Your $50,000 Tax-Free Coronavirus Check is In the Mail

When your $50,000 tax-free Coronavirus check hits your hands, what are you going to do with it? 

Wait, you thought it was only $2,400? Think again. 


If you’re 25 years old and married (without kids), you and your spouse are about to receive one of the biggest checks in your life - $50,000. You ask, what do you mean? 

When the Coronavirus bill is passed and signed by President Trump, you and your spouse will be receiving a tax-free check of $2,400. Most will view it for what it is. Found money that you can take a vacation with after the virus calms, a new game system or two while you’re quarantined, or a new set of wheels for your ride. Though, what if you did the contrary? What if you viewed it from the standpoint of your future self?  

Here’s how: 

  1. You and your spouse receive the $2,400 tax-free check. 
  2. You open a Roth IRA (call us if you need help). 
  3. Use your government check to make a Roth IRA contribution. (You have until July 15th, 2020 to classify it as 2019. If contributed after that date, it will be a 2020 contribution.) 
  4. If this one-time investment grows at 8% for 40 years (an assumption, but not an unrealistic one). 
  5. It grows to more than $50,000.  

 I’m challenging you to think about this unexpected windfall with a fresh behavioral mindset. Instead of consuming it, will you make it the turning point for your financial future? 

 One more WOW number - $670,000! 

If you add $2,400 to this new account each year for the next 39 years until you’re 65you could accumulate more than $670,000 tax-free. “We’re from the government and we’re here to help you” could go from a bad joke to your reality! 

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Leadership or Followership

“These days people know the price of everything and the value of nothing.”  Oscar Wilde, The Picture of Dorian Gray

You’ve seen the headlines, visited empty grocery stores and maybe even earned an unexpected “spring break” to practice social distancing. What do you think about it? Is this the end of the world as we know it?

Right now you and I are living through a visceral, emotional overreaction to a real health problem. We need strong leaders to keep people safe and to limit hysterical nonsense. With few exceptions though our leaders stopped leading and began following about the time the first rude twitter rant showed up in their social media feed. Elected leaders seek the voting public's approval so the squeaky "tweet" gets the grease regardless of whether it's a reasoned complaint or not. It's not just politicians. We live around many people who have accustomed themselves to reacting to others more than being introspective, patient and proactive.



Let’s cut through some of the noise and think independently. The societal consequence of followership is extreme behavior. Hoarding toilet paper is a symptom but the problem existed before the flu outbreak. We are allowing opinions from uninformed sources to invade our minds and influence decisions. Allowing Pinterest posts from strangers dictate room decorations or wall paint colors is fine. Following the herd into financially ruinous decisions is in a different class of dysfunction. Value your attention and focus for the life-changing resources that they are. Don't rent the space between your ears so cheaply.

Here is a favorite trading aphorism for times like this, “Buy when there’s blood in the streets. Even if it’s your own.” Some attribute this to Barron Rothschild in the 18th century, others say Rockefeller. The sentiment is direct – going against the crowd is sometimes necessary and often times rewarding. Mathematically, if you follow consensus you can never do better than the consensus outcome. Worse still, group-think may lead you into unwanted extreme outcomes.

Contrarian thinking is hard. Contrarian ACTION is nearly impossible. So far in 2020, it would have dictated selling stocks in winter near all-time highs when valuations were unreasonably expensive. That is easy to see in hindsight but behaviorally difficult to actually do it in real time.

Right now the contrarian move is to put money to work in any one of several depressed asset classes (energy, small caps, high yield bonds to single a few out). Doing so requires the tacit acknowledgement that prices may go lower after you buy (maybe even the next day). It's almost self-evident that buying an asset class after a 20% to 30% decline is prudent, yet how hard it is to push the buy button and commit capital while things are uncertain? Warren Buffett mastered this exercise. Learn from him and be proportional with your changes. If there are no worries in the market there aren't many cheap deals. Remember this: short term fear foments long term opportunities. 

Where do you find the money to do this? Conventional thinking processes declines in the assets you already own and says, “it’s down too much to sell now.” But odds are good that you have some investment that may be down but not as much as other asset classes. Risk declines when prices drop so consider a switch out of one position into a riskier one if the new invest has experienced a bigger decline. You probably won’t have to look hard right now.

Use similar ETF products to do a tax loss swap from one product to another (like one stock index fund for another based on the same index). This allows you to book a potentially deductible tax loss now but allows you to stay invested in the same market sector and avoid “wash sale” rules.

Find the free money. Some exchange traded investments are trading at discount prices. This means you can buy that investment for LESS than what it is actually worth. Patient investors learn that discounts can narrow over longer time frames. If they do, that's free money.

Do you participate in your company sponsored retirement plan? Increase or even front load your 401k contributions this year. Now is a great time to get more of your company’s free money in the form of a retirement plan match. If you have the savings and financial flexibility, temporarily dump more of your paycheck into the company plan and live from savings for a few months. This is an advanced strategy for disciplined savers to redirect cash into a tax deferred vehicle now while prices are depressed instead of waiting until you get paid throughout the year and prices have potentially bounced back.

We are all facing the same challenges. The choices you make dictate the financial consequences you will reap. I’ll leave you with this nugget of investing wisdom from legendary value investor Shelby Davis, “You make most of your money in a bear market: you just don’t realize it at the time.”

Your move.

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Investing in Stewardship

One Million Dollars.

That’s what San Francisco 49ers cornerback, Richard Sherman, received for his 2020 Pro Bowl selection.

After facing a season ending injury in the 2017 NFL season, Sherman was released from the Seattle Seahawks. After sitting out the 2018 season to recover, Sherman negotiated his own contract (saving him agent fees) and suited up with the 49ers. In his contract, Sherman negotiated what we like to call a win-win. Since the 49ers were skeptical about his health and performance abilities coming off a gruesome injury, Sherman gave the 49ers an out after a year, but Sherman also loaded up his contract with incentives incase the opposite occurred.

Fast forward to Week 16 (out of 17 weeks) of the 2019 NFL season, Sherman was announced a 2020 Pro Bowler. For this accomplishment, Sherman received a $1 million dollar bonus. What’s noteworthy from this story is his comments on what he will do with it!

 

A Stanford graduate, and obvious forward thinker, Sherman had this to say about his bonus:

"It's getting invested in something that gives me a decent return," Sherman said. "So the kids will end up having it to enjoy. I don't get to spend it."

It’s obvious Sherman isn’t set on the now. He’s a long-term thinker that has said no to instant gratification. Difficult to say no to the now, Sherman sees the value and seems to have considered the long-term impact of his decisions.

Not only will his kids get a nice financial jumpstart in the future, Sherman is modeling the valuable lesson of stewardship to his kids and the world.

 

For more financial literacy thoughts, here’s a link to a LeConte blog post on financial literacy and tips for parents  http://bit.ly/2ty4XZj

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Leaving the Castle, Joining the Hustle

What do NASCAR, British Royals and gender pronouns have in common?

In the past few years we’ve read stories about non-gender pronouns moving through our culture. The trend has led to confusion and strong emotional responses. Regardless of where you stand on this topic, I’ll wager a decent sum that few of you would be eager to ditch “Prince” if that was your birthright pronoun.

The former Duke and Duchess of Sussex, Harry and Megan made big news this week by deciding to step away from their royal trappings and chart a different future for themselves and their children. Leaving the arc and wealth of a royal family may elicit concerns for their decision-making skills but it will give them a myriad of opportunities to capitalize on their popularity. Estimates of their combined net worth (from Megan’s acting career and Harry’s inheritance from Princess Diana) hover around 35 million dollars so they aren’t exactly starting from the bottom and working their way up from nothing. Let’s help this young couple brainstorm some opportunities to find success.

Harry could do a joint venture with another famous Brit, retired footballer David Beckham who is successfully promoting fragrances and men’s fashion. This would render something like Harry and David’s mens' underwear. That could be huge! Outright endorsements would be easy and even fun for Harry and Megan. Imagine your favorite NASCAR driver doing a post-race interview, “ I’ll tell ya! That Harry and Megan Crown Vic #8 car was the queen of Daytona today!” Don’t laugh it could happen!

Joking aside, I wish them all the best and I hope they have fun with the choices they make. This fact remains, they have the freedom to find a new hustle. Their own unique hustle. To be successful, they need to understand their own personal strengths and weaknesses. We know Megan can act. She was excellent in Suits. What about Harry? What is he capable of achieving? Now free from the confines of royal liturgies, he gets to reveal to the world who he is and what he’s good at.

What about you? When was the last time you assessed your emotional, relational, spiritual, financial and vocational fitness? Imagine, like Harry and Megan that you are stepping out of a pre-determined destination and grabbing the wheel to chart a new course. What could you do to change your future? Would you be happier, less stressed, more fulfilled? Write your thoughts down, talk to those closest to you and take a bold step! You probably won’t have your name on a car at Talladega but you’ll still enjoy the ride!

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New Year’s Revolution

While sitting at dinner last week, my 8-year-old son asked me if I had made any New Year’s “revolutions”.  My daughter chuckled at his vocabulary, but knowing he meant to say resolutions, I said that I wanted to eat better, read more and spend less time on my smartphone (all actual resolutions). 

This is the time of year that we read the Top Ten lists of news stories, songs and movies and hear all of the things and products we can buy to make our lives easier and better for the next 365 days.

Having watched numerous commercials during the football bowl season, there are many that espouse that a new car, 0% financing on that new sleeper sofa, or a Peloton, will undoubtedly make us all better in 2020. According to U.S. News and World Report, 80% of resolutions made on January 1 will fail by mid-February.  If you don’t believe me, check the parking lot at your health club this week and then look again after Valentine’s Day. You may say that you are going to finally lose ten pounds, clean out the garage or start getting serious about retirement savings, but chances are slim that you’ll follow through with it. If you must make the same resolution every year, what’s the point?

Some problems don’t require resolve, they require a revolt. This is not intended to be a political or controversial take on current events, but one on our own financial lives.

Revolution is defined as a dramatic and wide-reaching change in the way something works or is organized, or in people's ideas about it. According to the US Government Accountability Office, 48% of Americans 55 and older had put nothing away in a 401(k) or individual retirement account. The 2019 survey also states that Social Security provides most of the income for half of the households 65 and older.

 

Whoa! Those are some staggering numbers. If you fall into the above category, we need to talk.

If you track the findings of the Employee Benefit Research Institute, which estimated that 41% of U.S. households headed by someone age 35 to 64 are likely to run out of money in retirement, that’s a cause for a retirement revolution.

Can you live off Social Security alone in retirement? 

Will your health allow you to work until you're 70? 

How much money do I need to retire and more importantly, how long will it last?

All these questions can be answered and planned for. But, it takes a wide-reaching change of approach and not one of dismissal with a lack of follow through. Sometimes major problems can’t be addressed with minor changes to your behavior. This year why not resolve to be more revolutionary with your financial choices?  Hiring a fiduciary advisor to help you plan this revolution will prepare you for the future. 

Even though it provided a comedic moment, my son’s question was quite prophetic. What are we going to do this year to revolutionize our lives in 2020?

And when the Earth completes its revolution around the Sun in a year’s time, perhaps you’ll celebrate the anniversary of your own.

 

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SECURE ACT Final Update - Highlights

The SECURE Act, or (S)etting (E)very (C)ommunity (U)p for (R)etirement (E)nhancement, proposed to tackle the dismal retirement participation rate was signed by the President on December 20th. So, what does this mean for you and the rest of Americans?

  • Elimination of the ‘Stretch’ Provisions (In short, inherited retirement accounts must be distributed in full by the end of the 10th year following the year of inheritance.) **Although there are exceptions
  • Easier for small businesses to set up a retirement plan (Businesses to get tax credit for establishing a retirement plan)
  • Required Minimum Distribution (RMD) age pushed back from 70.5 to 72
  • 529 Plan funds can be used to pay back qualified student loans (up to $10k annually)
  • 10% early distribution penalty waived for a qualified birth or child adoption up to $5k per-child (If married, both spouses can withdraw up to $5k per-child)
  • Traditional IRAs no longer have a contribution age limit (Use to be at age 70.5)
  • Annuities to enter into employer retirement plans (Is this a good thing? Click for more insight)
  • Part-time employee 401(k) participation available
  • Increased max contribution percentages for employees who are automatically enrolled into a 401(k) plan (was 10% cap, but increased to 15%)
  • Kiddie-Tax TCJA revisions reversed (back to the child’s parents’ marginal tax rate)
  • Disaster relief distributions up to $100k
  • For students – stipend and fellowship payments are treated as compensation for IRA purposes (enables students to make IRA contributions)
  • No more 401(k) credit card loans

 

Final thoughts:

After surveying thoughts across the financial industry, there are still mixed feelings on the SECURE Act. Many are asking the question; does it really promote security for Americans, or does it just increase exposure to salesmen? I think both, but of course with every new law comes pros and cons. In my opinion, it is the plan participator that must educate themselves on what they are putting their hard-earned money in. With the new landscape set, I’d encourage everyone to read up on your retirement plan and dig into the investments (specifically focusing on the expense portion). For the full implications of the SECURE Act, we will have to wait and see.

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