Dimensional’s Mitch Chamberlain hit an emotional high with his lottery win—but the low that followed was even more powerful. The journey helped teach him there’s a better way to invest. Greed and fear affect everyone.
Foundational Financial Life Planning is the first level of financial planning, what they should have taught everyone in school.
Dimensional’s Mitch Chamberlain hit an emotional high with his lottery win—but the low that followed was even more powerful. The journey helped teach him there’s a better way to invest. Greed and fear affect everyone.
Does it feel like 2021 yet?
The twists and turns so far make it seem like 2020 is dragging into a second season.
As an American, I’m a little shocked and worried, and I’m musing onhow political disagreements turned into excuses for violence for both sides of the red-blue spectrum.
As a father, I am concerned about the type of world my kids will have to grow up in.
As a financial professional, I know that the politics, protests, and rioting in DC are just one small factor affecting markets.
I honestly don’t know what will happen over the next few weeks, but I can help you understand how it affects you as an investor.
Why did markets surge the day the Capitol was rioted?
While the world watched the craziness in DC with popcorn, markets quietly rallied to new records the same day.1
That’s weird, right?
Well, not really.
I think it boils down to a few things.
Personally, I disagree with much of the implementation of the lockdowns, not protecting the vulnerable, shutting down small businesses, and how the economic stimulus bills have been approached.
But it’s not about my viewpoint, it’s about what the whole market thinks. I think most investors are looking past the immediate future and hoping that vaccines, increased economic stimulus, and economic growth paint a positive picture of the future.
The Democrats control the White House and Congress. What does that mean for investors?
If you’re like a lot of people, you might think that your party in power is good for markets and your party out of power is bad.
That makes for a stressful experience every four years, right?
Fortunately, that’s not the case for our markets. Market are pretty rational and efficient in the long term, especially with respect to politics and government policy.
While businesses and investors generally dislike increased taxes and corporate regulation, the Democrats hold such slim majorities in the House and Senate that it limits their ability to pass many big policy changes.
Also, the Democrats’ immediate agenda is very likely to be focused on fighting the pandemic and passing more stimulus aid, both of which should support stock prices.
Does that mean markets will continue to rally?
Maybe; no guarantees, unfortunately. With all the frothy market activity and rosy expectations about the future, bad news could knock stocks down a peg or two.
A correction is definitely possible, and some strategists think several sectors are in a bubble.
Bottom line, expect more volatility.
Well what comes next?
I wish I could tell you. If somebody tells you they know, then they need a dose of humility or wisdom.
I’m HOPING that the vicious cycle of divisive politics will slow down some after the inauguration, and the politicians can get something done. But, they are usually disappointing, even when it is bipartisan.
I am optimistic that the light at the end of the tunnel is getting closer, and we can start getting a little bit closer to normal.
I’m proud of what scientists and medical professionals have been able to accomplish in such a short amount of time.
I’m grateful for the folks around me.
I’m still rationally optimistic, and hopeful about the future. Human innovation is the ultimate resource and we are making great progress in science, medicine, technology, etc and it all makes the world a better place.
How about you? What’s your take? I’m interested to hear your thoughts.
Email me your thoughts at Daniel@blackswancfp.com
P.S. Tax laws are likely to change under the Biden presidency. We don’t know exactly when they’ll happen or what they’ll look like, but I’ll be in touch when we know more. We will be releasing an Insights guide to the major tax changes.
1 https://www.cnbc.com/2021/01/07/stocks-rally-to-record-highs-traders-on-whats-next-for-markets.html
The Psychology of Human Misjudgment is a great speech given by the legendary Charlie Munger. He explains how behavioral psychology can be applied to life, business, and problem-solving.
Here Charlie lays out the 24 Standard Causes of Human Misjudgment, with wit and wisdom.
https://youtu.be/pqzcCfUglws
You can find Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger Here.
“This book is something of a publishing miracle—never advertised, yet year after year selling many thousands of copies from its Internet site.”
– Warren Buffett
Everybody gets affected by uncertainty. It may be different things to different people, but uncertainty can be scary.
We want to be that safe harbor that you can pull into and make sure everything is ok. It is part of our responsibility.
You might not need anything changed. Your plan might be perfectly on track. But sometimes, there are good course correction to be made.
What we want to do is find the space and time to process the anxiety, to get the monkey off your back.
Often, that is just having a conversation about your plan; the why, what, and how.
https://vimeo.com/440097693
We are a true Fee-Only firm, not just fee based.
Fiduciary is the minimum, Fee-Only raises the bar.
https://youtu.be/DiySIj3DLHQ
Summary of the New Code and Standards: Get a summary of a CFP® professional’s duties under the new Code and Standards.
https://youtu.be/lSIn57G7WiM
The Levels of Rules and Requirements: Get an overview of the levels of rules and requirements for CFP® professionals under the new Code and Standards.
https://youtu.be/lKLkRG2tY4Q
The Fiduciary Obligation: Learn about the expanded fiduciary obligation at the core of the new Code and Standards, which requires CFP® professionals to act in the best interest of the client.
https://www.youtube.com/watch?v=q4-M0CLW9s4Financial Advice: See how financial advice is defined under the new Code and Standards.https://youtu.be/N10Nfb0D5f8Duty of Loyalty: Explore the importance of Duty of Loyalty under the new Code and Standards.https://youtu.be/0CKOyOj2kDU
What Is Financial Planning?: Review the definition of financial planning and get up-to-speed on the 3 circumstances where a CFP® professional is required to provide financial planning advice.
https://youtu.be/oASJN7vidgg
Integration Factors: Find out the 5 factors to consider when a CFP® professional who is providing financial advice must also provide financial planning.
https://youtu.be/-O_lYjj34EA
There is an old saying
“Show me your calendar and your checkbook, and I will tell you what is most important in your life.”
Yes, it is wise to be careful where you spend your time and money; but remember, your energy and mind are limited resources too. If your mind fills up with anxiety or distractions, it is hard to be effective in the world.
Financial planning and life planning, as complicated as they can be, ultimately come down to basic human resources. Using these 4 elements the best way you can, with the cards you are dealt. Often we trade time & energy for money, or trade money for a piece of someone’s mind.
It is important to recognize all the resources. Often people find themselves in traps like being very “thrifty”, but not valuing their time enough. E.g. doing something themselves, that would have really been more economical to have someone else do.
Examples of trade-offs from managing personal resources.
In-Post Shortcuts: For Individuals & Families
Answers to the most common questions:
What exactly should I get and when?
3 interrelated questions:
What if I can’t go to work or get laid off?
What if one of us gets sick from COVID-19?
What if our childcare is shut down and I can’t work?
What should I do with my stimulus check?
To jump to the Business & Non-Profits section click here.
Will I have to pay back the Stimulus money on my 2020 taxes?
No, that is a rumor stared by people that do not know any better.
There are no strings attached, and you will not have to pay it back.
Basically, the U.S. government labeled the stimulus checks as a “tax credit” so that it could use the IRS system to send out the checks.
Should I take a forbearance from my mortgage?
Some mortgage lenders are offering a 90 and even 180 day forbearance. Forbearance is not forgiveness, and it just extends the length of time to pay off your house. If, and only if, you need the money- then take the forbearance. If you don’t need the money, it is probably just not worth it.
Are required minimum distributions (RMDs) really suspended?
Yes, but only for 2020. RMDs for all retirement plans that you own or that you inherited RMDs that are due on both April 1, 2020, and December 31, 2020. Any RMDs that were already taken in 2020 (including 2019 RMDs that were withdrawn early in 2020) are eligible for a 60-day indirect rollover. You also have three years to pay their distribution back under these special COVID-19 distribution rules.
Is there a Tax Deadline Extension for IRA contributions?
Questions from Current College Students & Parents:
Most will not get a stimulus check, and their parents will not get $500 for them either. More here.
Yes, there are personal-finance media-stars recommending a gap year. That might be the right thing for some students, and a well thought out gap year can be a time for great personal growth.
For most families I recommend exploring online classes, still it’s a very personal decision that changes greatly with your exact situation. Many colleges are expecting a reduction in students this fall, and there are many schools that are already in financial trouble. This is also magnified with the problem of families not being able to visit campuses, the way we have done in the past. So, I do recommend putting deposits at more than one school.
Should I still pay my student loans?
Student loan interest is waived, and all the required payments are suspended until September 30th, 2020. You need to proactively call them, as not all loan servicers will do this automatically, use the words “coronavirus relief” and they are allowed to give you better options.
*If you were enrolled in public student loans forgiveness before march 13th, these months will still count towards total payments. But you still need to be classified as a full time employee during this time period. Submitting the documentation for PSLF for this year would be very wise, as loan servicers do not always handle things properly in subsequent years.
Student Loans are a far more complicated type of debt than mortgages. Some great Cares Act information about student loans is available here. As always, contacting a student loan expert pays for itself, many times over. The best ones are a Advanced Education Planner or a Certified Student Loan Planner.
Tax Filing status | Adjusted Gross Income | Stimulus amount |
Single | $75,000 or less | $1,200 |
Married filing jointly | $150,000 or less | $2,400 |
Head of Household | $112,500 or less | $1,200 |
Dependents under 17 at the end of the tax year |
N/A | +$500 added to taxpayer stimulus |
Note: The IRS is rolling out a tracking tool called “Get My Payment”, to allow taxpayers to find out the status of their rebate. it is supposed to be ready on April 17.
Illinois Department of Employment Security: will Expanded Unemployment Benefits under the CARES Act
Families First Coronavirus Response Act: through your employer
Paid Sick Leave Credit – up to 80 hours/10 days (sick with COVID-19)
Child Care Leave Credit – up to 10 weeks
Illinois Childcare Expansion: to support essential workers’ child care needs
There is going to be help for Illinois child care: expanded child care options and ease the financial burden of emergency child care centers.
“The state will cover most of the cost of care provided by emergency child care centers and homes. This expansion of eligibility includes those working as nurses and doctors, supporting staff in hospitals, grocery store clerks and food producers.”
When it becomes available the most up to date information will be at these sites:
https://coronavirus.illinois.gov/s/
_______________
For some families, there just won’t be many options. Sometimes you just have to do what is necessary now, not what would be best in the long term. Here, I am just trying to pass along some good, long-term, fundamentals to protect and provide for your loved ones. These are written in the order of importance, for most situations.
After your immediate necessities are taken care of, then first:
Tip: Use your credit card for most purchases. Credit cards have better fraud protection than debit cards and don’t give a thief direct access to your money buffer. Just remember to pay it off every month, or better yet auto-pay.
and
If you have any money left over, then:
Tip: If you have high-interest Student Loan Debt, then you need to talk to an Advanced Education Planner or a Certified Student Loan Planner.
If you have any money left over, then:
Grow your emergency fund
On top of the buffer in your checking account, you need between 3 to 12 months of expenses in a savings account. It needs to be held in a low-risk, immediately available, type of account that yields from 1-2%. Check savings rates here.
Tip: It is important not to get into the emotional habit of hoarding money in a savings account. If you don’t invest the amount above your emergency fund somewhere, your money will start to lose real value to inflation.
Examples: If you work for the federal government, your spouse is a tenured professor, you have no kids at home, and you can both work from home: then you probably only need a 3 month emergency fund. If you are a small business contractor, with a single family income, and you have young kids; then you probably need closer to 12 months worth of expenses on hand.
If you have any money left over, then:
We are not talking about mortgages or student loans, those both need a more nuanced approach. It might soon be the proper time to think about a refinance on home mortgages.
The CPI inflation rate averages about 3%. So, if you get a loan at 3% or less, you are borrowing money at a very cheap rate + a little risk. So in some situations, for some people, it is not worth paying off the loan.
If you have any money left over, then:
Tip: I usually recommend Betterment to my Pro Bono clients.
Tip: Now is the best time to do a Roth IRA conversion that I have seen in a very long time.
and
Tip: Normally, deductions for charitable contributions are limited to 60% of gross income, and excess is carried over to future years. For the 2020 tax year that is raised to 100%
Also, Up to $300 is deductible above-the-line for taxpayers that do not itemize deductions. So keep track of those cash donations.
If you need a little help, I have doubled my available Pro Bono hours. Just email or use my call calendar to schedule a conversation, it’s the same level of privacy as my paying clients.
You can get through this, and there is hope.
Daniel L. Bishop
Advice-Only CFP® Professional
The Coronavirus Aid, Relief, and Economic Security (CARES) Act has a lot in it. And it has been difficult to decipher: with unclear terms, a lack of document guidance to lenders, daily changes, messy loan forgiveness, a glitchy site unprepared for launch. It has been a difficult couple of weeks for everyone involved.
Fortunately, there is some real help for small businesses and non-profits. This is an overview of what you programs you might want to consider as we are all trying to weather the economic sandstorm. I hope you find it helpful, and find some hope for the future. If you need help understanding anything, or just need to talk to another business owner for a few minutes; feel free to schedule a call, email me, or message me on Linked In or Facebook.
Daniel L. Bishop
Advice-Only CFP® Professional
In-Post Shortcuts: For Business & Non-Profits
Paycheck Protection Program
-Loan program to cover cost of keeping employees
Small Business Debt Relief Program
-Debt relief and loan forgiveness to keep up with payments on SBA loans
Disaster Relief & EIDL (Economic Injury Disaster Loans)
-Quick loan advances of cash to keep the doors open
-Useful if PPP funds are exhausted
Families First Coronavirus Response Act
-Paid sick leave, family leave, and childcare credits
Employee Retention Tax Credit (ERTC) & Deferral of payment of Employer Payroll Taxes
-Deferral of up to 50% of Taxes…
-Not available for those using Paycheck Protection Program
Large Business Loss Tax Tactic
Useful Documents, Tool, & Links for Additional Reading
Coronavirus Air, Relief, and Economic Security Act (CARES Act): The CARES ACT
For those of you who did not get to complete your PPP loans, please see the resources below. These online lenders are taking applications now:
Kabbage – https://www.kabbage.com/paycheck-protection-program-loans/
PayPal – https://www.loanbuilder.com/ppp-loan-application
Square – https://squareup.com/us/en/l/sba-ppp-loans
Intuit – https://quickbooks.intuit.com/…/paycheck-protection-program/
The SBA has a website that tracks which banks are still accepting applications, but it’s user-reported and a few days outdated:
https://www.covidloantracker.com/resources
Loan funds can be used to cover the following expenses: 75% for payroll, up to 25% of the loan on other valid expenses
The loan amount shall be the lesser of the following:
Notes on actions:
Loan Forgiveness
Calculation of Loan Forgiveness & Full-Time Equivalent Employee (FTE)
What Lenders are Requiring to Apply:
Latest tax return, 6 months of bank statements, Profit & Loss for 2019 to 2020 current, Voided check of where to deposit loan, Drivers License
Financial Document Examples:
Loan Terms
SBA Business Loan Program Temporary Changes; Paycheck Protection Program
Debt Relief:
Disaster Relief Loans: Economic Injury Disaster Loans & Emergency Economic Injury Grants
Apply for Federally approved SBA loans for COVID-19 here: SBA Disaster Loan Assistance OR SBA Coronavirus COVID-19
Due to Current Increased Volume, the SBA Website is Overwhelmed & Processing Time Could Be Weeks or even Months.
Emergency Economic Injury Grants
Families First Coronavirus Response Act:
Paid Sick Leave Credit – up to 80 hours/10 days (sick with COVID-19)
Child Care Leave Credit – up to 10 weeks
How to get the credits (more guidance should be coming soon)
Employee Retention Tax Credit (ERTC): Deferral of up to 50% of Taxes
Not available to employers receiving assistance through the Paycheck
Protection Program.
Delay of Payment of Employer Payroll Taxes
Not available to employers receiving assistance through the Paycheck
Protection Program.
Large Business Loss Tax Tactic
If you have a net operating loss of 100k in 2019 or 2020, you can carry back those losses for 5 years. You can amend the last 5 tax years to get a refund of those previously paid taxes. You will need to track and apply post-CARES Act NOLs (Net Operating Loss) separately from older NOLs.
Talk to both your CFP and your CPA about this. No, it is not good enough to have one of them. They work better as the collaborating core of your financial team.
Note Farming losses are only a two-year carry back, with opt-out
election, retained.
Full-Time Equivalent calculator to convert part-time employee hours into full-time numbers
The CARES ACT The CARES ACT ACTUAL PDF
Illinois Unemployment Benefits
Paycheck Protection Loan Program (Partially Forgivable)
SBA provides low-interest disaster loans
Deferral of payroll tax payments up to 50% of payroll taxes through 2020.
Chamber of Commerce CORONA Virus Emergency Loans Small Business Guide and Checklist.
Department of Labor: COVID-19 and the American Workplace
Posters, fact-sheets, etc.
COVID-19 Workplace Impact and Employer FAQs: The Families First Coronavirus Response Act
Families First Coronavirus Response Act: Questions and Answers
Congress Reaches Agreement On A Coronavirus Relief Package: Tax Aspects Of The CARES Act
Excellent Overview by JEFFREY LEVINE, CPA/PFS, CFP®, CWS®, MSA.
Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic
https://www.youtube.com/watch?v=xOXwdrWk5kc
https://www.youtube.com/watch?v=iY3OT6JGe9Q