Maybe today isn’t the ideal time to take the early retirement you planned. But the day is fast approaching. The pandemic will pass, economic activity will increase and the market will travel to new highs. Beginning retirement when the economy is at the beginning stages of a bull market allows for the longest period of growth before your budget is seriously challenged with declining asset prices.Read More
Restarting the economy is going to be more difficult than it was stopping it. A vigorous discussion on the topic is desperately needed as many feel talking about opening the economy is akin to reigniting the infection rate when in reality the discussion is needed to formulate an appropriate and workable plan.
Talking about restarting the economy is good policy. Shutting down large swaths of economic activity was necessary for public health. And for the most part it was a fairly easy process: governors gave the order and their state ground to a halt as people sheltered in place, giving COVID-19 no viable path to propagate. The same happened around the world. It is The Day the World Stopped.
The spread of COVID-19 had slowed and in many countries has all but stopped. Concerns the virus is picking up steam where social distancing is relaxed is still a real risk. However, policies designed to slow the spread of the virus appear to be working. Multiple medical therapies hold promise and a massive effort to develop a vaccine are in progress. A vaccine would be a game changer, but realistically that is still as much as 1 ½ years away before it becomes available. The economic price would be too high, and the resulting harm to human health from lack of services, too damaging to wait over a year before reopening the closed parts of the economy.Read More
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is the attempt by Congress to reduce the economic dislocation caused by the current pandemic. Taxes play a key role in the Act, along with several economic stimulus policies.
Normally a new tax law requires time to figure out all the details. The Tax Cuts and Jobs Act (TCJA) of 2017 is still looking for clarifications on several issues, some of which are addressed in the CARES Act. COVID-19 had pushed economic decline into overdrive. The American economy has never declined at such a pace. Businesses and individuals went from good economic conditions to millions unemployed and many businesses forced to close. A draconian stimulus package was required.
The CARES Act is $2.2 trillion of federal stimulus. With no time to iron out the details, rumors are flying. Normally reputable sources of information are struggling to get facts out. Misinformation is rampant. This post, along with the accompanying Facebook Live event, will outline the facts as they currently stand. The facts might change is some situations. I will correct those errors in this post periodically so you have a reliable resource. There are many instances where the only answer is: I don’t know. Because nobody does, even the people in charge of the programs.Read More
Rules of thumb are an easy way to quickly see where you stand financially. Once you reach 25X your spending in liquid net worth (the 4% rule presented as a multiple of spending) you are assumed to have enough to retire under the 4% rule, regardless your age.
However, as we are seeing with the current market turmoil, the simple rule of thumb has one fatal flaw. If you reached your 25X goal a few months ago and decided this was the time to step away from traditional labor, you now face a withdrawal rate from your index funds a third higher than expected. This will reduce the account value early in the distribution phase, lowering the total amount you can get from the investment over your lifetime.
Another rule of thumb is to keep 6 months of spending in cash in case you become unemployed. Under a normal job loss or economic decline this would be a reasonable policy to follow. Unemployment insurance can provide additional cushion to the 6-month cash reserve.
Black Swan events (unexpected negative economic events such as the housing crisis or pandemic) throw the whole rule of thumb out the window. Black Swan events do not happen often, but they do occur every decade or so. Looking back at U.S. history, it seems something always happens every decade to knock the markets lower and slow economic activity. The 2010s are the only decade to avoid that fate and 2020 seems to be making up for the oversight.Read More
The stock market is down, reflecting the dim prospects for companies trying to turn a profit in a quickly declining economy. Decisions need to be made while you are under heavy duress. Should you sell an investment, or maybe buy? Is early retirement or collecting Social Security early a good move? How does your business survive if it has been deemed non-essential? The financial decisions you make today will have consequences for years to come.Read More
Fear is the most powerful weapon in war. Hitler deployed buzz bombs against London in an attempt to destroy resolve and heighten fear during World War II. It nearly worked, if not for the even greater resolve of the British people and their leader, Winston Churchill.
Fear is such a powerful weapon that nations will go to great lengths in war to manipulate the news reaching the people. During World War I, only Spain had a reliable free press reporting the deadly flu ravaging troops and populations. No army wanted the world to know they were taking heavy causalities from what would later be called the Spanish Flu. Yet every nation, on the battlefield and at home, were taking a hard hit from the disease. The U.S. was particularly hard hit. But when the absence of daily news on the deadly flu was only to be found in Spain, it was felt it the virus originating there. The truth was far from it.
Today we are facing a similar, though less deadly, threat, and the disinformation machine is in high gear. This time the media seems to want fear cranked to the highest level.Read More
There is an adage on Wall Street many have repeated over the years and more so in the last month:
BUY THE DIP
What so many forget is another Wall Street adage similar to the first:
BUYING THE DIP WORKS UNTIL IT DOESN’T
I have warned this is not over yet so don’t get too excited about buying the first decline.
My opinion is unchanged. Unless something drastic changes, the events put in motion will play out until their logical end (the end all panics end in).
Most readers of my blog have never experienced a prolonged decline in many markets at once. It has been 12 long years since things were really ugly. This will be the first REAL test of the FI and FIRE communities. Unfortunately, most leaders in these communities have also never experienced a real market panic when they had meaningful money invested.Read More
All too often we install the security cameras after we are burglarized; start carrying pepper spray after an assault. Business owners, large and small, face heightened risks in our modern world and reactive security plans do not cut it. A proactive plan can prevent the breech before it ever happens.
Small business owners, income property owners and even people with a side hustle need to have a security plan. It’s not only a big business problem. Some businesses are required by law to have a security plan. For example, the IRS requires tax professionals to have a written security plan that is updated annually. Those selling securities or insurance, banks and other financial institutions have similar requirements.
Whether your industry requires a security plan or not, you must have one. In this post we will start with a short discussion on security plans for tax professionals and accountants because that is the demographic this blog serves. I will then share where the detailed security plan nearly failed in my office and how we shored up our procedures to protect employees and clients. Then we will discuss implementing a security plan for your business, regardless the field you are in. I will point out the benefits of a security plan for even as innocent a side hustle as dog walking. If you never need to test your security plan in real life, all the better. But if fate comes knocking I want you, kind readers, to be prepared so risk is reduced.Read More