. However, some industry leaders and policymakers insist that future investment should be channeled toward real change for a low-carbon, more sustainable future.7

Content prepared by Kara Stefan Communications.

1 Scott Neuman. NPR. June 29, 2020. “WHO Chief On COVID-19 Pandemic: ‘The Worst Is Yet To Come.’” https://www.npr.org/sections/coronavirus-live-updates/2020/06/29/885049691/who-chief-on-covid-19-pandemic-the-worst-is-yet-to-come. Accessed July 2, 2020.

2 Jim Sciutto, Jamie Gumbrecht and Chandelis Duster. CNN. June 10, 2020. “US government to fund and conduct studies on three possible coronavirus vaccines, Fauci says.” https://www.cnn.com/2020/06/10/politics/vaccine-trials-funding/index.html. Accessed June 16, 2020.

3 Michelle Roberts. BBC. June 16, 2020. “Coronavirus: Dexamethasone proves first life-saving drug.” https://www.bbc.com/news/health-53061281. Accessed June 16, 2020.

4 Moira McCarthy. Healthline. June 8, 2020. “Dr. Anthony Fauci: COVID-19 Will End and We Will Get Control Over It.” https://www.healthline.com/health-news/dr-anthony-fauci-this-will-end-and-we-will-get-control-over-it#1. Accessed July 2, 2010.

5 Heather Landi. Fierce Healthcare. July 1, 2020. “Investors double down on health technology as funding reaches $9.1B in 2020.” https://www.fiercehealthcare.com/tech/investors-double-down-health-technology-as-funding-reaches-9-1b-2020. Accessed July 2, 2020.

6 Merrill/Bank of America Global Research. May 22, 2020. “5 Trends That Could Define Our Post-Coronavirus Lives.” https://www.ml.com/articles/post-coronavirus-life-investing-opportunities-5-trends.html. Accessed June 16, 2020.

7 Knowledge@Wharton. June 8, 2020. “How the Pandemic Can Lead to a More Sustainable Future.” https://knowledge.wharton.upenn.edu/article/how-the-pandemic-can-lead-to-a-more-sustainable-future/. Accessed June 16, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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U.S. Virus Response Compared to the World

The COVID-19 pandemic has been a struggle around the world, and the United States is no exception. It is worth looking at individual factors to gauge just where we stand now.

The foremost concern is how the U.S. is weathering the pandemic. Initially, the crisis was concentrated in larger urban areas, which makes sense. A virus is more likely to spread among crowded populations. But the U.S. consists of 50 states that citizens may freely travel between without a passport or visa. Unfortunately, that means spread of the virus eventually made its way to rural areas. Now, it seems very few areas of the U.S. are immune, if any.

As of the end of June, there were more than 10 million confirmed cases worldwide and more than a half million deaths resulting from COVID-19. There were more than 2.5 million confirmed cases and 126,203 deaths in the U.S. alone.1

The U.S. is not only having trouble containing the virus. Economists and market analysts are now emphasizing the correlation between containment and economic recovery.2 If you are concerned your personal financial situation may suffer, give us a call. We can help brainstorm ideas to keep you and your portfolio afloat.

According to the International Monetary Fund (IMF), the pandemic has had a significant effect on the global economy, with the recovery expected to be more gradual than previously forecasted. Assuming we can find a way to quickly contain the virus domestically, the strength of the U.S. economy throughout the past six years provided a cushion that few other countries have enjoyed. On a global scale, the IMF projects -4.9% growth this year. The U.S. is expected to contract by -8.0%, but that is better than some other developed countries, such as France (-12.5%), the UK (-10.2%) and Canada (-8.4%). However, other countries appear to be better positioned: Germany (-7.8%), Japan (-5.8%) and China (1.0%).3

The U.S. also has fallen among competitive world economies, dropping from third to 10th this year, according to the annual ranking report conducted by the Institute for Management Development. The underlying data attributes this decline to the collapse of U.S. global trade agreements rather than the coronavirus.4

Since the pandemic is taking its toll on nearly every aspect of societal, economic and individual lives, it’s worth considering where the U.S. stacks up in its overall health-care responsiveness. On average, our nation spends $10,246 per person. Here are the spending totals in a few other developed countries:5

  • Australia: $5,331/person
  • Germany: $5,033/person
  • Canada: $4,754/person
  • United Kingdom: $3,858/person
  • Japan: $4,168/person
  • Singapore: $2,618/person

As of the end of June, the U.S. is considered a bit of an outlier among other wealthy nations. As our infection rate increases, there is a poor correlation with the amount of money the nation spends on health care, especially compared to other developed nations.6

Content prepared by Kara Stefan Communications.

1 World Health Organization. June 30, 2020. “Coronavirus disease (COVID-19) Situation Report – 162.” https://www.who.int/docs/default-source/coronaviruse/20200630-covid-19-sitrep-162.pdf?sfvrsn=e00a5466_2. Accessed June 30, 2020.

2 Jonathan Garber. Fox Business. June 30, 2020. “Mandating coronavirus face masks would strengthen US economy: Goldman Sachs.” https://www.foxbusiness.com/markets/coronavirus-mask-mandate-boost-economy-goldman-sachs. Accessed June 30, 2020.

3 International Monetary Fund. June 2020. “World Economic Outlook Update, June 2020.” https://www.imf.org/en/Publications/WEO/Issues/2020/06/24/WEOUpdateJune2020. Accessed June 30, 2020.

4 Michelle Jamrisko and Eric Martin. BloombergQuint. June 17, 2020. “U.S. Slumps to 10th Spot in World Competitiveness Rankings.” https://www.bloombergquint.com/global-economics/u-s-slumps-to-10th-spot-in-world-competitiveness-rankings. Accessed June 30, 2020.

5 Huo Jingnan and Pranav Baskar. NPR. June 13, 2020. “Pandemic Perspective: What The 20 Poorest And Richest Countries Spend On Health Care.” https://www.npr.org/sections/goatsandsoda/2020/06/13/864563401/pandemic-perspective-what-the-20-poorest-and-richest-countries-spend-on-health-c. Accessed June 30, 2020.

6 Dante Chinni. NBC News. June 28, 2020. “Why are similar countries experiencing COVID-19 so differently?” https://www.nbcnews.com/politics/meet-the-press/why-are-similar-countries-experiencing-covid-19-so-differently-n1232358. Accessed June 30, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Prospects for the Automotive Sector

We take a lot for granted, including the condition of the car that sits in our driveway. During the coronavirus pandemic, those cars have been sitting idle much more than usual. That’s not necessary a bad thing. It means we spend less money on gas and maintenance. Also, our risks of having an auto accident have dropped significantly. According to the Federal Highway Administration, Americans drove 163 billion fewer miles in March and April than during the same timeframe last year.1

But what does it mean for the auto industry that the entire nation has reduced its driving habits?

As it has for many industries, the pandemic has had a dramatic effect on the automotive sector. Total vehicle sales during March, April and May fell to levels comparable to the Great Recession. As many lose their jobs and find their financial security at risk, potential buyers have put off making expensive purchases, especially discretionary items like a new car, truck or SUV. Industry analysts anticipate expected sales for 2020 will be reduced by at least 3 or 4 million.2

The quandary here is two-fold. If you are worried about your job and household finances, it’s probably best to put off a new car purchase until you are on more sound economic footing. However, if your income or net worth is such that you are likely insulated from the financial woes of the pandemic, a new car purchase is one of the ways you can help grow the economy. If you’d like to explore ways to position your portfolio to protect your assets from these types of crises in the future, we can help. Contact us for more information.

Unfortunately, even those who are able to buy a car may be hampered by today’s challenges. Disruptions in the supply chain — particularly in COVID-wrought Mexico — as well as manufacturers reconfiguring factories for social distancing, are affecting production of new cars this year.

In lieu of buying a new car, many people are opting to fix older models in an effort to keep them going. This has created an opportunity for auto parts retailers and other aftermarket specialists, whose stocks may be poised for stronger than usual performance.

Another interesting component of the auto industry is the insurance market. Many insurers have issued pro-rated rebates to policy owners to align with the reduction in driving habits over the past few months. That might suggest insurers are losing money, but the reality is quite the opposite. Fewer cars on the road mean fewer accidents that insurers must cover, so auto insurers are experiencing quite a profitable year despite the refunds[KH1] .3

However, the car rental industry is hurting. Travel restrictions and an overall reluctance among people to board flights has caused the rental business to drop with a resounding thud.4

Year-to-date, the auto sector is down by approximately 20%, which is significantly worse than the performance of market indices such as the DJIA and the S&P 500. However, there are notable exceptions. As a reflection of the auto repair market, the Russell 3000 Auto & Auto Parts Index is actually up 9% this year, although industry experts credit much of that growth to Tesla.5

Some market analysts are carefully examining what the auto market will look like further into the future, and they are predicting changes. The emerging interest in environmental protections is expected to permeate the transportation industry, with fewer diesel engines produced and a higher proliferation of electric cars on the horizon. Rising consumer awareness and supportive government policies have led analysts to predict a 36% growth in electric vehicle sales in 2021. Exponential growth is expected over the next 10 years.6

Content prepared by Kara Stefan Communications.

1 Al Root. Barron’s. June 15, 2020. “Americans Are Finally Driving Again. What That Means for the Auto-Stock Universe.” https://www.barrons.com/articles/americans-are-driving-again-what-that-means-for-car-stocks-51592222401. Accessed June 23, 2020.

2 Knowledge@Wharton. June 15, 2020. “Crashing U.S. Auto Sales: Can the Industry Recover?” https://knowledge.wharton.upenn.edu/article/crashing-auto-sales-can-the-industry-recover/. Accessed June 23, 2020.

3 Quartz.com. Justin Rohrlich. April 1, 2020. “Auto insurers are collecting billions in extra profit as Americans shelter in place’’ Khttps://qz.com/1829828/auto-insurers-make-billions-as-covid-19-keeps-people-off-the-road/ Accessed July 9, 2020.

4 Al Root. Barron’s. June 15, 2020. “Americans Are Finally Driving Again. What That Means for the Auto-Stock Universe.” https://www.barrons.com/articles/americans-are-driving-again-what-that-means-for-car-stocks-51592222401. Accessed June 23, 2020.

5 Al Root. Barron’s. June 3, 2020. “Car Stocks Are Higher Because Sales Were Only Kind of Dreadful. Here’s How Far They Can Run.” https://www.barrons.com/articles/car-stocks-ford-gm-sales-saar-may-data-51591206681. Accessed June 23, 2020.

6 Luke Lango. InvestorPlace. June 12, 2020. “The 5 Best Electric Car Stocks to Buy for the Next 10 Years.” https://investorplace.com/2020/06/5-best-electric-car-stocks-buy-next-10-years/. Accessed June 23, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives.

The information contained in this material is provided by third parties and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.

If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.1231083C


 [KH1]Citation added.

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How Might the Economic Downturn Affect Dividends?

If a large allocation of your retirement portfolio is invested in dividend-paying stocks, you might see your household income reduced this year. During the Great Recession, dividend payouts dropped by 25% and didn’t fully recover for at least four years. Today’s financial crisis brought on by the worldwide COVID-19 outbreak has once again created a potential reduction in some dividend payments.1

U.S. dividend payers are in a sticky situation. Banks and other lending institutions saw profits drop by 50% by the end of March. These losses are expected to continue as millions of Americans continue to lose jobs and struggle to make rent, mortgage and credit card payments. Other reliable dividend payers include airlines, auto manufacturers and large retailers — also companies that have been hammered by drastically reduced consumer demand. The Chicago Mercantile Exchange recently predicted that S&P 500 index dividends will fall from 2019’s $58.24 to $47.55 this year, and even further ($42.05) in 2021. The impact on retirees could be a 27% reduction in income.2

Dividend payments — or the lack of them — may have an impact on how a company is viewed by investors. Historically, a company that paid out dividends has been considered financially stable with management that was confident about future earnings.3 Conversely, investors may interpret a reduction or halt in dividend payouts as a sign that a company is in trouble.4

Given that it took four years for dividend stocks to recover from the last recession, current retirees may want to start looking at alternative income stream ideas. However, traditional alternatives may also have drawbacks in the current economy. For example, investors may consider turning to master limited partnerships (MLPs). An MLP is a company organized as a publicly traded partnership in the natural resources or real estate sector. Historically, MLPs have been considered low-risk, long-term investments that provide a steady stream of tax-sheltered distributions to investors.5 However, the combination of falling oil prices and falling transportation demand due to the COVID-19 pandemic has put many MLPs under financial stress.6

Today’s crisis has demonstrated that some traditional sources of retirement income are vulnerable to disruption. Now more than ever, it’s important that retirees and pre-retirees develop a financial plan that takes into account their need for asset preservation strategies, growth and reliable income. If you have any questions or concerns about your own financial plan, give us a call. We’ll be happy to talk.

Content prepared by Kara Stefan Communications.

1 William Baldwin. Forbes. April 16, 2020. “How Much Will Your Dividends Get Cut?” https://www.forbes.com/sites/baldwin/2020/04/16/how-much-will-your-dividends-get-cut/#17263d3319cf. Accessed June 9, 2020.

2 Ibid.

3 Amy Fontinelle. Investopedia. May 15, 2020. “Companies That Pay Dividends — And Those That Don’t.” https://www.investopedia.com/ask/answers/12/why-do-some-companies-pay-a-dividend.asp. Accessed June 9, 2020.

4 Chad Langager. Investopedia. June 4, 2020. “Why Would a Company Drastically Cut Its Dividend?” https://www.investopedia.com/ask/answers/06/dividendpaymentcut.asp. Accessed June 22, 2020.

5 James Chen. Investopedia. Aug. 28, 2019. “Master Limited Partnership – MLP.” https://www.investopedia.com/terms/m/mlp.asp. Accessed June 9, 2020.

6 Pensions & Investments. March 24, 2020. “Pipeline funds imperiled with end of MLPs in sight.” https://www.pionline.com/private-equity/pipeline-funds-imperiled-end-mlps-sight. Accessed June 9, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Social Security Woes

In 2000, actors Helen Hunt and Kevin Spacey starred in “Pay It Forward.” The premise of the film is that a person repays a favor by offering small acts of kindness to more people. This concept of paying it forward leads to an exponential movement of goodwill.

Social Security works a bit like that. In other words, FICA payroll taxes collected from today’s workers are used to pay Social Security and Medicare benefits for retirees. When workers retire, their benefits will be paid by tomorrow’s workforce, and so on.1

Investing works a little like that as well. You invest money as you work and hope that the stock market will grow to produce a larger nest egg in the future. However, the stock market can be volatile, so sometimes you can lose the gains you earn and even the principal you invested. There are other ways to pay yourself forward. Call us to inquire how an annuity can provide a guaranteed stream of income during retirement. That way you can be sure that the money you pay forward definitely comes back to you in retirement.

Unfortunately, there are problems with the pay-it-forward strategy used for Social Security. One glaring issue has become evident in the wake of the pandemic. With more than 40 million people out of work, there were less FICA tax revenues paying into the Social Security system. This means that, according to some estimates, the program could be insolvent by 2030.2

Then there is the issue of sustained low inflation due to the current lack of consumer demand for goods. For most people, low inflation is a good thing. However, Social Security beneficiaries receive a cost-of-living increase only when there is a correlating jump in inflation, as measured by the Consumer Price Index (CPI). Preliminary estimates for a 2021 adjustment is little to none, given today’s current environment. This situation is exacerbated by the fact that things retirees tend to spend a greater portion of their income on, such as health and long-term care, grow much faster than the rate of inflation. Since 2000, the inflation adjustment for Social Security benefits has increased by 53%, but the cost of items purchased by retirees has nearly doubled (99%).3

Then again, we have even bigger problems than benefits not keeping up with inflation. Thanks to the $2.4 trillion (so far) stimulus passed by Congress to help offset the economic impact of COVID-19, America’s debt has risen higher than ever. While it may be necessary to provide funds for individuals, small businesses, large industries and unemployment benefits to help kickstart the economy, that debt creates a long-term challenge for the federal government.4

To reduce debt, fiscal policies will need to be changed to either raise taxes, reduce spending or both. While Social Security is funded by a separate (FICA) payroll tax, legislators may look to cut benefits in the future to reallocate more money to pay down the national debt. Recent proposals to help make the Social Security more viable include reducing disability benefits, increasing full retirement age and/or raising the payroll tax cap, currently at $137,700.5

1 Jean Folger. Investopedia. April 27, 2020. “Why Is Social Security Running Out of Money?” https://www.investopedia.com/ask/answers/071514/why-social-security-running-out-money.asp. Accessed June 1, 2020.

2 Caitlin Emma. Politico. May 19, 2020. “Coronavirus could push Social Security to insolvency before 2030.” https://www.politico.com/news/2020/05/17/coronavirus-social-security-2030-261207. Accessed June 1, 2020.

3 Alessandra Malito. MarketWatch, Inc. May 30, 2020. “Social Security recipients may be in for a rude awakening later this year.” https://www.marketwatch.com/story/social-security-recipients-may-be-in-for-a-rude-awakening-later-this-year-2020-05-12?mod=retirement. Accessed June 1, 2020.

4 Jim Sergent, Ledyard King and Michael Collins. USA Today. May 8, 2020. “4 coronavirus stimulus packages. $2.4 trillion in funding. See what that means to the national debt.” https://www.usatoday.com/in-depth/news/2020/05/08/national-debt-how-much-could-coronavirus-cost-america/3051559001. Accessed June 1, 2020.

5 Aimee Picchi. USA Today. Feb. 12, 2020. “Social Security: Here’s what Trump’s proposed budget could mean for your benefits.” https://www.usatoday.com/story/money/2020/02/12/social-security-trump-budget-aims-cuts-disabled-workers-program/4738795002/. Accessed June 1, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. Or firm is not affiliated with the U.S. government or any governmental agency. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. Investing involves risk, including the potential loss of principal. Any references to protection of benefits, safety, security, or guaranteed lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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