We thought it might be valuable to share several of our client emails. These email were sent over the last several months keeping clients updated with their portfolios, working from home and the CARES Act.
Client email reprint from 2/28/30
In your investing lifetime, you may only see a situation like the recent novel coronavirus (COVID-19) a few times. This is a circumstance where complete candor is necessary. The truth is that we can’t yet gauge the full economic impact, and by the time we can, the volatility may have passed.
It’s important to remember that, in terms of market declines, the recent drop isn’t unprecedented. In fact, in the last six day-to-day declines of 3% or greater, the market rebounded higher a month later. Nonetheless, past performance is no indication of future returns, and it’s uncertain whether history is a good teacher in this instance.1
Markets Have the Virus
Right now, markets are reacting to the news because the outcome is unknown. In a way, COVID-19 has “infected” markets all around the world. In times of market uncertainty, some traders believe the best approach is to sell. Fear is driving decisions. Nobody would blame you if this uncertainty gave you a bit of anxiety, as well.
You Don’t Buy Snow Tires in a Blizzard
Our desire is that—by working together to develop an investment strategy that fits your specific risk tolerance, time horizon, and goals—you should be prepared to weather turbulence. Your specific circumstances should be reflected first and foremost in your asset allocation, which we consider the first line of defense. Your asset allocation reflects, for example, how much exposure your portfolio has to stocks as opposed to bonds. A good strategy gives you room for market changes that might last a few days – even a few years. Staying the course in response to such changes is often the smartest move, partially because you aren’t reacting immediately to a dip, and you might benefit from a potential recovery.
As many of you know, we also follow a risk management process as a second line of defense at the portfolio level for many of our clients (depending on account size, client preference, tax implications, etc.). Based on this risk management process, on Friday (Feb 21st) and on Monday (Feb 24th) we tactically reduced the equity exposure of many clients by a few percentage points as a result of two different signals we received from proprietary strategies, including our Varitex volatility strategy, which is now in cash.
When a blizzard hits, the people who already own snow tires are usually happier than those venturing out into the cold, hoping they’re still in stock. In the same way, it’s generally best to have a long-term investment strategy and process in place before a storm hits. We’re in the middle of the storm right now. Acting impulsively in the short-term could have significant consequences when it comes to trying to achieve your long-term financial goals.
Here to Support You
This may be the time you need us most, because in times like this it’s easy to question conventional wisdom. During most volatility, we advise you to stick to your long-term strategy, and that generally proves to be the best course of action.
Remember, we are here to help you and your family during this time. Feel free to reach out to us with any questions or concerns.
Client email reprint from 3/21/20
Dear client,
Your team at Stone Bridge wants to assure you that we continue to operate as usual and are available to you, our clients, during this highly uncertain time.
When we set up our company over 8 years ago, we did so with the idea that all of our employees should be able to work remotely. Although our desire was to enable us to do so under more pleasant circumstances, our focus on flexibility has enabled us to seamlessly transition to working from home today.
As a result, we continue working for you, managing your accounts, and monitoring the situation as it changes, even as we practice “social distancing” and reduce face-to-face interaction.
If we do speak to you over the phone, you may hear a child’s voice, a dog bark, or other noises that are typical of a home environment. We thank you in advance for your understanding!
Many of you know that we have long emphasized the importance of our investment process and our use of alternative investments in managing client portfolios. While these things have helped many client’s portfolios on the margin, your asset allocation has been the biggest driver of returns during the last few weeks.
As we try to stay connected, please let us know how you are doing and if anything is changing for you.
We’re in this together, and we’ll come out of it together.
Meanwhile, we are praying that you remain in good health and that you may be filled with peace.
Regards, Your Stone Bridge Team
Client email reprint from 3/30/20
We want to pass on to you valuable information put together by one of our partners on the stimulus package passed on Friday.1
The Senate and House of Representatives have passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. The roughly $2 trillion coronavirus response bill is intended to keep businesses and individuals afloat during this unprecedented time.
While this legislation addresses many problems arising from the pandemic, we wanted to point out a few aspects that could directly affect your financial plan or your current financial situation:
- Individuals earning up to $75,000 a year will be eligible for a $1,200 check. Reduced checks will go out to individuals making up to $99,000 a year (the payment amount falls by $5 for every $100 in income above $75,000). Married couples are eligible for a $2,400 check as long as their adjusted gross income is under $150,000 a year. Reduced checks, on a sliding scale, will go out to married couples who earn up to $198,000. Individuals and married couples also will receive an additional $500 for every child under 17. This is based off of either 2018 or 2019 tax filings.
- The 10% tax penalty on premature distributions of up to $100,000 from qualified retirement accounts has been waived for 2020 for “coronavirus-related” purposes. The regular taxes on these withdrawals can be paid over three years. In addition, any funds withdrawn may be re-contributed to the plan within three years regardless of contribution limits for that year.
- RMDs are waived for certain retirement plans and IRAs for 2020. This applies to everyone—not just those affected financially by coronavirus illnesses.
- For those taxpayers who do not itemize deductions (only 8% itemized in 2018), they may deduct up to $300 of charitable contributions which will be an above the line deduction. This new rule applies to all years and not just 2020.
- The 60% AGI limit on gifts to public charities is increased to 100% of AGI for 2020. All carry-forward rules apply as normal.
We would welcome the opportunity to discuss the above-mentioned items further with you. Our role would be to do so in light of your current financial situation and your longer-term financial plan. Since we do not give tax advice and would recommend you speak with your tax advisor, we would be happy to facilitate a conference call with your CPA to discuss the most appropriate options. In addition, while we received this information from a source that we believe to be reliable, we cannot guarantee its accuracy.
1 This information was produced by eMoney, the company behind our financial planning software, Stone Bridge Connect
As we mentioned above, the CARES Act includes provisions that make it easier for people affected by the Coronavirus to tap into IRAs and company retirement plans. However, we would agree with a recent Morningstar article which puts other sources above these in terms of which ones to access first for cash:
- An emergency cash fund
- Low risk assets in a taxable account
- Withdrawals from a Roth IRA account (made easier by the CARES Act)
- Life insurance cash values
- Loan from retirement plan (made easier by the CARES Act)
- Home equity line of credit
- Hardship withdrawals from IRAs
(see https://www.morningstar.com/articles/975122/10-sources-of-emergency-cash-ranked-from-best-to-worst)