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A Well Earned Holiday

If I took a quick poll, I bet most folks would label Memorial Day as the official start of Summer. People who have family members who died in combat have a different perspective because of their personal loss. It's hard to recapture the honorable origins of Memorial Day from it's historical roots. Maybe this year we will reflect on the voluntary loss of freedom in the wake of the COVID "pandemic." The toilet paper shortages are disappearing and the beaches are opening up, but before we get back to our normal "busyness", maybe we can dedicate a few minutes of our families' time to discuss freedom and what it costs. 



How were you impacted but the economic shutdown? What part did fear play in your mind and decisions? What was the financial cost to your family? Did the government help you (stimulus, small business loans, unemployment assistance)? Did the government hurt you (extended closures, bad decisions)?

What could you have done differently to be better prepared to navigate through COVID craziness? 

The Trial of Socrates offers interesting parallels to the current debate over the limits of our government in the face of a public health scare. The philosopher was associated with the Thirty Tyrants who were overthrown. Socrates was perceived to prefer Technocracy instead of majority rule. He espoused that political decisions should be made based on facts and data that only learned and capable leaders possessed. Only these leaders on Socrates view would be competent to make the best decisions for Athens citizens. Do the names Trump, Cuomo, Fauci and Brix come to mind? 

At the end of the trial, Socrates was faced with the option to flee Athens in exile or accept his death sentence. At 70 years old, he chose the latter and downed a glass of Hydroxychloroquine. Not really it was actually poison hemlock.

Socrates was credited with the phrase "The unexamined life is not worth living" in the writings of one of his young disciples named Plato. This is the takeaway for us today. We've all faced an exile of sorts in the mandated quarantine rules. What did we learn from it? Have you discovered an appreciation for something after it was taken away during quarantine? What are you thankful for? What is important to you?  

Before summer gets started and you bring the seersucker out of storage, take some time to ask yourself some questions. Discuss with your spouse and kids what they could live without if the past few moths became a permanent way of life. What should you leave in quarantine even after they end? Use the Memorial Day break to give thanks for the men and women who paid the ultimate price so that we have the freedom to contemplate the luxury of modern American life.



America is still the best place on the planet.
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Five Little Things

If you’re like me, you’ve reached the point during your time at home where you’ve cleaned out your closets, re-learned the rules to UNO and redefined how long something will stay edible in your freezer.  As you look for something to occupy your time in the coming weeks, here’s a list of five little things that will help your financial and mental health heading into the summer. 


1. Open your mail Walking to the mailbox each day may be a new part of your routine I would encourage you to take this time to read your investment statements, insurance documents and other financial information.   You may remember that you have a 401k from 2 jobs back or some Disney stock that your grandmother gave you.  Take this time to assess what accounts you have and where. You’re likely to find the need to consolidate some of those old accounts and get more organized. 

2. Update your beneficiaries.  Gather all your insurance policies, retirement accounts, even 529 college savings plans, and verify the beneficiaries on those.  They are easily accessible online or by calling the provider.  You may have gotten married or had another child.  Always a good time to update that information if it hasn’t been done in a while. 

3. Develop a monthly budget.  You’ve likely been home for going on 8 weeks now.  Take a glance at your credit card bills and bank accounts for March and April.  The Amazon charges and the grocery bills are likely higher, but what about your other spending?  This may give you some insight on what you spend money on and perhaps how you could save more. 

4. Keep an eye on your tax return.  Many things have changed in 2020 because of COVID-19.  Review last year’s tax return and educate yourself on new deductions, income changes and opportunities because of the pandemic. If you haven’t filed your 2019 return, develop a plan to get that done, and if you owe taxes, see goal number 3 above. 

5. Write down three things that you have enjoyed during this time alone.  It could be time with family, walking your dog, or cooking new food.  Write those things down on a notecard or post-it note and put it on your refrigerator or bathroom mirror.  Remember those positive experiences and think about implementing them into your life permanently going forward. 

The first four of these suggestions can have a significant impact on your financial health both now and in the future.   While the fifth task is personal, it too can transform the way you approach life and relationships with those you care about.    

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A Rookie’s First Bear Market

I have heard and read about bear markets, but I have never experienced one with ‘skin in the game’ until April. Everything I heard and most of what I read does not even scratch the surface of what I just experienced. Bear markets engulf investors in fear, loss, anxiety, panic, and regret. I experienced all these emotions.

 

Background: The Escalator Up

 

On March 9, 2019, the stock market passed the 10-year milestone from its 2009 lows. This bull withstood punches from all over the globe. A U.S. Federal Government credit rating downgrade, European sovereign debt crisis, U.S. – China trade war tensions, Brexit, and interest rate hikes to name a few. With bumps smoothed along the way with quantitative easing (QE), tax cuts, and the daily expressions of optimism from economists; most individuals began to think the longest bull market in history was invincible.

 

On February 12, 2020, the DJIA, the NASDAQ and the S&P 500 (all major stock indices) finished at record highs. (The NASDAQ and S&P 500 both reached subsequent highs on February 19th).

 

These highs were short lived.

 

Bear Market: The Elevator Down

 

In less than two weeks from the February 2020 peaks, major stock indices were in freefall. Bear markets, defined as a decline of at least 20%, occurred in the S&P 500 (16 days), DJIA (19 days) and NASDAQ (17 days). Since entering the bear market, each index dropped between 32-39% before bouncing.

 

In 2009, our country emerged from the Great Financial Crisis (GFC). Despite the accusations and finger pointing that occurred, markets declined, homes were lost, and many jobs disappeared. I personally do not recall the turmoil from the subprime lending crisis. I was insulated, sitting in a desk in ninth grade Math and English, and periodically escaping pranks from my football teammates. This put me at a slight disadvantage by not having a first-hand experience of facing the 2007-2009 bear market. Eleven years later, I am sitting behind a desk at LeConte Wealth Management. My position provides me an up close and personal experience of what truly occurs in a bear market.

As a rookie facing my first bear market, here are the top 5 things I learned:

1. The trusted adviser earns their keep, but it is quickly forgotten

 

“Where there is no guidance the people fall, but in abundance of counselors there is victory” Proverbs 11:14.

 

As the Good Book points us toward wise counsel, I believe this principal should flow over into every aspect of our lives. Throughout the past two and a half years of my professional career I have heard a lot. I’ve heard clients talked down from mortgaging their home to chase a “golden ticket”, I participated in meetings where we had to help clients understand the sacrifices that needed to be made to stay retired, and we’ve helped clients wrangle their emotions to avoid common investor behavioral mistakes – like chasing a hot market and selling when things underperform.

 

Human emotions are real, and they can swing to the extremes in a hurry. I was able to see the power of how a trusting relationship with an adviser can provide a practical approach to help individuals and families stay on the path toward their goals. Unfortunately, clients tend to quickly forget the value of a sensible approach that advisers provide in these situations.

 

I would encourage every investor to seek wise counsel, because as much as we think being sensible would be easy to do; I have seen otherwise.

 

 

2. "What do I care about the price of beef when I want milk from my cows”

 

This quote comes from Farmer Frank, who is one of LeConte’s first clients. His words were etched in my mind from LeConte partner, Hoy Grimm. His farming wisdom applies perfectly to our approach of Purpose-Built Planning. Simply put, this is a reminder to keep the main thing the main thing. If your investment goal is to reduce taxes; focus on that. If your investment goal is to grow your investment; focus on that. Do not expect growth from income investments and income from growth investments. Farmer Frank has helped me learn a valuable lesson by learning not to change your long-term investment strategy because a short-term price change captures your attention (a.k.a. triggers your emotions.)

 

 

3. Markets can stay irrational longer than you can stay liquid.

 

This February, valuations crept higher and earnings growth slowed, but money kept piling into stocks. It did not matter what your money was invested in. It was like throwing darts at a board covered with triple 20s. I sat in a 2019 client review and every asset class they were invested in was up. This is what their response was, “Why didn’t I have more money in the thing that made the most. “Without recognizing it, they were asking us why you did not buy (allocate to) more stocks even as prices became irrational.

 

Bull markets produce this euphoric state in many investors and it certainly did in me. The irrational decisions others made in the market prompted me to follow suit with my personal holdings. In hindsight, I knew what was occurring as we had discussions almost weekly at the office about it, but my emotions overtook my sensible thinking. In their wisdom, the partners at LeConte did not give me trading authority for our client’s accounts. So… the harm was limited to my relatively new Roth. From this lesson, I will take the value of patience and strive to abstain from the herd.

 

4. "Be fearful when others are greedy and greedy when others are fearful” - W. Buffett

 

Markets can stay irrational both ways, as they go up and as they go down. Following the herd either direction is a mistake. Warren Buffett is the embodiment of disciplined investor behavior. His words above are contrary to the thoughts and emotions investors feel when markets drop 30% plus from all-time highs. Bear markets typically occur when fear enters the market and large “emotional” sell offs begin over a longer period. Throughout a bear market, volatility tends to pick up, which presents more fluctuation than the average investor can stomach. In turn, this creates the opportunities. Investors with a “greedy when others are fearful” mindset think about putting excess cash to work and rebalancing into better positions that will help reach longer-term goals. I saw this firsthand as we asked clients for more investment cash when markets were down to pick up positions at a discount.

 

5a. Recency Bias is real. (Be disciplined in taking profits)

 

This may be one of the hardest lessons I had to learn. I remember a year ago investing in an exchange-traded fund that was up ~36% in less than 6 months. It was quite incredible. I remember thinking there was no way the investment would slow down – it had to keep growing (this was a product of recency bias). “If only it could get to 40%; that’s when I will take some profit,” I told myself. Over the next 6 months, I gave back every penny gained, including some of my principal. Looking back, my first mistake was not implementing a rebalancing strategy. This would have helped shelter me from my emotions, kept me disciplined and ultimately kept me from learning the hard way.

 

5b. Is it for savings or for investing? (Bonus)

 

This is a question that every investor should ask themselves before they ever put a dollar in a security. Why? Two words, time horizon. Time horizon is a quantified length of time that an investor plans to hold a certain security based on a goal. In a situation that you have a question about whether you should invest, make sure you never put your savings in stocks. Do not be speculative with it. You do not want to be forced to sell your holdings while they are down 20%-30%.

I will leave you with this. Eighteenth century philosopher, Edmund Burke, stated the following, “In history, a great volume is unrolled for our instruction, drawing the materials of future wisdom from the past errors and infirmities of mankind.” As I move forward from the 2020 bear market, I plan to take Burke’s advice by learning from my past errors as an investor and continue to turn disadvantages into advantages. I encourage you to look back as I have done and reflect on what you could have done better. Draw from Burke’s advice and learn from the wisdom that has been unrolled in front of you.



P.S. If you are within 10 years of retirement, just make sure you are

       not investing like a 25-year old before his first bear market.

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The “Never-Ending” Tax Season

I woke up this morning and started my work as usual (Except there’s nothing usual about being at home working in a makeshift office).  About noon, a CPA friend of mine texted about how weird today seems. That’s when the light bulb moment happened.  It’s APRIL 15th!  I can’t believe it took me half the day to realize it was April 15th.  That’s what this Coronavirus has done to me and my colleagues around the country. 

While the tax deadline has been extended from April 15th to July 15th, there hasn’t been a lack of excitement around CPA offices.  That’s because the government has initiated ways to get money into American’s hands, and based on the number of phone calls and emails I’ve received, people are making full use of the opportunity.

The first way of getting money to people is the individual Stimulus Checks.  That’s a $1,200 check per adult and $500 per dependent. Well, I wish it was that simple.  The dependent has to be under 17 and the taxpayer has to be below an income phaseout.  These thresholds are:

  • Single Filer: $75,000

  • Head of Household: $112,500

  • Married/Joint Filer: $150,000

If you make more than these amounts, your check is reduced by $5 for every $100 over the threshold.  Therefore, there will be a significant number of people not receiving any check at all.

The Second and more complicated methods of getting money into the economy are the SBA loans for small businesses.  I won’t go into a lot of the details, but these were designed to help business owners pay for payroll, mortgages/rent and utilities during these difficult times.  The difficulty has been getting these loans applied for and approved.

via GIPHY

As a financial planner, I didn’t want to let this opportunity go without addressing a couple of investment and tax planning concepts that were also in these bills. The most impactful of those relate to retirement accounts and distributions from these accounts.  Some important things to realize are:

  • Required Minimum Distributions (RMD) are waived in 2020 (In most cases).

  • The 10% penalty for early withdrawal is waived if due to virus related challenges.

  • The taxability of these distributions can be spread over 3 years, and you can make recontributions to the account over those 3 years.

Also, they have established a $300 above the line charitable contribution deduction.  This allows even those that don’t itemize to benefit some from their generosity.  I’m hopeful that this is the beginning of allowing larger charitable deduction for non-itemizers.

Hopefully, some of these items will benefit you and our economy as we go through this strange and challenging time.  If we can be of assistance, we would appreciate the opportunity to help out our neighbors.

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Retiring Soon? - It's Time to Take Action

Your April investment statements were ugly, maybe even shocking. You know that you shouldn't react in irrational fear, but if your retirement is closing in, reality sinks in. You can't hop in a time machine and redo the past but what should you do after the damage is done?



 

Back to your investment statements; skip past the value section and look at the activity section of your investment statements. Did you or your advisor take any positive steps to adjust or re-balance your investments last month? With the size and speed of price declines, you had opportunities to proactively improve your portfolio. Both bond and stock market sectors diverged which created opportunities to position your investments for future growth. If the activity section of your statements doesn't reflect action to improve your portfolio then it may be time to re-examine your approach.


We combine a goals-based approach with a predictive risk assessment to build family investment portfolios designed to help you meet your unique goals. We add tax expertise (analysis, preparation and filing) for a complete 360 degree approach to your financial independence. We call this Purpose-Built Planning and we use it to advise more than 160 million dollars of client assets. It works. Call us to see what we would change in your investments right now to help your retirement arrive on time and intact.
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Waiting is the Hardest Part

Throughout the past few weeks of social distancing and quarantine, the chorus of the Tom Petty song keeps popping into my head:

You take it on faith,

You take it to the heart,

The waiting is the hardest part.

These times have tested our faith, our fears, and our patience as we’ve dealt with all the aspects of this pandemic.  The financial markets have been more volatile than anything we’ve seen in two generations.  We worry about those that have lost jobs, hurt for our small business neighbors that are facing economic difficulties, and pray for our friends in the medical profession that are doing all they can to care for the sick.

We’ve learned more than we ever wanted to about the Tiger King, how hard our kids’ Common Core math homework can be, and that we have more food than we realize in our pantry and freezer to sustain us.

We are troubled by the varying reports we see on TV or read on social media.  We are worried about the non-profits and churches that provide so much help to those in need.    But we are comforted to see companies, individuals, and children working together to provide supplies, and more importantly hope to many around our nation and world.

With financial markets in flux, how have you reacted?  Fear and panic were behaviors that were in favor during many trading days last month.   What feelings did you have when you opened your March investment statement? 

We are also in the last week of Lent, a period of 40 days that Christians use as a season of reflection and preparation for Easter.  It’s also meant to replicate Jesus Christ’s withdrawal and sacrifice into the desert for 40 days. 

We all have given up more than carbonated beverages, sweets or eating meat in the past month.  The sacrifice has been noticeable, and unbearable for many of us.  But as Easter approaches and we observe all the flowers in full bloom here in East Tennessee, we are reminded of what is truly important.   

What happened on Easter Sunday was a disruption that changed the world forever.  Perhaps, what we are experiencing now can have the same effect on our financial and family lives as well.

We've been helping clients with their tax, investment and financial planning questions for a long time. Odds are good we can help you too.

We would like to hear from you. Fill in this contact form and we will reach out to discuss your situation. You have no obligation and we don't sell products do take advantage of our expertise.

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History offers Hope - Can we make 2020 an analog of 1857

The comparisons are remarkable.

In the late 1850's America was undergoing a transportation boom lead by the railroad industry. What started out as local operators laying tracks developed into a national network of interconnected systems. Railroads took advantage of a now-forgotten telecommunication innovation, the telegraph system, to enhance their logistic accuracy. Wall Street financiers were eager to throw capital at the fast growing industry. Eventually all it took was a clever business plan to get funding. These businesses were eventually referred to as Paper Railroads since they owned no tracks or rail cars. 

Today electric cars are on the verge of taking over the combustion engine. New cars are packed with technology systems that minimizes stress and driver errors. Our cars are connected to real time data like never before. The first brand that comes to mind in the electric car business is Tesla. It is a business born from eager investors who showered cash into a company with no manufacturing expertise, that sold cars at a loss and occasionally scraped a profit out of the government subsidies paid to electric car manufacturers.

On the back of the railroad and telegraph business successes, the stock market of the 1850's were roaring like our markets were. Then things changed.

America was awash in wealth from the gold that flooded from the California Gold Rush into the economy. As gold mining activity declined in 1855, bankers started losing faith in paper currencies and began restricting lending activity. By the spring of 1857, the seeds of the Civil War were cultivated in the Dred Scott ruling. Later that summer high-profile bankruptcies of N. H. Wolfe, a huge grain producer, and Ohio Life Insurance & Trust, who owned a big mortgage finance business, fueled deeper concerns. Overseas, the Bank of England suspended the Bank Charter Act of 1944. The act created a formula to back their currencies with gold and silver. Suspending the act meant banks no longer needed gold in reserves. 

As communication and travel brought the world closer together it also meant that The Panic of 1857 was the first global financial crisis. It lasted into 1859 When President James Buchanan ordered state banks (well, technically, he "advised" them) to act like the Independent Treasury System a precursor to the Federal Reserve system created in 1913.

The 2020 health crisis is triggering a financial panic which will trigger economic problems. How will we escape this? Will government intervention save us? Will pharmacological advances deliver a cure? We certainly have to work on all of this. Let me offer one more anecdotal "cure" from our nations history.

Enter a missionary to Manhattan named Jeremy Lanphier. After distributing 20,000 flyers inviting New Yorkers to start praying for healing, Lanphier was joined on Fulton Street near the financial district by 6 people who represented 5 different faith denominations on September 23, 1857. God used this humble beginning in a remarkable way.

After 3 weeks the number grew to 40 faithful who urged that they meet daily. Turmoil in the financial markets married to societal and political and on October 10th the stock market got blasted. Within 6 months what began as a weekly prayer group of 6 mushroomed to 10,000 people meeting every day in New York City to pray. Soon the newspapers reported on the gathering and it spread across the country. Businesses would hang signs that said, “We will re-open at the close of the prayer meeting.” 
Jeremy Lanphier


The Panic of 1857 ushered in the Revival of 1857-1858 and it started with 6 people.

I awoke this morning at 6:30. Before getting ready to work from home (under our governor's orders), I turned on my phone to connect with others from my church. A small group of us gather each Wednesday and even now while the church building is unoccupied, we still gather electronically to pray and encourage one another before our day begins. Here's a short example from Mike Garner a local attorney here, "May our prayers for revival remind us to put feet to our prayers. Lord please use me to reach out in Christ."

Mike started this group months ago before the health crisis hit. He started it with a handful of men to pray for revival. Why? Historically these revivals come along about every 40-50 years. Each new generation provides an opportunity to seek a Spiritual awakening. "Lord, may the Pandemic of 2020 turn into the revival of 2020-2021, Amen".
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COVID-19 Office and Meeting News

In order to protect the health and safety of our clients and our employees, LeConte Wealth Management will be fully operational, working in a remote capacity beginning on April 1, 2020. Our office will be open during normal business hours and we can be reached on our main office line at (865) 379-8200 as well as individual cell phone numbers and email addresses. For the next few weeks, we will be moving all in-person meetings to virtual meetings or conference calls. For our tax clients, we ask you to mail or email any pertinent tax documents that are needed, and we will be mailing all tax return documents that require signature to your address.

Our team will continue to provide the highest level of service and attention to our clients during this time, and please let us know how we can assist you if your needs change.

 

All the best,

Kevin, Hoy and Jon

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