We focus this month’s newsletter on the COVID-19 pandemic and share guidance and insights that we hope adds tremendous value during this difficult time. We begin the newsletter with a statement on Touchstone Advisory, LLC’s response to COVID-19. We also share our latest insights on the COVID-19 market and economic impacts. Finally, we provide information on the CARES Act benefits for individuals to take advantage of.
Touchstone Advisory’s Response to COVID-19
First and foremost, on behalf of the entire Touchstone Advisory team, our thoughts and prayers are with everyone impacted by this “invisible enemy.” Based in New York, the latest virus epicenter, I am well aware of the challenges we collectively face in the weeks and months ahead, and I hope everyone reading this stays safe.
Fortunately, Touchstone Advisory, LLC is well prepared for these challenging times. We enacted our Business Continuation Policy on March 14th, ordering all staff to work from home for the foreseeable future. Prior to this, all staff had full capability to work from home, and I am proud to report we have had no major interruptions in servicing our client’s needs during this challenging time. As this situation continues, we fully expect there to be minimal disruptions to our business, if any.
We are committed to providing the best advice and service for our clients and the greater expatriate & global executive community, now more than ever. We are continually looking at ways to improve our service, and hope to share positive updates with you in the future.
Please do not hesitate to Contact Us if you need anything.
Zachary Zanghi, Managing Partner
COVID-19 Market & Economic Insights
Q1 2020 was the worst quarterly performance of the US stock market since 1987, and the worst first quarter in market history. Fortunately, the vast majority of our clients fared better than the stock market this quarter, due to diversification and the balanced investment strategies we generally advise. That being said, it was still a very difficult quarter to navigate and I expect further uncertainty in Q2 and potentially beyond. The question we now need to ask is:
How do we best prepare for investing in these uncertain times?
Long term investors need to be focused on their long term returns, goals, and objectives throughout this uncertain period. The reality is that if you do not plan on touching your investments for a 5+ year period, you likely have little to worry about. That is because history teaches us that markets and investments recover even from the worst of times. For example, during the financial crisis of 2008-2009, the S&P 500 peaked around the 1,500 level in October 2007 and broke through that 1,500 level by February 2013. The S&P 500 now trades around 2,500, representing a ~67% return (~6% annualized) from the October 2007 levels.
The recent market downturn highlights the seriousness of COVID-19 – not only galvanizing the government policymakers around the world into sweeping moves to mitigate and reverse its impact on the global economy but also impressing upon individuals and businesses the importance of contributing to the solution with social distancing and stepped up hygiene.
If you can recall any downturn, it feels like the end of the world is nigh and that ‘this downturn is different this time’. However, the human race has an innate capability to find solutions to very complex problems and we believe COVID-19 will be no different.
Have equity markets found their bottom yet? We think the next few weeks will be critical to see if locking down countries around the world will help turn the tide of this pandemic. Equity markets, generally a leading indicator, will react the quickest to the turn of events and thus why our advice is not to join the bear market but ride out the storm to wait for the inevitable recovery in the market in the medium term.
Benefits for Individuals in the $2 Trillion CARES Act.
The CARES Act that Congress approved and President Trump signed last week is certainly the biggest aid/relief package we’ve ever seen. But, it is most definitely needed to help American workers and companies through this time of crisis. The Relief package totals more than $2 trillion and a large part of it is set for businesses large and small, who have been most affected by the forced shut downs to control this COVID-19 virus.
There is also a portion of the aid to go directly to support and help individuals. There are:
Direct Payments to American Workers
- Cash payments to working class are $1,200 ($2,400 married), with an additional $500 cash payment available per child.
- Full payment is available for Americans making up to $75,000 (individuals) and $150,000 (married). This applies even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as SSI benefits.
- The value decreases and then phases out completely for those making over the full payment income cap. Rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. Complete phase-out occurs with incomes exceeding $99,000 for single filers and $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.
For Retirement Accounts
- For 2020, those that are subject to mandatory minimum distributions from their qualified retirement accounts would be able to keep their funds invested without penalty.
- Individuals are allowed in 2020 to take distributions from their qualified retirement accounts, such as 401(k) plans and IRAs, of up to $100,000 without having to pay the 10% penalty on early distributions if the distribution is related to adverse financial consequences as a result of contracting COVID-19, or related factors
- Through September 30, 2020, requires the Secretary to defer student loan payments, principal and interest, without penalty to the borrower for all federally owned loans. Provides federal loan protections and Pell grant protections for students who ceased enrollment as a result of COVID-19.
- Provides tax relief to encourage employers to implement student loan repayment programs. This excludes up to $5,250 in qualifying student loan repayments paid by the employer on behalf of the employee from income for income tax purposes.
- Creates a temporary Pandemic Unemployment Assistance program through December 31, 2020. This program will provide payment to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others).
- Provides payment to states to reimburse nonprofit organizations, government agencies, and Indian tribes for half of the costs they incur through December 31, 2020 to pay for unemployment benefits.
- Includes an additional $600 per week payment, on top of state benefit levels, to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months, through July 31. (Laid off workers currently qualify for up to 26 weeks of unemployment insurance. Benefit levels vary by state with most replacing about half of an individual’s wages during that time.)
- Provides an additional 13 weeks of federally-funded unemployment insurance benefits beyond the normal 26 weeks through December 31, 2020 to help those who remain unemployed after state unemployment benefits are no longer available. The amount provided would be the same as the regular benefit paid by the state.
- And of course by now we all probably know that the IRS and most states have pushed back the deadlines to file tax returns and pay taxes owed, until July 15th of this year.
You can see this information on RRBB’s website also.