Market Summary: June 2020

Markets end higher, but volatility continues.

What happened.

Markets rose around the world in June. The S&P 500, an index of U.S. large-cap stocks, was up by 1.99 per cent. Small-caps were up more, rising by 3.74 percent (S&P 600). Looking abroad, we see that international stocks were up by 3.41 percent (MSCI EAFE Index). And bonds also had a good month too, with Bloomberg Barclays Aggregate Bond Index up 0.63 percent. Our simple measure of volatility in the stock market shows that June was a volatile month, with S&P 500 moving by +/- one percent on 11 of the 22 trading days of the month. This was also the end of the second quarter of the year, which followed a steep fall in the first quarter. The S&P 500 rose by 20.54% over the past three months, making it the best quarterly return since the fourth quarter of 1998.

Why it happened.

Uncertainty about the economic impact of the coronavirus pandemic drove markets in June. Market participants, trying to figure out how the coronavirus will impact companies’ performance, reacted strongly to good and bad news. As a result, markets experienced repeated ups and downs.
Early in the month, the unemployment rate was reported and, instead of rising substantially as expected, actually fell slightly. In response, the S&P 500 rose by 2.6 percent on June 5th. But on the 11th the S&P 500 fell by 5.9 percent after news of spikes in coronavirus infection rates and Federal Reserve Chairman Jerome Powell predicting a slow economic recovery. Then there was positive news on the 16th as retail sales grew by 18 percent, double what was predicted, sending markets back up. Another fall in markets came on the 24th as the International Monetary Fund said that the recession was worse than it had expected. There was also news of spikes in infections, leading multiple states to pause or backtrack on their reopening plans. Towards the end of the month, markets rose once more as pending home sales and the consumer confidence score beat expectations. After all these ups and downs, the S&P 500 closed up for the month.

What this means for you.

At Financial Engines, we build personalized portfolios that reflect your risk preferences and goals. Your portfolio is likely to have risen in June, and slightly more so if you have a higher stock allocation. But, as we continue to see market volatility, it is important that you are comfortable with your portfolio’s risk level. To do so, log into your account and look at the impact of changing your risk preference. Or call one of our advisors to help determine the level of risk that is right for you.

©2020 Edelman Financial Engines, LLC. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Edelman Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Edelman Financial Engines, LLC. Advisory services are provided by Financial Engines Advisors L.L.C. Call (800) 601-5957 for a copy of our Privacy Notice. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. All other intellectual property belongs to their respective owners. Index data other than Bloomberg is derived from information provided by Standard and Poor’s and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. ©2019 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.
An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Investing strategies, such as asset allocation, diversification, or rebalancing, do not assure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.
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Making Ends Meet Part 1- Bridging Expense Gaps During and After the COVID-19 Crisis

By Chris Ishida, Director, Financial Planning, Financial Engines

Financial relief from the federal government

The impacts from the coronavirus pandemic have been widespread. We’ve seen a new record for the highest one-week number of initial unemployment claims since the Department of Labor started tracking those figures back in 1967. More than 15 percent of the work force has lost their jobs. The $2 trillion CARES (Coronavirus Aid, Relief and Economic Security) Act stimulus package signed into law on March 27 is designed to put cash directly into the pockets of millions of Americans and businesses to alleviate some of the financial suffering.

Paying for basic needs

A recent survey from SimplyWise found that 40% of Americans’ income has been lost or reduced due to the virus response. And 43% of those who have been put out of work are not confident they will even have a job in the next three months.

The CARES Act stimulus payments will help people meet immediate needs, such as buying groceries, and paying for rent, prescriptions and utilities. A number of people say they will need the money to make late payments on loans and mortgages. While paying off debt is usually a good financial move, many banks have pledged to help customers who are having trouble making payments on bills and loans, including skipping or deferring payments. Check with your lenders to see what assistance they are offering.

Filling the income gaps

Half of U.S. households have no emergency savings, and nearly 40% would struggle to afford an unexpected expense of $400, according to a survey by the Federal Reserve. For many of the people in these households, stimulus money may not be enough to cover essential bills. What’s needed is a way to create extra income.

According to a SimplyWise survey, here are a few options Americans are considering.

Seek part-time work

While 15% of survey respondents are planning to apply for unemployment insurance, almost a third (30%) of respondents said they would look for part-time work to fill in their budget gaps.

While recruiting in your primary occupation may be down, many companies are still actively recruiting. Businesses offering essential services like Aldi, Amazon, CVS, Walmart, Kroger and FedEx are bringing on tens of thousands of new workers. New Jersey and Los Angeles have created job portals that list opportunities for those unemployed or underemployed due to the pandemic.

Ask yourself:

  • Is my resumé up-to-date and are my social media accounts suitable for a potential employer to view?
  • Do I have the technology in place to do video interviews and work remotely?

Sell assets

Online marketplaces, such as eBay, Etsy, eBid, Bonanza and others, make it easy to sell personal property for cash, and 15% of survey respondents indicated they would sell assets, including their home or car. Keep in mind buyers may be reluctant to purchase non-essential items while money is tight for so many. You can check with  eBay for tips on selling goods during the pandemic.

If you’re considering selling a house, understand that the traditional spring-time real estate market will probably not operate as usual. Nearly half of realtors surveyed by the National Association of Realtors said home buyer interest has decreased due to coronavirus-related concerns.

There are many questions to answer before listing your home, including whether you have enough equity to turn a profit and whether substitute housing is available. Given the need for social distancing, the sale of real property would have to be through a video tour, which could add to the difficulty for sellers.

Ask yourself:

  • Do I have items that are in demand and that I won’t regret selling later?
  • Do I have the time and resources to monitor the sales process and then pack and ship sold items?

Borrow from family or a bank

The SimplyWise survey found that 16% plan to borrow from a family member or friend, while just 10% said they would get a loan from a bank.

Turning to loved ones for short-term funds may be a good way to get a better interest rate without lots of paperwork. But when borrowing from a family member, it’s important to be very clear about loan terms and expectations. Writing up a contract may help avoid misunderstandings and family tension.

Many banks are offering to help customers during the pandemic. Five federal agencies—the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration and Office of the Comptroller of the Currency— issued a joint statement issued a joint statement encouraging financial institutions to “offer responsible small-dollar loans to consumers and small businesses in response to COVID-19. Do your research to find a loan with a good interest rate that is structured to meet your needs.

Ask yourself:

  • Is my credit rating high enough to get a decent interest rate on a loan?
  • Could I combine a loan with other income sources to make the loan as small as possible and limit my debt?

Borrow from your retirement savings

Think very carefully before taking a loan from your 401(k) as it can have long-term impacts on your retirement readiness. The cash you take out of your account won’t have the opportunity to grow over time. This could make it harder to reach your retirement income goals. Retirement plan loans tend to offer favorable interest rates, but you will be paying yourself back—with interest—through automatic payroll deductions. Pay careful attention to whether you can still make paycheck contributions if you have an outstanding loan—if not, you’ll be losing your company matching contributions. IRS.gov has more information on coronavirus related relief for retirement plans.

Ask yourself:

  • If I lose my job, will I be able to pay back the loan all at once?
  • Will the loan repayments make it hard to continue making contributions to my account?

Take a retirement account withdrawal

The SimplyWise survey discovered that 14% of respondents plan on withdrawing from their retirement funds. Taking a withdrawal from your retirement account should be a last resort because it will mean you’ll likely have less money available when you hit retirement. The new stimulus package removed the 10% early withdrawal penalty, so that’s a plus. But you will still owe income taxes on the money you take out. Consider your other options first, and then consult with a financial advisor before requesting a withdrawal.

Ask yourself:

  • Do I really want to sell investments in my retirement account when the market is down?
  • Can I combine a small withdrawal with other income sources to minimize the negative effects on my future retirement income?

Understand your options and ask for help

This is an incredibly difficult time. Many two-income families are now trying to survive on a single wage earner. Some have the additional burden of caring for sick loved ones or worse, being sick themselves. Use the time you have while staying at home to educate yourself about all the available options to bridge the expense and income gaps through the crisis. An advisor can provide a calm and objective view to help you make smart decisions.

In Part 2 of Making Ends Meet we take a look at how personal loans may help support your finances.

© 2020 Edelman Financial Engines, LLC. Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. See FinancialEngines.com/patent-information for patent information. Financial Engines Advisors L.L.C.; Attn: Investor Services; 4742 N. 24th Street, Suite 270; Phoenix, AZ 85016 Links to third-party content are intended to provide additional perspective and should not be construed as an endorsement of any services, products, guidance, individuals, or points of view outside Financial Engines. AM117811</h6)

Making Ends Meet Part 2 – Bridging Income Gaps With Personal Loans

By Chris Ishida, Director, Financial Planning, Financial Engines

In Part 1 of our “Making Ends Meet” series, Bridging Expense Gaps During and After the COVID-19 Crisis (avaiable in the Education Center), we described some of the financial resources that could help bridge your household’s expense gaps in the wake of the COVID-19 economic slowdown. In Part 2, we look at how one of those resources — personal loans — may help you pay the bills until the economy gets moving again.

What’s the (FICO) score?

Before we get into loan types, interest rates and application processes, let’s examine one of the most important factors in the borrowing world — your credit score, which lenders use to help gauge your ability to repay a loan on time.

The credit score used by more than 90 percent of top lenders is the FICO score, a three-digit number that ranks your creditworthiness. Think of it as a summary of your credit report. It’s a measure of how much credit you have and how long you’ve had it, how much of your available credit is being used and your record of paying on time, among other factors.

Scores run from 300 to 850. The higher the score, the better. The scale is divided into five categories, from “poor” (below 580) to “exceptional” (800 and higher). If your score is 720 or above, you’re generally in the excellent credit range, which should make it easier to get a loan and help you qualify for a better interest rate.

To give you an idea of why your FICO score matters, here’s a look at estimated online personal loan APRs (annual percentage rates) by FICO score range, as reported by NerdWallet’s April 2020 Lender Survey:

As you can see, the difference between fair and excellent credit is significant. You can improve your FICO score by following these tips from myfico.com

  • Pay bills on time.
  • Get current with any missed payments
  • Keep balances well below the credit limits on credit cards and revolving credit accounts
  • Don’t close unused credit cards
  • Don’t open lots of new accounts within a short period of time

Check your credit reports for accuracy

TransUnion, Equifax and Experian are the three big credit reporting bureaus. Each company issues credit reports on individuals to lenders, insurers and other businesses. Before you apply for a loan, review copies of your credit reports to make sure they are accurate.  The three bureaus do not share information with one another, so your reports from each firm may be slightly different. Under federal law, you are entitled to a copy of your credit report from each bureau every 12 months. You should make a habit of doing this even if you’re not in the market for a loan so you can ensure your reports are up to date. A best practice is to request your free report from a different credit bureau every four months.

If you’re about to apply for a personal loan, you can get all three reports at once for free from annualcreditreport.com. This is the only official website that does not charge for the reports. In response to the COVID-19 crisis, all three credit bureaus are offering consumers access to their reports on a weekly basis through April 2021.

Choose a lender

There are three primary sources for personal loans:

Banks — Banks may offer competitive rates, with discounts for banking customers, but they typically have tougher eligibility requirements and can take longer to fund your loan compared to online lenders. If you value personal interaction and the security of knowing who is handling your loan, a bank might be a good place to start. Also, you may be able to negotiate a lower rate or qualify with a lower credit score if you’re talking to a person with whom you already have a banking relationship.

In the aftermath of the 2008–2009 subprime mortgage crisis and recession, many traditional “brick and mortar” banks pulled back on consumer lending. While banks have loosened up a bit in the last of couple years, many are still reluctant to offer unsecured personal loans.

Online lenders — Online lenders are stepping in and offering unsecured personal loans that would not be available at a traditional bank. Online sites like Avant Loans have simplified the process of taking out a loan. Because online lenders don’t have the overhead expenses of maintaining a physical bank, they may be able to offer lower loan fees. For the same reason, online interest rates are usually lower than those of banks if you’re applying for a secured loan, such as a home mortgage or auto loan.

Most online lending is unsecured, which means you’re not putting up collateral that the lender can keep if you don’t pay your debt. Unsecured loans are riskier for the lender, so they come with higher interest rates. If you need a personal loan and borrowing online is your only option, even at a relatively high interest rate, you’ll likely pay less than you’d pay in credit card interest. One positive aspect of online interest rates is that they are usually fixed, so you’re not vulnerable to broader interest rate fluctuations. A fixed-rate loan allows you to know exactly how much interest you’ll pay for the life of a loan.

Credit unions — Credit union loans often have lower interest rates than those of banks and online lenders. If you have a less-than-stellar FICO score, you may find credit union loan officers more willing to consider your overall financial picture when determining your creditworthiness.

There are two types of credit unions: federally chartered and state chartered. At federal credit unions, APRs on most types of loans are capped at 18 percent. Over the past five years, federal credit union loan APRs on three-year loans have averaged 9.29 percent, while the average at banks was 10.18 percent, according to data from the National Credit Union Administration. Rates at state-chartered credit unions have averaged 11.43 percent over the past five years, according to economists with the Credit Union National Association. Your credit union may choose to charge an application fee that isn’t part of the APR.

Pre-qualify to see where you stand

Personal loan interest rates currently range from about 5 to 30 percent. The actual rate you receive depends on factors such as your credit score, credit history, annual income, existing debt and whether you get a loan from a bank, credit union or online lender.

Because rates and terms vary among lenders, we recommend pre-qualifying for several personal loans so you can compare offers. Pre-qualifying gets you access to potential loan terms, like the amount you qualify for and the interest rate, but it does not guarantee that you’ll get the loan. Pre-qualifying for a loan should not impact your credit score. Lenders do a “soft” credit check to determine your basic creditworthiness and that inquiry will not show up on your credit report.

The pre-qualification process generally involves the following steps:

  1. You fill out a pre-qualification form, sharing such information as your income, occupation and existing debt
  2. The lender performs a soft credit check, assessing your credit score and history. This gives the lender a sense of how risky a borrower you may be
  3. The lender either denies or grants your pre-qualification. If you pre-qualify, you’ll receive information about the loan you may receive, including the rate and loan amount

If you continue with a loan application after pre-qualifying, the lender will verify your financial history and perform a hard credit check, which will appear on your credit report for up to two years and may temporarily shave a few points off your FICO score.

In Part 3 of our “Making Ends Meet” series, we’ll take a look at four other loan-based resources that might be used to support your finances: home equity loans, home equity lines of credit, mortgage modifications and payday alternative loans.

 

© 2020 Edelman Financial Engines, LLC. Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. See FinancialEngines.com/patent-information for patent information. Financial Engines Advisors L.L.C.; Attn: Investor Services; 4742 N. 24th Street, Suite 270; Phoenix, AZ 85016 Links to third-party content are intended to provide additional perspective and should not be construed as an endorsement of any services, products, guidance, individuals, or points of view outside Financial Engines. AM1178119.

 

 

Market Summary: May 2020

Stocks rise as economies start to reopen

What happened.

U.S. and international stocks rose in May as governments around the world started to remove restrictions on economic activity. U.S. large-cap stocks were up by a strong 4.76 percent (S&P 500), while small-cap stocks fared well too, rising 4.31 percent (S&P 600). International developed-market stocks closed the month up 4.35 percent (MSCI EAFE Index) and emerging-market stocks were up 0.76 percent (MSCI Emerging Markets Index). May was another volatile month for stocks, if less dramatic than February and March, with the S&P 500 moving by plus or minus 1 percent on 11 of the month’s 19 trading days. Bonds rose by 0.47 percent as the interest rates paid by corporations fell slightly (Bloomberg Barclays U.S. Aggregate Bond Index). This month’s sidebar looks at the different types of bonds contained in the aggregate index, and how they help build a diversified portfolio.

Why it happened.

Stocks rose and fell over the month. They were pushed up by positive news about how fast an economic recovery will arrive and pulled down by negative news. Mid-month, markets leapt on news that a Covid-19 vaccine could be delivered soon, only to fall back when scientists noted that the tests were still in an early stage. Markets rose as economies reopened, but, on some days, fell when some experts raised concerns about possible increases in infections. Late in the month, markets largely shrugged off increased tensions between the U.S. and China over Hong Kong’s status, and China’s responsibility for the global spread of the virus. After its ups and downs, the market closed higher for the second month in a row.

All this happened against a backdrop of continuing grim economic news. The number of Americans who filed for unemployment insurance since the crisis began stands at a stunning 40 million and pending home sales and industrial production fell by record amounts in April. This shows us again that the stock market isn’t a gauge of how the economy is doing at the moment, but a projection of how investors believe companies will fare in the future.

What this means for you.

At Financial Engines, we build you a personalized portfolio to help you meet your goals. Your portfolio will probably have seen positive returns this month. If your portfolio has more risk — you’re further from retirement or have a high tolerance for risk — it will have done better due to your higher exposure to stocks. Please let us know about any changes to your situation that might impact your asset allocation. If you have any questions, give us a call.

©2020 Edelman Financial Engines, LLC. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Edelman Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Edelman Financial Engines, LLC. Advisory services are provided by Financial Engines Advisors L.L.C. Call (800) 601-5957 for a copy of our Privacy Notice. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. All other intellectual property belongs to their respective owners. Index data other than Bloomberg is derived from information provided by Standard and Poor’s and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. ©2019 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.
An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Investing strategies, such as asset allocation, diversification, or rebalancing, do not assure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.
AM1196857

 

The Federal Government Takes Steps to Stabilize the U.S. Economy

On Friday, March 27, Congress passed, and President Trump signed into law, the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act. The new law is designed to stabilize the economy by providing financial relief to millions of American families and small businesses. Here’s an overview of some of the key features of the CARES Act legislation.

Federal income tax filing date extended
The IRS has extended the 2019 tax-filing deadline from April 15 to July 15. The extension is automatic and does not require you to file an extension request. You can file any time up to July 15 and if you expect a refund you may want to file as early as possible to get your refund sooner. If you file before July 15, you do not have to pay any taxes you might owe until July 15. Some state filing deadlines may not be extended, so check with your tax advisor to confirm when any state tax returns are due.

Cash payments for many Americans
A big part of the CARES Act involves direct payments to individuals. If you are a single adult with income of up to $75,000 you will receive $1,200. Payments will be reduced by $5 for every $100 of income above $75,000. Individuals earnings over $99,000 will not qualify for this benefit.

Married couples with combined income up to $150,000 will receive $2,400. Payments will be reduced by $5 for every $100 of combined income above $150,000. Couples with combined income of more than $198,000 will not qualify for this benefit. Parents will also receive a maximum of $500 for each child age 16 or younger in their household, with similar income-based adjustments. Qualifying income will be determined by your most recently filed tax return (2018 or 2019). Payments will also be made to people who were not required to file a tax return.

Unemployment payments have also been increased. An additional $600 per week will be added to any state unemployment benefits paid through July 31. Unemployment benefits will be extended by an additional 13 weeks for claims filed through December 31, 2020.

Relaxed retirement plan rules
Depending upon your plan provisions, you may withdraw up to $100,000 from your retirement accounts as a “COVID-19 emergency” distribution. These distributions are exempt from the 10% early withdrawal penalty. The exemption applies to withdrawals made since January 1, 2020. Any taxes due on the withdrawals can be spread out over three years. To qualify, you must have been directly impacted by COVID-19 and meet other U.S. Treasury requirements.

If you are over age 70-1/2, you do not have to take a Required Minimum Distribution (RMD) in 2020. This waiver also applies to inherited IRAs. Contact your tax advisor if you’ve already taken a RMD in 2020. You may be able to return the funds to your account or reclassify your withdrawals as special coronavirus retirement distributions. If you are age 70 or older and still employed, you can now continue making contributions to a traditional IRA.

If your workplace retirement plan permits loans and depending upon your plan loan provisions, you may now borrow the full vested value of your account, up to $100,000. But please keep in mind that retirement plans are designed to fund your retirement. You should only consider loans or withdrawals if you have exhausted all other funding options that might be available to you.

Larger charitable giving deductions
If you itemize deductions, your cash donations to qualified charities are now deductible up to 100% of your Adjusted Gross Income (AGI). If you use the standard deduction, you can deduct up to $300 in cash donations. Please make sure your donations are given to legitimate charities that are recognized by the IRS.

Expanded COVID-19 Medicare coverage
The reduction in Medicare reimbursements imposed in 2011 has been suspended from May 1, 2020 through December 31, 2020, which will increase payments to hospitals and other providers. In addition, hospitals will receive a 20% payment increase for patients diagnosed with COVID-19. Medicare telehealth services are being broadened to enable retirees to get medical advice from home.

More diagnostic tests, immunizations and preventive services will be covered by regular insurance for all insured Americans.

Relief for federally-backed mortgages
If your mortgage is federally backed, you can ask the servicer for forbearance (stop making payments) for up to 180 days, and this request may be extended for an additional 180 days. Federally backed mortgages include those purchased by Fannie Mae and Freddie Mac, insured by the departments of Housing and Urban Development, Veterans Affairs or Agriculture or made directly by USDA. Check with your mortgage servicer to see if you qualify.

Benefits for students
If you have federal student loans outstanding, you don’t have to make any principal or interest payments until after September 30, 2020. There will be no penalty for these deferred payments and interest will not accrue.

There are additional benefits available for current students. Students unemployed due to COVID-19 may be able to continue receiving work-study payments from their institutions. Recipients of Pell Grants or federally subsidized loans who have been forced to drop out of school because of COVID-19 will not have to return that money. Any grants or loans students have received will not count against their lifetime eligibility.

Small business benefits
Small businesses and nonprofits with less than 500 employees, along with individuals who are self-employed, operate as a sole proprietor or as an independent contractor, are eligible for an Economic Injury Disaster Loan emergency advance of up to $10,000 from the U.S. Small Business Administration. Restaurants and hotels are also eligible. These loan advances do not have to be repaid if certain guidelines are followed.

The CARES Act also increases the deductibility of business interest expense for 2019 and 2020 to 50% of Adjusted Gross Income (AGI). Self-employed individuals are eligible for up to 39 weeks of unemployment compensation, through December 31, 2020.

Neither Edelman Financial Engines, a division of Financial Engines Advisors L.L.C., nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from qualified tax and/or legal experts regarding the best options for your particular circumstances. AM1141313

Market Update, Q1 2020: An Unprecedented Quarter

Despite a promising start to the quarter, with equities reaching all-time highs in mid-February, markets took an abrupt downward turn in March. The dramatic spread of COVID-19 in Europe and the U.S. brought economic activity to a sudden halt as governments ordered people to stay at home. Businesses large and small, suddenly had to close as measures were implemented to slow the spread of the virus. Equity markets dropped dramatically as volatility spiked and unemployment soared. Large-cap stocks in the S&P 500 plunged to end the quarter down 19.6 percent. Stocks of smaller companies, represented by the S&P SmallCap 600 index, fell even further, losing 32.6 percent in Q1.

International stock markets were similarly impacted, with the MSCI Europe, Australasia, and Far East (EAFE) index falling 22.8 percent for the quarter. Emerging markets were also down sharply. Adding to the volatility, a plunge in oil prices sent ripples of anxiety across the energy sector.

With the sudden economic turmoil, short-term interest rates were slashed to zero by the Fed and other central banks. The prices of U.S. Treasuries, especially those with long maturities, soared as investors sought refuge from falling equity prices. Overall, the Bloomberg Barclays U.S. Aggregate Bond Index gained 3.2 percent for the first quarter.

The Financial Engines perspective.

The term “unprecedented” is overused in the financial press, but the first quarter brought conditions we have never seen before. The global economy went from healthy growth and full employment to near hibernation in a few weeks. Financial markets clearly anticipate difficult economic conditions to persist for some time – how long will depend on the success of measures taken by authorities to suppress the spread of the virus. We understand the events of the past month have been unnerving for you and your family. But we also know that acting on emotion makes for poor decisions. We continue to firmly believe in our approach to investment management; that a diversified portfolio tailored to your goals is the key to your long-term success. We are closely monitoring financial markets and making adjustments as necessary to your portfolio. Our advisors are here to answer your questions, and to help you keep your retirement plan on track. And most importantly, we want to wish you and your family good health during these challenging times.

©2020 Edelman Financial Engines, LLC. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Edelman Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Edelman Financial Engines, LLC. Advisory services are provided by Financial Engines Advisors L.L.C. Call (800) 601-5957 for a copy of our Privacy Notice. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. All other intellectual property belongs to their respective owners. Index data other than Bloomberg is derived from information provided by Standard and Poor’s and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. ©2018 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results. AM114258

Why Market Volatility Doesn’t Matter as Much as You Think

By Wei Hu, Vice President, Financial Research, Financial Engines

If you’re worried about how the recent stock market declines might affect your retirement investment strategy, we’d like to provide some perspective that may ease your mind a bit.

A 20 percent decline in the stock market doesn’t automatically mean a 20 percent decline in your portfolio.

If we’re managing your retirement account, your investment portfolio has a diversified mix of bonds, as well as U.S. and international stocks. The news headlines tend to focus on just the Dow or the S&P 500 indexes, which only tell you how large-cap U.S. stocks have performed. Those indexes don’t give a complete picture of how the entire U.S. stock market has performed, and they don’t reflect foreign investment performance at all. While the S&P 500 has declined by 21 percent this year (as of March 27, 2020), bond investments have been flat or slightly positive. As of March 27, 2020, the Barclays Aggregate Bond Index is actually up 2.7 percent.

Let’s look at a couple of simplified examples that show how the recent market performance could translate into the performance of a retirement investment portfolio.

If you have 10 years until retirement, a typical recommended investment mix would be 30 percent bonds and 70 percent stocks. Let’s assume this allocation consists of the Barclays index (bonds) and the S&P 500 index (stocks). This portfolio would have fallen by 14 percent so far in 2020. Certainly not ideal, but not nearly as bad as the decline in the stock market you see in the headlines.

If you’re close to retirement, our typical recommended investment mix would be even less risky — more like 45 percent bonds and 55 percent stocks. Again, assuming the Barclays and S&P 500 indexes as the investments, this portfolio would have seen a loss of about 10 percent so far in 2020.

A 10-14 percent temporary drop in your retirement account balance doesn’t automatically translate into a 10-14 percent drop in your projected retirement income.

Your projected retirement income will come from several sources:

  • Current retirement account balances.
  • Growth of current balances.
  • Future retirement account contributions.
  • Growth of future contributions.
  • Social Security and pensions.

Only the first two are affected by what’s happened in the market. Your balance may have fallen 10-14 percent, and any potential growth will start compounding from this lower balance. But your future savings contributions should stay the same. Our projected future returns on those contributions are basically unchanged because they are based on expected long-term market performance. Of course, the value of your Social Security benefits and any pensions you may be entitled to aren’t affected by the stock market.

How much those first two components affect your retirement income depends on your situation. They’ll account for more of your retirement income — about 60 percent — if you are within 10 years of retirement, have a large retirement account balance or higher earned income, or if you are making lower retirement plan contributions. They’ll be a smaller portion — about 40 percent — if you are many years away from retirement, have lower income or savings balances, or are saving more.

Putting it all together

The takeaway here is that the effect of stock market declines on your retirement savings strategy can be lessened by having a diversified portfolio along with your other sources of retirement income.

Going back to the 10-years-from-retirement example above that saw a 14 percent drop in the retirement portfolio value (the portfolio is responsible for 60 percent of future retirement income), the actual reduction in projected retirement income is just 8 percent (14% x 60% = 8%). That’s not happy news, but it’s hardly catastrophic for someone who still has 10 years to make adjustments.

We’re just showing you how a retirement account — and future retirement income — does not necessarily run in lockstep with overall market performance. Your individual results may be different. We encourage you to visit our site or call an advisor representative to learn how recent market performance may affect your retirement strategy.

An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.
Investing strategies, such as asset allocation, diversification, or rebalancing do not assure or guarantee better performance and cannot eliminate the risk of investment losses. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Funds and ETFs are subject to risk, including loss of principal. All investments have inherent risks. There can be no assurance that the investment strategy proposed will obtain its goal. Past performance does not guarantee future results.
© 2020 Edelman Financial Engines, LLC. Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. See FinancialEngines.com/patent-information for patent information.
Financial Engines Advisors L.L.C.; Attn: Investor Services; 4742 N. 24th Street, Suite 270; Phoenix, AZ 85016
AM1134295

Warning – How to Avoid Coronavirus Scams

As we all face the coronavirus together, there are so many stories about how friends, neighbors, and perfect strangers have been reaching out to help others to weather this storm. Sadly, there are those who are trying to take advantage of the situation.

Criminal scammers exploit times like these to take advantage of confusion, fear, greed and our honest desire to help. Here are some tips from the Federal Trade Commission (FTC) to help you keep the scammers at bay:

  • Don’t click on links from sources you don’t know. They could download viruses onto your computer or device.
  • Watch for emails claiming to be from the Centers for Disease Control and Prevention (CDC) or experts saying they have information about the virus. For the most up-to-date information about the Coronavirus, visit the websites for the CDC or World Health Organization (WHO) directly.
  • Ignore online offers for vaccinations. There currently are no vaccines, pills, potions, lotions, lozenges or other prescription or over-the-counter products available to treat or cure Coronavirus disease 2019 (COVID-19) — online or in stores.

The FTC has also identified some of the common scams that have been reported.

  • Undelivered goods: Online sellers claim they have in-demand products, like cleaning, household, and health and medical supplies. You place an order, but you never get your shipment. Anyone can set up shop online under almost any name — including scammers. The FTC recommends that you check out the seller by searching online for the person or company’s name, phone number and email address, plus words like “review,” “complaint” or “scam.” If everything checks out, pay by credit card and keep a record of your transaction.
  • Fake emails, texts and phishing: Scammers use fake emails or texts to get you to share valuable personal information — like account numbers, Social Security numbers, or your login IDs and passwords. To do so, scammers often use familiar company names or pretend to be someone you know. Other scammers have used real information to infect computers with malware. The FTC recommends you protect your computer by keeping your software up to date and by using security software. Your cell phone should also be set to make security updates automatically, and you should use multi-factor authentication for your important accounts.
  • Robocalls: Scammers are using illegal robocalls to pitch everything from scam Coronavirus treatments to work-at-home schemes. The best advice here is to just hang up. Don’t press any numbers. The recording might say that pressing a number will let you speak to a live operator or remove you from their call list, but it might lead to more robocalls, instead.
  • Misinformation and rumors: Scammers, and sometimes well-meaning people, share information that hasn’t been verified. Before you pass on any messages, and certainly before you pay someone or share your personal information, do some fact checking by contacting trusted sources

You should also be aware of the following scammer tactics.

  • Imposter Scams: Bad actors attempt to solicit donations, steal personal information, or distribute malware by impersonating government agencies (e.g., Centers for Disease Control and Prevention), international organizations (e.g., World Health Organization (WHO), or healthcare organizations.
  • Product Scams: The U.S. Federal Trade Commission (FTC) and U.S. Food and Drug Administration (FDA) have issued public statements and warning letters to companies selling unapproved or misbranded products that make false health claims pertaining to COVID-19. Additionally, The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has received reports regarding fraudulent marketing of COVID-19-related supplies, such as certain facemasks.
  • Investment Scams: The U.S. Securities and Exchange Commission (SEC) has urged investors to be wary of COVID-19-related investment scams, such as promotions that falsely claim that the products or services of publicly traded companies can prevent, detect, or cure coronavirus. FinCEN has received reports regarding suspected COVID-19-related insider trading. This often involves a pump and dump scheme, where scammers attempt to con investors into driving up the price of a stock, so that they can then sell their own stock at a profit.

Most of us are doing all we can to get through these difficult times. We hope that you and your loved ones are following the instructions of your local health authorities in order to keep yourself and your community safe. And sadly, there are those who are trying to illegally profit from this crisis. We ask you to please be on the lookout for scams, and only rely on trusted sources such as the CDC, WHO and FTC, to keep you informed.

This material was prepared for informational and/or educational purposes only. AM 1129073,/h6>

Watch Out for Coronavirus Charity Scams

We all want to lend a helping hand, and many folks across the country are pitching in to help their communities get through the challenges brought on by the coronavirus. But at times like these, it is more important than ever to make sure any charitable donations you make are going to the right organizations.

Scammers are pouncing on the opportunity to take advantage of the pandemic and are reported to have already registered addresses that include covid19, or coronavirus in their name. It is important that all of us remain vigilant against these fraudulent schemes. You should never give money through a link that someone emails you or provides via social media, no matter how much you may trust that person. He or she could have been scammed too. Also be wary of email attachments that claim to be links to charitable organizations. They could contain malware that can infect your computer.

Here are some more tips on avoiding charity scams:

  • Do your homework when it comes to donations, whether through charities or crowdfunding sites.
  • Avoid organizations using names that closely resemble better-known, reputable groups — for example, givetotheredcross.org, rather than redcross.org.
  • Be wary of groups that won’t provide proof that a contribution is tax-deductible.
  • Watch out for those who thank you for a pledge you don’t remember making.
  • Avoid those who pressure you to donate immediately without giving you time to think about it or do any research.
  • Never give to anyone who asks for donations in cash or asks you to wire money.

Other charities, including local ones, may also be reputable but simply not well-known. To learn about them, check with organizations that vet charities. But remember, a charity recommended by one organization might fall short by another’s standards. Therefore, check with at least two rating groups before you make a gift.

Here are four vetting sites that can help:

Charitywatch.org — a site run by the American Institute of Philanthropy — has a good record of discovering charity scams and weaknesses, and it has letter grades for many charities.

CharityNavigator.org uses a star rating system to vet numerous charities.

Guidestar.org has a list of expert-recommended charities involved in relief efforts.

Give.org is the Better Business Bureau’s charity-checking site, allowing you to verify which ones meet its accreditation standards.

If you encounter a charity you suspect is fraudulent, notify the Department of Justice at disaster@leo.gov, which tracks and attempts to shut down scams. And thank you for supporting those charities that truly are working to make life easier for those who need our help.

This material was prepared for informational and/or educational purposes only. AM 1129073

The Top Five Bear Market Questions (and Answers)

By Wei Hu, VP Financial Research, Financial Engines and
Bill Tracy, Portfolio Manager, Financial Engines

We’ve been getting a lot of questions about the market volatility associated with COVID-19. Here are answers to five of the most common bear market questions clients are asking.

Q: What is a “bear market?”

A: A bear market is a period where stocks (often represented by the S&P 500 Index, a collection of large U.S. companies) fall 20% or more from their most recent peak. Going back to the mid-1950s, a bear market in U.S. stocks has occurred about every five to five-and-a-half years.

Q: How long can I expect it to last?

A: When it comes to the time required for the market to get back to its pre-bear market peak, the range is quite wide, and the characteristics of each bear market environment don’t tell us much about how long it will take. On average, it took the S&P 500 Index 773 calendar days to move back to break even following past bear markets. But that’s on average. In one instance, the snap back happened in just 83 days. For one bear market in the 1970s, it was a 2,114-day journey. Investors often need patience to ride out a bear market.

Source: Bloomberg, S&P Dow Jones Indices, Edelman Financial Engines.

 

Q: Is a big market drop a fantastic buying opportunity for stocks?

A: Not necessarily. If you look at the 5-year returns of the S&P 500 after it bottomed out in each of the bear markets, there’s no relationship between the size of the drop and future returns. Investing in stocks should be a long-term, forward-looking decision, not based on what has happened in the past. Also keep in mind that no one knows until afterwards when the bottom of the market was reached.

Note: 5-year return calculated beginning the month after the market bottom.
Source: Bloomberg, S&P Dow Jones Indices, Edelman Financial Engines.

 

Q: What should I do during a bear market?

A: History shows us that we can’t predict when the market will bottom out. And we can’t predict how long the recovery will take. Instead, focus on what you can control. Continue contributing to your retirement accounts, particularly if you are getting a company match.

Also, stay invested in a diversified portfolio that supports your overall retirement goals. If you’re young or mid-career, what happens today will likely have a minor impact on your long-term retirement success.

Q: What if I’m planning to retire soon?

A: The data show that market downturns can last for more than a couple of years. But it’s important to understand that some exposure to stocks is still a good idea as you head into retirement. You want your assets and income to keep growing to help offset any effects inflation may have on your purchasing power. Even if you are hoping to retire within a year, your retirement income may need to last 30 years or longer. So you should maintain a long-term outlook when making investing decisions.

Another action that can affect your retirement income is deciding when to start taking Social Security benefits. If you take Social Security early, your lifetime monthly benefit will be lower than it would be if you waited until your full retirement age to claim your benefits. Your benefits will go up about 8% a year for each year you delay beyond your full retirement age, until age 70. Deciding when to take benefits can get complicated for married couples. Use our free Social Security optimization tool to see if you can boost your overall retirement income.

An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.
Investing strategies, such as asset allocation, diversification, or rebalancing do not assure or guarantee better performance and cannot eliminate the risk of investment losses. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Funds and ETFs are subject to risk, including loss of principal. All investments have inherent risks. There can be no assurance that the investment strategy proposed will obtain its goal. Past performance does not guarantee future results.

©2020 Edelman Financial Engines, LLC. Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. See FinancialEngines.com/patent-information for patent information.

Financial Engines Advisors L.L.C.; Attn: Investor Services; 4742 N. 24th Street, Suite 270; Phoenix, AZ
AM1130022