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2021 Areas of Uncertainty -> Volatility

Everyone knows that April showers bring May flowers.  But this year, the saying could be, April tranquility brings May volatility. 

Okay, maybe that saying won’t catch on.  But still: Up one day, down the next, flat overall — this has been the state of the markets for the last few weeks.  The fancy word for this is consolidation.  The markets have been on a tear this past year, and now investors are consolidating their gains, waiting to see what happens next.  Think of it as a plane in a holding pattern, circling the runway while it waits for a good time to land.

Why this new volatility in the markets?  That’s the question many clients have been asking us.  Well, volatility is always a product of uncertainty, and there are several areas of uncertainty that investors are dealing with right now.  We’ll address a few… 

The first area is inflation.

On Wednesday, May 12, most Americans probably woke up and read the news that Ellen DeGeneres was canceling her show.  Or maybe they checked the latest sports scores.  We enjoy reading this stuff as much as the next person, but, as financial advisors, our morning was spent reading something else: a news release from the Bureau of Labor Statistics revealing the Consumer Price Index for the month of April.

Here’s how it starts:

“The Consumer Price Index for All Urban Consumers increased 0.8% in April on a seasonally adjusted basis after rising 0.6% in March, the US Bureau of Labor Statistics reported today.  Over the last 12 months, the all items index increased 4.2% for seasonal adjustment.  This is the largest 12-month increase…since September 2008.”1

Riveting stuff?  Maybe not – but there’s some important information to be found in that paragraph.  Here’s what it says in plain English: Inflation is on the rise.

The fact inflation is rising is not a surprise, nor is the reason for it hard to understand.  With the worst of the pandemic seemingly behind us, the economy is opening up in a big way.  More and more people are going out to eat, visiting theme parks, traveling on airplanes, buying cars, improving their homes, etc.  In other words, people are demanding more goods and services. 

As we know from the Law of Supply and Demand, when the demand for things outpaces supply, prices go up.  With more people are vaccinated, and the CDC recently loosening their mask recommendations, demand has risen sharply over the past few months. 

Now, these conditions are all good for economic growth.  But for the stock market, there are two issues.  The first issue is that this economic growth was largely priced into the markets months ago.  Remember, stock market prices reflect what investors anticipate will happen tomorrow more than what’s happening today.  Investors expected the economy to grow, so they plowed more money into stocks.  Now, the growth is happening, but it’s simply confirmation of what people already expected. 

To show you what we mean, here’s a graph of the S&P 500 over the last twelve months.2 

So, what’s the next good thing investors can expect?  Unknown.  That’s the next area of uncertainty.  Previously, even when the pandemic was at its worst, investors had a lot to look forward to.  A vaccine.  Falling case numbers.  More government stimulus.  But now vaccines are here, case numbers have been falling for months, and there are no more stimulus checks in the offing.  It’s like returning from a trip to Disneyland.  The kids are exhausted.  The parents must return to work.  And everyone’s wondering when the next vacation will be.   

Until there’s something new to feel excited about, many investors worry there’s a ceiling on how much higher stocks can rise.    

Before we go on, let’s return to inflation for a moment.  We mentioned there were two issues with economic growth.  The second issue is fear.  Specifically, fear that the economy will grow too much, too fast.

If the economy grows too quickly, prices will rise across the board and the value of our currency would drop.  This, essentially, is inflation: When the general price level rises, a dollar simply pays for less than it used to.  That makes it much harder for people to buy the goods and services they need.  Or to pay off their debts.  It makes it harder for businesses to hire new workers or pay the workers they already have.  The upshot?  When inflation gets too high, consumer spending plummets, unemployment jumps, and economic booms turn into economic busts. 

For investors, the question isn’t about whether inflation will go up.  It already is.  The question is, will this inflation be temporary, or long-term?  The answer will determine how big of a deal it really is.

There’s certainly a good argument that it’s temporary.  That’s how the Federal Reserve currently sees it (more on them in just a minute).  The thinking is that this inflationary spike is driven by temporary problems related to reopening the economy.  As soon as society settles down and regains equilibrium, prices will settle down, too.  But we don’t know for sure.  It’s not hard to imagine a future where, by the end of the year, the world is still wrestling with the implications of the pandemic.  Supply could still be struggling to keep pace with demand.  Prices could keep rising.  We’re still a long way away from that.  But if that is what the future holds, the Federal Reserve would need to do something about it.

And that’s the other area of uncertainty.

You see, the Federal Reserve has what they call a “Dual Mandate”.  To put it simply, their mission is to “foster economic conditions that achieve both stable prices [manageable inflation] and maximum sustainable employment.”3 

The problem is, it’s not always possible to focus on both goals at once.  The Fed must prioritize, and right now, employment is a far higher priority.  For the last year, the Fed has helped prop up the economy by buying billions in bonds to keep interest rates low.  (Lower interest rates make borrowing less costly, which means businesses and individuals can borrow and spend more, thereby pumping more money into the economy.)  But that can’t go on indefinitely.  At some point, the Fed must raise rates, especially if inflation keeps rising.   

For months, the media has been asking the Fed when they expect to raise rates.  For months, the Fed’s answer has been some variation on, “Not until the economy is ready.”  Currently, the Fed simply doesn’t see rising inflation as an issue.  At least, not compared to the task of getting the economy back to full employment.  But for investors who’ve become hooked on the drug of low interest rates, these assurances do little to calm their fears.  Why?  Well, low interest rates mean that many types of investments, most notably bonds, simply don’t provide the same return on investment as they would in a high-interest rate environment.  That drives more and more investors into the stock market to get the returns they need.  But what happens when interest rates go up?  Consumers and businesses could cut back on spending, which in turn could cause earnings to fall and stock prices to drop. 

Rumors persist that the Fed will begin “tapering” their bond-buying sooner rather than later.  (This means the Fed will gradually buy less and less in bonds, resulting in a gradual increase in interest rates.)  Whenever the headlines even hint at this, the markets tend to spasm.  This is the cause behind many of the price swings we’ve seen in recent weeks. 

So, that’s the story behind the recent volatility.  The question is, what do we do about it?

The first thing we need to do is accept that these areas of uncertainty are likely to persist for some time.  In other words, we need to be mentally prepared for a sustained period of consolidation/volatility.  If the reverse happens and the markets resume their upward climb?  Fantastic!  But if not, at least we’ll be prepared. 

The second thing to do is remember that we are prepared – for short-term volatility and long-term inflation. If interest rate fears worsen and volatility goes up, we are ready to play defense and move to cash.  If there’s a general rise in prices and inflation skyrockets above what the Fed can handle, we don’t have to ride out another market crash like so many investors do.  As always, we’ll obey the rules of our strategy and do what the trend dictates.  If our technical signals indicate major volatility on the horizon, we’ll act accordingly.

The final thing you can do is let us know if you have any questions or concerns.  We’d be happy to speak with you!  But in the meantime, keep in mind that while April showers bring May flowers, June sun brings fun!  Summer is just around the corner, so go enjoy it.  Our team will continue to man the fort around here.  If there’s ever any action we need to take, or development you need to know, we will contact you immediately.  As always, let us know if there is ever anything we can do for you! 

1 “Consumer Price Index – April 2021,” Bureau of Labor Statistics, May 12, 2021.  https://www.bls.gov/news.release/pdf/cpi.pdf

2 “S&P 500”, Google.com, accessed May 19, 2021.

3 “The Federal Reserve’s Dual Mandate,” Federal Reserve Bank of Chicago, October 20, 2020.  https://www.chicagofed.org/research/dual-mandate/dual-mandate

Trending Now: Interest Rates & Inflation

One year.  It seems incredible, but it’s been one year since COVID-19 struck our shores.  One year since the World Health Organization declared a pandemic.  One year since the markets crashed and the schools closed and we realized just how much we take toilet paper for granted. 

Since then, the markets have recovered and risen to new heights.  The economy, meanwhile, has recovered more slowly.  Now, a quarter of the way through 2021, we have a new president, several new vaccines, and a completely different world than the one we knew before all this started.  We’ve also seen some renewed volatility in recent weeks.  This has many of our clients asking, “Where are the markets going next?  What should we expect for the rest of 2021?” 

We’ll address those questions in this email.

As you know, there are two types of long-term market situations: Bull markets and bear markets.  But the whole “bull vs bear” concept can also be used to describe two types of investor sentiment.  Bulls are investors who have a positive, or “bullish”, view of where the markets are headed.  Bears, meanwhile, generally have negative, or “bearish” expectations.  So, we’re going to let both animals debate each other, each presenting their case for why the markets will have a positive year or a negative one.  We’ll start with the Bull, move onto the Bear, and then give the Bull a chance for a short rebuttal.  Finally, as financial advisors, we’ll give you our view. 

The Bullish View

Last year’s market crash was sudden, swift, and deep.  But in the grand scheme of things, it didn’t last very long.  In fact, it took only six months for the markets to recover.  (By contrast, it took the markets almost six years to recover after the Great Recession.)  Since then, the markets have risen to new highs. 

Three things propelled the markets to this remarkable turnaround: Low interest rates, federal stimulus, and the expectation of a major economic recovery.  Let’s start with the first one.  To help juice up the economy, the Federal Reserve lowered interest rates to a historic degree.  Low interest rates promote more borrowing and spending, two pillars our economy is based on.  They also help people buy homes and encourage businesses to invest more in themselves.  (Including hiring more workers.) 

Congress, meanwhile, has passed three major stimulus packages in the last year.  The most recent bill was signed by President Biden on March 11.  The America Rescue Plan Act of 2021, as it’s called, provides $1.9 trillion in aid for both businesses and consumers.1  Among other things, the Act extends COVID unemployment benefits through Labor Day, provides $1,400 direct payments to individuals, expands certain tax credits, and grants billions to small businesses to help meet payroll and retain workers.1  The first two stimulus packages had a positive impact on things like retail sales and consumer spending, and it’s widely expected that this one will, too. 

This combination of low interest rates and government stimulus have helped the economy tread water while we deal with the virus.  But much of the market’s rise is due to something else: Expectation.  Specifically, expectation that the pandemic will end, and the economy will hit the accelerator. As more people are vaccinated and case numbers fall, the thinking goes, more and more of society will re-open, releasing a flood of pent-up demand.  Demand to travel, to eat out, to catch a movie in theaters, you name it.  Add the latest round of stimulus to the mix, and suddenly Americans have both extra money in their pocket and the means to spend it.  In other words, all the ingredients are there for a major economic comeback, the likes of which we haven’t seen in decades. 

Now, we seem closer than ever to that expectation becoming reality.  As of this writing, there are three approved vaccines in the U.S., with more than 115 million doses administered.2  (40 million people are currently considered fully vaccinated, approximately 12.3% of the total population. 2)  Currently, our nation is averaging over 2 million shots each day.2  It’s no surprise, then, that cases in the U.S. have been falling for weeks.  In fact, as of March 19, cases are down over 14% over the last two weeks.3 

We’re not out of the woods yet, not by a long shot.  Masks and social distancing will continue to be a part of our lives for some time yet, and of course there are relatively new variants of the coronavirus to deal with.  But if we can maintain this trajectory, increasing the number of people vaccinated and reducing the number of people sick, that could do wonders for our economy.  It could lead to more of society re-opening, leading in turn to more jobs, more consumer spending, and greater company earnings.  Greater earnings, of course, usually lead to higher stock prices. 

The Bearish View

So, in light of all this, how can anyone have a negative view of where the markets are headed?  It all comes down to a single word:  Inflation.

Inflation.  It’s a scary-sounding word that conjures up images of German children stacking useless money in the 1920s, or gas rationing in the 1970s.  For decades, economists have monitored it relentlessly.  The Federal Reserve considers managing inflation to be a core aspect of its mission.  That’s partly why our nation’s inflation rate has been relatively stable over the last twenty years. 

But recently, some analysts and investors have begun stressing over inflation again.  They don’t deny that the economy is poised to grow.  They just worry that it will grow too much, too fast.  There’s a word for this, too.  Economists call it overheating.

When an economy overheats, it essentially no longer has the capacity to meet all the demand it faces from consumers.  Some producers will simply not be able to supply all the goods their customers want.  Other producers, to keep up with that demand, will be forced to raise prices.  It’s a classic example of the Law of Supply and Demand.  (When the demand for something outpaces its supply, the price goes up.)  For example, if everyone suddenly decides to fly to that vacation spot they’ve been putting off for a year, the cost of air travel would skyrocket.

If the economy were to grow too quickly, prices would rise across the board – and the value of our currency would drop.  This, essentially, is inflation: When the general price level rises, a dollar simply pays for less than it used to.  That makes it much harder for people to buy the goods and services they need.  Or to pay off their debts.  It makes it harder for businesses to hire new workers or pay the workers they already have.  The upshot?  When inflation gets too high, consumer spending plummets, unemployment jumps, and economic booms turn into economic busts. 

Some experts worry this is what’s in store in 2021.  They see the economy as a garden hose that’s been tied up into a knot.  Untie the knot – or re-open the economy too quickly – and the water will burst out with sudden, savage force. 

So, here’s what this has to do with the stock market.  Normally, the Federal Reserve combats inflation by raising interest rates.  Higher interest rates tend to cool off the economy, because they prompt people to save their money instead of spending or borrowing it.  A cooler economy decreases inflation, and gradually things go back to normal.  The problem is the stock market has become accustomed to the Fed’s low interest, “easy money” policies.  Low interest rates mean that many types of investments, most notably bonds, simply don’t provide the same return on investment as they would in a high-interest rate environment.  That drives more and more investors into the stock market to get the returns they need.  But what happens when interest rates go up?  Consumers and businesses could cut back on spending, which in turn could cause earnings to fall and stock prices to drop. 

Fear of inflation, and fear of higher interest rates.  That’s the bearish view in a nutshell. 

Rebuttal

We promised the Bull would have the opportunity for a short rebuttal, so here it is.  There are two main reasons for thinking this fear of high interest rates are overblown.  The first is that, even if inflation does go up – which it likely will – we have a lot of room to work with before it becomes a problem.  In 2020, the inflation rate was only 1.2%.4  That’s well below the 2% mark the Fed generally aims for, and nowhere close to the mind-boggling numbers we saw in the late 70s and early 80s.  (In 1979, for example, the inflation rate was 13.3%.4

The other reason is that there’s no reason to assume the Federal Reserve will automatically raise interest rates just because inflation goes up.  Why?  Because the Fed itself has said that it won’t!5  Currently, the Fed sees stimulating the economy and boosting employment to be far bigger priorities than tamping down on inflation, and recently, the Fed Chairman suggested interest rates would remain low at least until 2022. 

Our View

We’ve told you what the Bulls and Bears think.  So, here’s what we think. 

Here at Minich MacGregor Wealth Management, we don’t focus on guessing what the Fed will do, or anyone else.  We don’t have a crystal ball.  No one does!  That is why we base our strategy on both technical and fundamental analysis.  We analyze – and take advantage – of market trends, relying on the Law of Supply and Demand rather than fighting it. 

Historically, an improving economy leads to a stronger stock market.  If that happens in 2021, wonderful!  But if interest rate fears worsen and volatility goes up, we are ready to play defense and move to cash.  Remember, we don’t need to “buy and hold” even when there’s a Bear roaring in our face.  If there’s a general rise in prices and inflation skyrockets above what the Fed can handle, we don’t have to ride out another market crash like so many investors do.  We’ll obey the rules of our strategy and do what the trend dictates.  If our technical signals indicate major volatility on the horizon, we’ll be prepared. 

It’s been a year since the pandemic began.  A year since some of the worst market turmoil in a long time.  We got through that by being flexible, disciplined, and diligent, and we’ve been rewarded.  So, that’s what we’ll continue to do. 

If you have any questions or concerns about the market, please feel free to contact us.  In the meantime, enjoy the upcoming spring season!       

SOURCES:

1 “The American Rescue Plan Act Greatly Expands Benefits through the Tax Code in 2021,” Tax Foundation, March 12, 2021.  https://taxfoundation.org/american-rescue-plan-covid-relief/

2 “How is the COVID-19 Vaccination Campaign Going In Your State?” NPR, March 19, 2021.  https://www.npr.org/sections/health-shots/2021/01/28/960901166/how-is-the-covid-19-vaccination-campaign-going-in-your-state

American Rescue Plan Act of 2021

Roughly one year ago, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. It was a massive, $2 trillion stimulus package designed to help boost the economy as it shuddered from the impact of COVID-19.  The bill was generally considered a success – but on its own, it wasn’t enough to keep the economy from falling ill. 

The great tragedy of this pandemic, of course, is that over 500,000 people have lost their lives.1 But it’s not the only one.  Due to COVID, over 22 million jobs were lost.2 Millions more saw their hours or paychecks decrease. 

Fortunately, the CARES Act, and a second round of stimulus passed in December, helped blunt some of this pain.  For example, the December stimulus is credited with helping retail sales jump 5.3% in January, which was five times higher than expected.3 But there is still a long way to go.  As of early March, there are still nearly 10 million people out of a job, with 4.1 million of those considered “long-term unemployed”.2 That means they’ve been jobless for 27 weeks or more.  Millions more still find it immensely difficult to make rent, pay off debts, or even buy groceries.  As Jerome Powell, the chairman of the Federal Reserve recently said, “While the economic fallout has been real and widespread, the worst was avoided by swift and vigorous action.  [But] the recovery is far from complete.”4

In short, our economy has been off life support for quite a while – but it is still a long way from healthy.  With that in mind, Congress recently passed a third round of stimulus worth almost as much as the original CARES Act.  It’s called the American Rescue Plan Act of 2021.     

This is major legislation, with benefits for many Americans.  So, to help you understand what the Act does, and how it will impact you, we have prepared a special breakdown.  As we are sending this to all of our clients, some information may apply to you, and some may not.  Please read it carefully, and then let us know if you have any questions.     

As always, we hope you and your family are staying healthy and safe.  Please let us know if there is anything we can do for you! 

Important Provisions of the American Rescue Plan Act of 2021

ARPA, as we will refer to it from this point forward, is meant to “change the course of the pandemic and deliver immediate relief to American workers.”5  Like the previous coronavirus aid packages, ARPA is designed to stimulate the economy by reducing unemployment and ensuring consumers have the money they need to cover expenses and purchase goods and services. 

What follows is an overview of the provisions that could affect the finances of either yourself or your loved ones.  Let’s start with:

Direct Payments6

What’s the quickest way to ensure people get the money they need?  Pay them directly.  Perhaps the most newsworthy aspect of this bill is that many taxpayers will receive another direct payment to help them cover expenses. 

Here’s a breakdown of how it will work.  Note that the IRS will base these amounts on the information found in your 2020 tax return, or your 2019 tax return if you haven’t filed your 2020 return yet.  

Individuals who make up to $75,000 will receive $1,400

Heads of Household (single parents, for example) who make up to $112,500 will receive $1,400.

Married couples filing a joint tax return who made up to $150,000 will each receive $1,400, for a total of $2,800.

On top of this, each taxpayer will receive an additional check for $1,400 for each dependent they have, including adult dependents.  This is great news to parents – especially parents of college students!  (The previous two stimulus payments were limited to dependent children under the age of 17.)  So, for example, a married couple with two children could receive up to $5,600.  Note, however, that payments decrease for individuals and married couples with income above their respective thresholds.  And the payments disappear entirely for individuals who made more than $80,000, single parents earning more than $120,000, and married couples earning more than $160,000. 

The upshot is that Americans who qualify to receive stimulus checks could receive significantly more than they did in the first two rounds – but slightly fewer Americans will receive them overall.  This was the result of intense negotiating in Congress, with several key members from both parties refusing to support the bill unless it came with stricter eligibility limits. 

By the way, if you haven’t filed your tax return for 2020 yet, please let us know.  The IRS recently extended the filing deadline to May 17, 2021.7   We would be happy to work with your tax preparer to expedite the process! 

Speaking of taxes…

Tax Credits8

In many ways, ARPA is really a tax bill – because many of the ways it helps stimulate the economy are due to changes to the tax code.  Even the direct stimulus payments are technically tax credit.  In this case, ARPA expands several tax credits.  Perhaps the most important is the child tax credit, which has been expanded for the 2021 tax year.

Under ARPA, households with children can claim a tax credit of $3,600 per child under the age of six, and $3,000 per child between ages six through seventeen.  (Previously, the credit was worth up to $2,000 per child.)  These amounts are reduced for individuals earning more than $75,000 per year, or married couples making more than $150,000 per year.  For these people, the expanded tax credit – meaning the extra amount above the original $2,000 credit – will be reduced by $50 for every $1,000 earned above those income levels.  

In addition, the child tax credit is now fully refundable.  That means “you can receive money from it as a tax refund even if your tax bill is reduced to zero.”8  Eligible households can receive half of this benefit in 2021.  The plan is for payments to be made monthly beginning in July. 

Here’s an example of how this would work.  Imagine a married couple, Jack and Jill, who earn less than $150,000.  They have two children, ages 10 and 12.  Each is eligible for a $3,000 credit ($6,000 overall).  If the payments are made monthly, Jack and Jill would receive $500 per month starting in July and going through the rest of the year.  That would be half of the total $6,000 credit.  Jack and Jill could then claim the other $3,000 next year on their 2021 tax return.     

We just threw a lot of numbers at you, didn’t we?  So, if you have any questions about this, please don’t hesitate to ask! 

Unemployment9

ARPA also extends COVID-related unemployment benefits.  Specifically, unemployed workers will continue to receive weekly $300 benefits through September 6 of this year.  Also, the first $10,200 of unemployment benefits received in 2020 will not be taxable for workers in households earning less than $150,000. 

If any of your family members lost their job, please feel free to reach out.  We would be happy to answer their questions or provide any assistance we can. 

Business Support10

In order to stimulate the economy, you must stimulate businesses – especially small businesses.  To that end, ARPA provides:

  • $7 billion for the Paycheck Protection Program, which helps small businesses retain their employees.  Loans received through this program may be forgiven in whole if certain conditions are met. 
  • $28.6 billion in grants for restaurants and bars, which have been hit especially hard by the pandemic. 
  • $15 billion for Emergency Injury Disaster Loans, especially for businesses with fewer than ten employees. 

ARPA also extends tax breaks to businesses that voluntarily provide paid sick and family leave to workers affected by the virus. 

Conclusion

As you can see, the American Rescue Plan Act of 2021 is a massive bill.  In fact, this message only scratched the surface! Time will tell whether even more stimulus is needed this year, but for the time being, this should go a long way to propping up the economy.   

Of course, our team will continue poring over these changes.  If there is anything else we feel you need to know, we’ll reach out to you.  In the meantime, if you have any questions about:

  • Getting a direct payment
  • Filing your taxes
  • Protecting your paycheck and/or income
  • Or anything else related to your finances

Please don’t hesitate to let us know.  Our team is always here for you.

1 “Tracking the Coronavirus,” NPR, March 23, 2021.  https://www.npr.org/sections/health-shots/2020/09/01/816707182/map-tracking-the-spread-of-the-coronavirus-in-the-u-s
2 “The Unemployment Situation,” U.S. Department of Labor, February 2021.  https://www.bls.gov/news.release/pdf/empsit.pdf
3 Aimee Picchi, “Third stimulus check: Will you get a stimulus check – and how much?” CBS News, March 5, 2021.  https://www.cbsnews.com/news/third-stimulus-check-income-2021-03-04/
4 Paul R. LaMonica, “Yellen and Powell praise stimulus but warn that more needs to be done,” CNN Business, March 23, 2021.  https://www.cnn.com/2021/03/23/economy/janet-yellen-jerome-powell-economy-recovery/index.html
5 Joseph Biden, “American Rescue Plan Fact Sheet,” Wikisource, March 2021.  https://en.wikisource.org/wiki/American_Rescue_Plan_Fact_Sheet
6“What’s Inside? Breaking Down the American Rescue Plan Act of 2021,” Rea & Associates, March 12, 2021.  https://www.reacpa.com/insight/whats-inside-breaking-down-the-american-rescue-plan-act-of-2021/
7 “Tax Day for individuals extended to May 17,” Internal Revenue Service, March 17, 2021.  https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline
8 Ron Lieber & Tara Siegel Bernard, “What Is in the Stimulus Bill: $1,400 Checks, Expanded Unemployment and Tax Rebates,” The New York Times, March 23, 2021.  https://www.nytimes.com/live/2021/stimulus-check-plan-details#how-does-this-change-the-child-tax-credit
9 Garrett Watson & Erica York, “The American Rescue Plan Act Greatly Expands Benefits through the Tax Code in 2021,” The Tax Foundation, March 12, 2021.  https://taxfoundation.org/american-rescue-plan-covid-relief/
10 “American Rescue Plan Act of 2021,” Wikipedia, https://en.wikipedia.org/wiki/American_Rescue_Plan_Act_of_2021

The Four Leaf Clover

As you know, the four-leaf clover has become a common symbol of St. Patrick’s Day.  Because four-leaf clovers are so rare — you have about a 1-in-5000 chance of finding one1 — they’re often associated with luck.  But in truth, each leaf represents something special: luck, yes, but also hope, faith, and love

The reason we mention this is because, over the years, we’ve learned that the history of St. Patrick’s Day represents each of these attributes, too.  Now, that might seem pretty deep for a day where we all pinch each other for not wearing green.  But it’s true!  To illustrate how, let’s take each clover leaf one at a time, starting with… 

HOPE

Did you know that, in an alternate universe, we might all be wearing blue on St. Patrick’s Day?  While “kelly green” is the most popular symbol associated with the day, it didn’t used to be that way.  Saint Patrick himself is thought to have worn blue for much of his life, and the Order of St. Patrick, a fraternity of knights founded in the 17th century, adopted the color, too. 

So why the color green?  Because green was the color of those who sought Irish independence.  Beginning in that same century, more and more Irish people began hoping that one day, they would have their own country, free of dominion under a foreign crown.  These patriots increasingly wore green as a symbol of Irish identity and culture.  It would take centuries for independence to happen, but generation upon generation passed down the secret hope that one day, Ireland would be counted among the free nations of the world.

So why green, exactly?  It all has to do with another symbol associated with both Ireland and Saint Patrick: the shamrock. 

FAITH

Although they are often confused, shamrocks and four-leaf clovers are not the same thing.  Shamrocks are standard three-leaf clovers.  What makes them special is not how many leaves they have, but what they represent.  In the late 1700s and early 1800s, Irish revolutionaries adopted the green shamrock as their emblem.  They included shamrocks on their uniforms, their flags, and in their songs.  Eventually, the shamrock became the de facto symbol of Ireland itself. 

The shamrock’s importance goes back over 1500 years – all the way to Saint Patrick himself.  Legend has it that when Patrick first began preaching Christianity in Ireland, he used the shamrock to illustrate the concept of the Holy Trinity.  Patrick’s message of putting faith in God resonated, and he reportedly baptized thousands of people. 

Over time, Patrick became the patron saint of Ireland, and eventually, like the shamrock, a symbol of Ireland itself.

LOVE

Just as Ireland’s symbols have changed over time, St. Patrick’s Day itself has changed, too.  Now, it’s not only a celebration of the saint, but of all things Irish.  That’s important, because Patrick is not the only patron saint of Ireland.  Another is Brigid of Kildare – a remarkable woman, and quite possibly, someone who knew Patrick well. 

Brigid was born into slavery in the 450s.  (The parallels to Patrick are interesting because Patrick was also a slave for many years.)  From an early age, Brigid showed amazing love for those who had less than her.  She never passed up an opportunity to feed, heal, or comfort the poor.  Some stories claim she could replenish by praying to God.  Other stories, less religious but just as interesting, tell of the time when she gave away her master’s entire store of butter.  Furious, her master tried to sell her to a king.  While he bartered, Brigid gave away his jeweled sword to a beggar so he could sell it to buy food.  When the king saw this, he took it as a sign that she was holy and commanded her master to set her free.

As she grew older, Brigid decided to devote her life to charity.  She founded her own monastery and worked tirelessly to ensure that women and the poor had a safe place to worship.  She even founded Ireland’s first art school!  One of the earliest books about Patrick said, “Between Saint Patrick and Saint Brigid, the pillars of the Irish people, there was so great a friendship of charity that they had but one heart and one mind.”2  When Brigid died in 525, she left behind an incredible legacy of compassion, charity, and most of all, love. 

LUCK

“The Luck of the Irish” has become a common phrase.  It means to have extremely good fortune, but the saying originated in America, not Ireland – and it was initially meant to be a slight, not a compliment.  Here’s how Edward T. O’Donnell, author of 1001 Things Everyone Should Know About Irish American History, puts it:

“During the gold rush years…a number of the most successful miners were of Irish and Irish American birth.  Over time this association of the Irish with mining fortunes led to the expression ‘luck of the Irish.’  Of course, it carried with it a certain tone of derision, as if to say, only by sheer luck, as opposed to brains, could these fools succeed.”3

As the decades passed, though, the opposite became true.  “Luck of the Irish” now often refers to someone who has succeeded through their wits, their cleverness, and their perseverance.  And given how much Irish immigrants have had to overcome over the centuries – including both prejudice and economic hardship – I’d say those qualities describe the Irish people pretty well! 

As you can see, there’s more to St. Patrick’s Day than simply throwing on a green shirt or eating corned beef.  St. Patrick’s Day represents the hope, faith, love, and perseverance of an entire people.  It’s a day for all of us to practice those things as well.  A day for us all to treasure and enjoy. 

On behalf of our entire team, we wish you a happy St. Patrick’s Day! 

 1 “How rare are four-leaf clovers really?” share the luck, 2017.  https://www.sharetheluck.ch/single-post/How-rare-are-four-leaf-clovers-really

2 “Brigid of Kildare,” Wikipedia, https://en.wikipedia.org/wiki/Brigid_of_Kildare

3 Edward T. O’Donnell, “1001 Things Everyone Should Know About Irish American History,” Broadway, February 26, 2002. 

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The Mid-Summer ReviewThings Most Advisors Don’t Tell you #5
The Oil Slick That Stocks Are OnThings Most Advisors Don’t Tell You #2
The US Stock Market still in the top spot with troubles overseas.Things Most Advisors Don’t Tell You #3:

Tax Strategies Webinar


You are cordially invited to our Tax Planning Webinar:


Tax Strategies to Help Manage Income Taxes in Retirement


Learn the answers to your questions:

  • What and how do Roth Conversions work?
  • Is Social Security taxable in retirement? What is the tax torpedo?
  • How are my capital gains on my investments taxed?​

At this webinar you will learn:

  • Pros and cons of Roth Conversions
  • When is Social Security income not taxable
  • Why mutual funds can increase your taxes

Monday, March 15th at 5:00 PM (Register Here)
​​​​​Wednesday, March 17th at 12:00 PM 
(Register Here)


Webinar presented by Cory Laird CERTIFIED FINANCIAL PLANNER™

Register with Zoom Webinar by clicking the links above

Zoom Webinar, Registration is Required for Cyber-Security

After registering, you will receive a confirmation email containing information about joining the webinar.

If you have any questions, please email Cory Laird at Cory@mmwealth.com.

Minich MacGregor Wealth Management
(518) 499-4565

PS:  If you know someone that may be interested in these tax planning strategies, please pass this along.

There’s still time to contribute to your IRA!

If you haven’t already contributed to an IRA (Individual Retirement Account), there’s still time to do so.  Many people don’t know that the 2020 contribution deadline is actually April 15, 2021.1  However, if you do decide to contribute, you must designate the year you are contributing for.  (In this case, 2020.)  Your tax preparer should be able to help you fill out the necessary forms, but please feel free to contact us if you have any questions or need help.

For 2020, the maximum amount you can contribute is $6,000, or $7,000 if you’re over the age of 50.2  This applies to both traditional and Roth IRAs.  If you’re unsure whether to contribute, remember:

  • Contributions to traditional IRAs are often tax-deductible.  And while distributions from IRAs are taxed as income, your tax-rate after retirement could possibly be lower than it is now, lessening the impact. 
  • Contributions to a Roth IRA, on the other hand, are made with after-tax assets.  However, the advantage of a Roth IRA is that withdrawals are usually tax-free.
  • Whichever type you use, IRAs provide a great, tax-advantaged way to save for retirement. 

If you have yet to set up an IRA for 2020, you can still do that.  The deadline to establish an IRA is also April 15th.  In other words, if you want to take advantage of the benefits an IRA has to offer, there’s still time to do so, either by contributing to an existing account or by establishing a new one. 

If you have any questions about IRAs – whether one is right for you, how it should be managed, or anything else – please give us a call at Minich MacGregor Wealth Managment.  We’d be happy to help you. 

1 “IRA Year-End Reminders,” IRS, https://www.irs.gov/retirement-plans/ira-year-end-reminders

2 “IRA Contribution Limits,” IRS, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

P.S. Speaking of taxes, a number of clients have asked us about the delivery of their 1099’s.  They are generated by Schwab and their deadline was extended to Friday, February 19th.  This means the 1099’s should be in the mail within the next day or so.  Be sure to factor in several days (at least) for delivery by the USPS.  

P.P.S.  Please remember, you will only receive a 1099 if you have a taxable account or if you took a distribution from an IRA.  If you do NOT have Schwab accounts, please disregard as it does not apply.

End-of-Summer Market Update

Speed bump, stop sign, or red light?  That’s the question investors are asking. 

Let us explain.  After cruising for the past five months, the markets screeched to a halt on September 3rd.  The Dow dropped over 800 points, and the Nasdaq plunged nearly 5%.1  All told, it was one of the worst trading days for stocks since the pandemic-driven panic of March.  The volatility continued the next day, albeit at lower levels. 

So, what does it mean?  Was Thursday’s selloff just a short-term blip – the equivalent of hitting a speed bump?  Or was it the beginning of a market correction?  If so, how long of a correction?  Are we merely coming to a stop sign, or will we hit a red light? 

Unfortunately, market signals are never as easy to interpret as road signs.  But as we start winding down this bewildering year, investors will be gripping their steering wheels ever more tightly.  That’s because they’re all trying to determine whether the markets will end the year on cruise control…or in full reverse. 

Whenever you drive to a destination, it’s always good to familiarize yourself with the road beforehand.  So, as this crazy summer draws to a close, let’s look at the different scenarios we could experience over the next few months.  As a heads up, we’re going to cover a lot of ground in this message.  We believe two of our most important responsibilities are to keep you informed about what’s going on in the markets and prepared for what may come in the future.  In this message, we will try to do both.  Let’s dive in!   

Speed Bumps

Between April and May, all three major US stock indexes — the Dow, the S&P 500, and the NASDAQ — climbed for five consecutive months.  The S&P 500, for example, rose 60% over that period.2

Every so often, though, the markets experience a dramatic one- or two-day selloff.  When those selloffs come during the middle of a major rally, like the one we’ve been experiencing, investors wonder whether it’s the beginning of a market correction.  (A correction, remember, is when the markets fall at least 10% from their recent high.)

Market corrections are relatively common.  On average, we’ll see one at least once every 1 to 2 years.3  But more often, these selloffs are not the beginning of anything at all.  They are simply speed bumps, and while they may seem random, there are usually underlying reasons for them.

For example, let’s take what happened on September 3rd and assume it’s only a speed bump.  Why did it happen?  A closer look at which stocks fell may provide some answers.  Specifically, tech stocks, including big names like Apple and Facebook, were the ones that suffered the most – just as those same stocks have largely fueled the markets rally.  (More on this in a moment.)  There are a few possible reasons for this.  One is that many investors may simply have been cashing out of tech stocks to realize their gains.  Another reason is that, because prices for tech stocks have risen so high, many traders may feel there’s simply no justification for plowing more money to them.  When that happens, traders and short-term investors often move their money into other sectors they feel are undervalued. 

In other words, the shudder that went through the markets is like the one you feel when changing gears in an old car.  If that’s the case, the selloff was likely just a speed bump.  A short pause for investors to take a breath before the markets resume their climb.

Here’s another reason why many selloffs are just speed bumps: The Federal Reserve.  After the country went into lockdown, the Federal Reserve did many things to prop the economy.4  First, they lowered interest rates to historic lows.  This was to lower the cost of borrowing on mortgages, auto loans, home equity loans, and others — a key step to keep the economy moving.  Second, the Fed launched a massive bond-buying program.  This is another way to keep interest rates low.  The Fed has also been lending money to securities firms, banks, major employers, and some small businesses using a variety of means.

These are all familiar tactics for anyone who was paying attention during the Great Recession.  Then, as now, the Fed’s actions indirectly propelled the stock market.  That’s because lower interest rates prompt increased spending, which in turn causes stock prices to rise. 

As long as the Fed keeps its stimulus programs in place, stocks will continue to be one of the most attractive places for people to put their money.  And since the economy remains on very shaky ground, it’s unlikely the Fed will pull back any time soon.  “Don’t fight the Fed,” investors are often counseled.  Thanks in large part to the Federal Reserve, the stock market continues to be the shortest, surest road for investors to travel.  That’s why many selloffs are nothing more than speed bumps. 

Stop Signs

Of course, sometimes a selloff is more than just a speed bump.  Sometimes, it’s like a neon light flashing: stop sign ahead. 

When this happens, Wall Street-types like to call it a market correction – a decline of 10% or more from a recent highThere are many reasons why corrections occur.  One thing many corrections have in common, though, is they come after months of major market growth.  When prices rise extremely high, extremely fast, it’s as if the markets have “overheated” and need to cool off. 

It wouldn’t be a surprise if that’s what we’re seeing right now.  Again, the S&P 500 rose 60% between March 23rd (its most recent low) and September 2nd (its most recent high).2  In that same period, the tech-heavy NASDAQ rose roughly 75%!5  Those are staggering numbers.  One could argue we’re overdue for a correction. 

Speaking of tech-heavy, let’s talk about technology stocks for a moment.  When the markets plummeted in March, these stocks were one of the few safe havens around – and they’ve also been the best performers since then.  That’s no surprise.  At a time when most Americans were largely confined to their homes, it was our technology – from our iPhones to Zoom, from Google to Netflix – that kept us entertained and connected.  But remember how we said the S&P rose 60%?  Peek under the hood and you’ll see those numbers were driven by two sectors: technology stocks and consumer discretionary stocks.  (Think Nike, McDonald’s, Home Depot, etc.)  Other sectors either performed much lower or are still in the red.  So, when we say the markets have recovered well, what we’re really saying is that the top sectors have performed enough to make up for those still struggling.

It’s one of the many reasons the stock market simply isn’t a reliable barometer for the overall economy. 

What does this have to do with a market correction?  A lot, actually!  It’s all thanks to these two terms: capitalization and weighting.  Remember, the S&P 500 is an index, not the actual stock market itself.  It’s essentially a collection of the five hundred largest companies listed on U.S. stock exchanges, which is where stocks are traded.  More specifically, the S&P is a capitalization-weighted index.  Without getting too technical, that means the largest companies make up the largest percentage of the index.  For example, Amazon, Apple, Microsoft, Facebook, and Google – just five companies – make up 20% of the index!6  

Look at that list of companies again.  Notice anything about it?  Yep, you guessed it: four of them are tech companies.  In fact, if we break down the S&P 500 by sector, you’d notice that technology dominates the S&P 500.  Actually, let’s do that right now!7

SectorWeighting
Information Technology27.47%
Health Care14.63%
Consumer Discretionary10.83%
Communications10.78%
Financials10.09%
Industrials7.99%
Consumer Staples6.97%
Utilities3.07%
Real Estate2.84%
Energy2.82%
Materials2.52%


As you can see, the S&P 500 is currently overweighted to technology stocks, to the tune of 27.4%!  So, if tech stocks were to endure any type of prolonged selloff, that would have a major impact on the S&P 500 as a whole – and could well lead to an overall market correction.      

Red Lights

Some market corrections only last a few days or weeks.  When that happens, it’s like coming to a stop sign.  A brief pause, and then we continue our journey. 

But some corrections last longer than that.  According to one report, the average correction lasts around four months.  When that happens, it’s more like hitting one of those annoyingly-long red lights, just as you’re heading home and the sun is in your eyes.  The kind that makes you think, “What does the universe have against me today!?” 

Before we go on, note that we’re not predicting that is what’s happening here.  We don’t try to predict the future – that’s a game for fortune-tellers.  Instead, we try to prepare for the future.  And to be frank, it’s possible we could see a longer correction in the not-to-distant future.  That’s because the future contains a lot of question marks, any of which could prompt the markets to pull back. 

For starters, there’s the economy.  While the markets enjoyed a V-shaped recovery after March, the overall economy has not.  Things are improving, but still a long way from healthy.  For example, the U.S. added 1.4 million jobs in August alone…but it’s still down 11.5 million jobs since the pandemic began.8  In other words, things are much less bad than before – but they’re still historically bad.  The markets have hummed along despite all this, but at some point, it’s possible the economic reality could drag stock prices down. 

At the same time, we’re seeing renewed Trade War fears with China.  We’re also only two months away from a bitter presidential election.  Historically, the markets don’t really care who sits in the White House, so there’s no reason you should let the election impact your financial thinking.  (We’ll have more information on this in the coming weeks.)  But in the runup to the election, we can certainly anticipate more volatility as people worry about who will win and what it means.

And of course, there’s COVID-19.  We’re all sick of hearing about it, but it’s still a fact of life and will continue to be so for some time.  Should cases surge in tandem with the upcoming flu season, the markets may retract into their shell.

In short, it’s certainly possible that we see a market correction over the next few months.  But whether we do or not, it’s important to remember that corrections are inevitable and temporary.  Corrections can even create opportunities for the future, as they open the door for investors to pick good companies at lower prices.

So, what do we do now?

Remember: We can’t predict the future.  But we can prepare for it.             

The fact is, we’re on a road we’ve never been on before – as investors and as a country.  In real life, whenever we drive on an unfamiliar road, we drive cautiously, keeping our eye out for hazards.  The same is true with investing.  Speed bumps are only an annoyance when we go over them too fast.  Stop signs and red lights are only dangerous when we speed past them.  That’s why we use technical analysis to determine which the way the markets are trending.  By doing that, we can spot these roadblocks ahead of time and slow down (or pull off to the side of the road) accordingly. 

Unlike buy-and-hold investors, we don’t need to fear the occasional bout of market volatility.  Because we follow set rules for when to enter and exit the markets, we don’t mind stopping occasionally.  We are prepared to play defense or even move to cash at any time.  That’s what helped us when the markets crashed in March.  It’s what will help us moving forward. 

Should a downturn happen, our clients’ portfolios are prepared.  Now we just need to prepare ourselves mentally and emotionally in case there are stop signs and red lights ahead.  And if it turns out to be a speed bump?  That’s fine, too.  We were already driving the speed limit. 

As always, our team will keep a close eye on the road ahead.  In the meantime, enjoy the end of your summer!  Please feel free to contact us if you ever have any questions or concerns.  We are delighted to be of service in any way we can.       

SOURCES

1 “Dow and Nasdaq plummet in the worst day since June,” CNN Business, September 3, 2020.  https://www.cnn.com/2020/09/03/investing/nasdaq-selloff-stock-market-today/index.html

2 “S&P 500 Historical Prices,” The Wall Street Journal, https://www.wsj.com/market-data/quotes/index/SPX/historical-prices

3 “Here’s how long stock market corrections last,” CNBC, February 27, 2020.  https://www.cnbc.com/2020/02/27/heres-how-long-stock-market-corrections-last-and-how-bad-they-can-get.html

4 “What’s the Fed doing in response to the COVID-19 crisis?”  Brookings, July 17, 2020.  https://www.brookings.edu/research/fed-response-to-covid19/

5 “Nasdaq historical prices,” The Wall Street Journal, https://www.wsj.com/market-data/quotes/index/COMP/historical-prices

6 “5 companies now make up 20% of the S&P 500,” Markets Insider, April 27, 2020.  https://markets.businessinsider.com/news/stocks/sp500-concentration-large-cap-bad-sign-future-returns-effect-market-2020-4-1029133505#

7 “U.S. Stock Market Sector Weightings,” Siblis Research, June 30, 2020.  https://siblisresearch.com/data/sp-500-sector-weightings/

8 “U.S. adds 1.4 million jobs in August,” CNN Business, September 4, 2020.  https://www.cnn.com/2020/09/04/economy/jobs-report-august-2020/index.html

Honoring Laborers Past and Present

Labor Day is coming up!  Normally, we’re used to celebrating it with parades, barbecues, and sometimes, fireworks.  Unfortunately, for this Labor Day, we will have to go without the traditional celebrations.  But we think we can speak for everyone when we say we deserve a holiday – even if we can’t observe it in the usual way.  So, as we approach Labor Day, let us pause and reflect on the circumstances that make this year’s holiday unique. 

As you know, this year has put our workforce to the test – the essential worker and the unemployed alike.  Amid the COVID-19 crisis, we are recognizing more and more that labor is what holds our communities together.  Billboards recognizing the workers who maintain our essential infrastructure are replacing advertisements.  TV spots thanking the doctors, nurses, and other medical professionals working on the frontlines are replacing commercials.  Parents taking on the extra labor of homeschooling their children feel more appreciation for teachers and school workers than ever.  And many of those lucky enough to stay employed during this time are doing everything they can to help out those who aren’t.  This has been a challenging time, but because we are all pulling through it together, we know there are better days ahead. 

And we know that it’s our workers who will help us get there.   

Of course, when and how we return to a normal, flourishing economy is uncertain.  What is certain is that we will.  We can be certain because our workforce is nothing if not resilient and eager to move forward.

We believe the pride and determination in our workforce is an inherently American trait.  That’s how President Grover Cleveland saw it.  In his presidential nomination acceptance in 1884, he wrote these words:

“A true American sentiment recognizes the dignity of labor and the fact that honor lies in honest toil.”1

Ten years later, he made Labor Day a national holiday. 

One-hundred and twenty-six years later, we honor laborers past and present.  Every day we work to better ourselves, our community, and our nation, is a day to celebrate.  That includes yourself, those you depend on, and those who depend on you.

So, even though we can’t celebrate Labor Day in the usual way this year, it’s still a day worth celebrating.  Because it’s not just about the end of summer.  It’s about ourselves and our community.  It’s about recognizing everything we’ve gone through and everything we’ll do.  It’s about recognizing that, no matter what happens, we’re in this together. 

We think that’s worth celebrating.  Don’t you? 

So, however you celebrate, we wish you and yours a very happy Labor Day! 

1 Grover Cleveland, “The Public Papers of Grover Cleveland: Twenty-second President of the United States”.  

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An Important Reminder for Retirees

Under normal circumstances, retirees over the age of 72 are required to withdraw a minimum amount from their IRA, 401(k), or 403(b) account every year.  These withdrawals are called required minimum distributions, or RMDs. 

But we aren’t living under normal circumstances right now, are we?  Thanks to the coronavirus, this is a very abnormal year. 

Which is why, for this year only, retirees don’t have to take RMDs!

You see, back in March, Congress passed the CARES Act, a major stimulus bill designed to help buoy the economy.  One of its many provisions was to suspend all RMDs for 2020.  That means you can leave that money in your retirement account for the year if you don’t need it now.  (If you’ve already taken your RMD for the year, you can potentiallyreturn the funds to your account if you want.  More on this in a moment.) 

Deciding whether to take your RMD in 2020

So, is delaying your RMD the right thing to do?  The answer depends on whether you need to take funds from your retirement account to maintain your standard of living.  If you don’t – or if you can draw those funds from somewhere else, like a taxable account – then skipping your RMD is probably the right decision.  That enables you to leave the money where it is so it can continue to grow.  It will also help reduce your income taxes for 2020, as RMDs are taxed as ordinary income. 

If you do need those funds, however, there’s nothing wrong with taking an RMD as usual. After all, that’s what your retirement savings are for! 

A couple things to keep in mind if you want to skip your RMD this year:

  1. Normally, retirees must take their RMD by December 31.  For that reason, many people set up automatic withdrawals so they don’t forget.  (After all, forgetting usually triggers a hefty 50% penalty.)  So, if you want to skip your RMD for the year, be sure to cancel your automatic withdrawal if you have one. 
  2. If you’re philanthropically inclined, you can still take money out of your IRA and donate it to charity.  In fact, many retirees often donate their RMD in the form of a qualified charitable distribution, which is tax-deductible.  You can still do this in 2020 even if you’re not technically taking an RMD. 
  3. If you are the owner of an inherited IRA, you’re also exempt from taking distributions
    in 2020. 
  4. Finally, if you already took your RMD for the year because you didn’t realize you were exempt, you can return it to your account even if it has been more than 60 days since your withdrawal.  The deadline for this provision is August 31, so please let us know if you need help. 1       

All in all, delaying your required minimum distribution is a good option if you don’t need the money and/or want to reduce your income taxes.  But if you have any questions or concerns about your retirement accounts, please let me know.  Our door is always open! 

1 “IRS announces rollover reflief,” Internal Revene Service, June 23, 2020.  https://www.irs.gov/newsroom/irs-announces-rollover-relief-for-required-minimum-distributions-from-retirement-accounts-that-were-waived-under-the-cares-act

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Protect Yourself from Cyber-theives

Everyone knows that the coronavirus has changed how we live, work, and play.  As a result, people are spending more money and time on the internet than ever before.  In fact, some experts estimate that Americans are spending 30% more money online.1  Meanwhile, social media, teleconferencing, telehealth, and mobile payment services are playing an increasingly important role in our daily lives.  Many of us are even shopping for groceries online!

The internet makes it easier to do more things from home than we ever thought possible.  But with this added convenience comes an added risk: The risk of exposing your identity and financial information to cyber-thieves and hackers.  

Data breaches and online scams have increased dramatically since the pandemic began.2  That’s why it’s more important than ever to take simple – but crucial – steps to keep your finances “cyber-secure.”  So, as we continue to keep ourselves safe by staying at home as much as possible, here are four things you can do to keep your finances safe, too.  

1.  Keep all software up to date

What does this have to do with cybersecurity?  Everything.  You see, one of the easiest targets for hackers to attack is outdated software.  That’s because older applications often contain weaknesses that hackers can use to gain access to your devices.  Your web browser – Chrome, Firefox, or Safari, for example – can be especially susceptible.  That’s why you should always:

  • Turn on automatic system updates for your computer, tablet, or smartphone.
  • Download updates and software patches when prompted.
  • Frequently review the apps on your devices, removing the ones you don’t need and updating the ones you do.  
  • Familiarize yourself with your browser’s extensions – think Flash, Java, AdBlocker, etc. – and keep them updated, too.  

Updating your software and devices can be a pain.  After all, no one likes it when their computer prompts them to restart for the umpteenth time just so Windows can install new updates.  But make no mistake – doing so will make it much harder for hackers to access your devices.  

2.  Use stronger passwords via a password management tool

Your email.  Your bank.  Your Facebook account.  These days, we all have to juggle dozens of passwords.  There’s no way to memorize them all, so many people resort to using the same two or three passwords for everything.  To make matters worse, these passwords are often extremely simple.  (Please don’t be the person who uses “password” as their password.)

As a rule of thumb, your passwords should always:

  • Contain at least eight characters
  • Contain at least one uppercase letter, one lowercase letter, one number, and several symbols. (Symbols include exclamation points, question marks, and asterisks.)
  • Be different from one another.  Don’t use the same password twice.  
  • Change at least once per year.

To help with this, consider downloading a password management app.  These are handy tools that make managing passwords a breeze.  That way, instead of having to memorize dozens of passwords, you only need to memorize one.  The app will do the rest, automatically inserting the right password whenever you need it.  Popular password apps include LastPass, Dashlane, and 1Password.        

3.  Embrace two-factor authentication

Two-factor authentication is a techy term for a simple concept.  Think about the front door of your home.  It probably has two locks – a handle lock and a deadbolt.  While the deadbolt is a second layer of security for your home, two-factor authentication is a second layer of security for your identity.

Normally, when you log into an app or website, you type in your username and password.  Two-factor authentication goes a step further by requiring you to enter at least one additional form of authentication.  This is often a personal identification number, like a four-digit code.  It can also be a second password, the answer to a question only you would know, or even your fingerprint.  Only by entering two different forms of authentication can you login to the app or website.  Yes, it adds another five seconds to the process.  But two-factor authentication makes it much harder for thieves and hackers to access your email, Facebook profile, or Amazon account.  Use it!  

4.  Use anti-virus (AV) protection software

Back to basics here. It’s been around for decades, but good AV software is still critical to protecting yourself from viruses and malware. Be advised, though, that it’s better to use one program than two or three. Multiple AV programs can clash with each other, slowing your device and paradoxically leaving you more open to attack. So, rely on one good program you can trust, and remember to keep it updated! 

These are all basic steps that you’ve probably heard before.  But, as financial advisors, we often find that while people have usually heard of these steps, following them is a different matter.  So, as you keep working to protect yourself from the coronavirus, take time to protect yourself from hackers and online viruses, too.  It’s one of the best ways to keep your identity – and your financial future – secure.    

1 “COVID Consumers: Pessimistic, but spending more online,” Search Engine Land, March 25, 2020.  https://searchengineland.com/covid-consumers-pessimistic-but-spending-more-online-331519

2 “COVID-19 lockdowns are causing a huge spike in data breaches,” TechRepublic, April 21, 2020.  https://www.techrepublic.com/article/covid-19-lockdowns-are-causing-a-huge-spike-in-data-breaches/

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