Dear clients,

I wanted to reach out to you, to address the market turmoil and if or what should be done, why the market is moving as it is, and how long this may last.

Honestly, I simply do not know how long this market downturn will last, but I expect that we may start seeing a turnaround by the later part of the year. It is moving downward because it is what markets do over time, the market is cyclical, but also this is a “post Covid” issue, supply chain issues, inflation are the two main culprits.

BEAR MARKET FACTS

Bear markets are usually identified by a 20% or more drop over a 2 month period. The longest bear market lasted 630 days, the market was down 48.20%. The average bear market last 289 days with a 35% drop. There have been 26 Bear markets since 1928.

BULL MARKET FACTS

There have been 27 bull markets since 1928. Bull markets average 991 days. We have been in the longest bull market in history-this began in 2009 to arguably now.

So, technically we are still in a “correction”, as the S&P is only down 13%, The Dow is down 9% and Nasdaq is off 19.69% YTD, nearing “Bear” territory.

Energy is still the leading industry this year, up 56.69%, most of the other major industries are suffering.

So what do we do. We ride this out, as we have done every other correction and bear market. We take advantage of the lower prices when it makes sense. We stay aware, and remain patient. Those of you who have been invested in the market for at least 5 years have admittedly given up some gains, but you are still “waaaaayyy” ahead. 

I know that it is hard to see the drop in your portfolio no matter, but remember how much you have made, and that this drop is only temporary, so think of how much more you will make on the next run upward.

For those who are new, please be patient, my suggestion is not to look at your portfolio because you will get stressed. Know that this is temporary, and the best time to invest in the market, which means if you have more to put in, we should talk.

A lot of you wonder why I hold cash sometimes instead of investing it all, this is why? It is a strategy, so that we do have money available, to take advantage of the lower prices when the market drops. These are the times when money is made.

Some of you wonder if we should get out of the market and then get back in-unfortunately, we will loose more money trying to execute this strategy.

There is more money to be gained (more bull markets and longer bull markets) than to be lost. So, again, I follow the Warren Buffett strategy, and that is to buy and hold. It truly works best!

We have gotten through many corrections and bear markets before, so we will indeed get through this one. This one seems more manageable, businesses appear to be profitable and there seems to be cash/liquidity.

This appears the same with individuals-more savings, less debt. I feel hopeful that this “bearish” market will pass soon.

Lastly, I want to stress that I am here for all of you-please call me directly for a quick conversation if needed. If you need more time, please reach out to Nina to set up an appointment. I know that my calendar is full and sometimes getting an appointment seems too far out, so if you absolutely need to see me sooner, let Nina know and we will work something out.

In the meantime, hang in there, don’t look unless you have to. Reach out when needed.

Best,

We are experiencing the biggest remote work experiment in history – but many are beginning to imagine life after lockdown. Amid unprecedented global job losses, concerns about transport infrastructure and the continuing need for workplace social distancing, governments are launching back-to-work plans.

Meanwhile, the latest US research reveals that 74% of businesses want some workers to permanently work remotely and business leaders are actively shedding leased office space – hinting that not everyone will go back to the office.

Here are five key trends that will shape the future of how we work.

1. Commuting will change forever

We might miss the social interaction of the office, but most don’t miss commuting. This was one of the key findings in my four-year remote work-study.

Before lockdown, US commute times reached record levels and most UK workers spent more than a year of their lives traveling to and from work. People tell me that a hybrid strategy of working from home two days a week is one ideal scenario.

Those eager to go back to the office will have to wait. Many will need to work from home for weeks or months to come. The situation is fluid, but governments are drawing up plans for workers to stagger working times, so public transport is not overwhelmed.

The genie is out of the bottle, and commuting is not going back to how it was.

2. Bad email etiquette won’t be tolerated

Workplace communication is rapidly transforming and email is a case in point. More than ever, creating a clear separation between work and leisure time is vital.

Research repeatedly shows that sending out-of-hours emails is not only bad etiquette – but creates a coercive work culture that requires people to be available 24/7. Social scientists argue this turns us into worker/smartphone hybrids and causes stress and burnout. Expecting quick answers to email is increasingly seen as bullying.

Many now realize that colleagues might need to work flexibly due to caring responsibilities. Lockdown has encouraged a new acceptance of flexibility. But this shouldn’t extend to having a culture that expects people to be available all the time.

3. Video calls will be limited

Zoom calls will remain part of our lives – but we will change and adapt how we use them. Research shows that video calls are more draining and tiring than in-person meetings.  While video calls are appropriate for some meetings, we don’t need to use them for all our communication. Research suggests many are shifting back to phone calls – which as one manager explained to me “feels more spontaneous and flows better”. 

4. More co-working spaces will emerge

Workers forced to continue working from cramped living spaces are desperate for alternatives. When lockdown lifts they will turn to the cafes and co-working spaces that are still in business. Before COVID-19 hit, co-working spaces were projected to increase more than 40% worldwide.

The paradox of remote working is that people crave flexibility but know that being around others boosts productivity. My research shows that over time remote workers crave the physical closeness that comes with just being alongside other people. It’s exactly why in 2017 IBM pulled many employees back into the office, despite having previously published a 2014 white paper in support of remote working.

Local co-working spaces, as opposed to big investor-funded brands such as WeWork, will do well. Independent coworking

spaces in some areas were thriving before COVID-19 – they may become more mainstream if they survive lockdown.

5. Could we become part-time digital nomads?

Digital nomads are extreme remote workers that post Instagram stories from exotic locations. Right now, that lifestyle seems unrelatable, impossible, and to many unethical. Nonetheless, many decently paid workers in New York, London, and Paris are stuck in uncomfortably small flats, dreaming of escape from lockdown. As a housing manager recently confided to me: “London living without nightlife and culture, isn’t fun. Everyone wants to escape to somewhere outdoorsy when allowed. I’m not sure I approve but it’s understandable.”

For now, remote working from different locations is not allowed. But the allure of relocating to a picturesque location remains – and Brian Chesky, CEO of AirBnB, is banking on it. He sees COVID-19 as a business opportunity and told Bloomberg: “People are realizing they can work remote …that’s a huge opportunity.”

Not all will agree – it could cause long-term sustainability issues – and many will not have this privilege. But when lockdown fully lifts, who’s to say more people will not work remotely from different parts of the world, beyond their living rooms.

Dear ITFS family,
Wishing you all a prosperous and optimistic welcome to 2021. I am not sure about you but I am thankful that we are now in a new year, and hopeful that this year will be far better than 2020. Last year was one of the, if not the worst years I have experienced in my lifetime. However, one of the better outcomes of last year was the stock market, especially for the Nasdaq, as the chart below indicates. GO TECH!

On June 19, 2020, the Internal Revenue Service announced new guidelines to help those affected by COVID-19 gain more access to retirement plan distributions and loans. The IRS expanded the categories of those eligible, called qualified individuals, and increased the dollar limit on loans to $100,000.

The CARES Act

In late March of 2020, the $2 trillion Coronavirus Aid, Relief, and Economic Security Act – the CARES Act – was passed by Congress and signed by the President. In addition to providing direct assistance to individuals, families and small businesses, the CARES Act allows for COVID-19-related distributions of up to $100,000 from eligible retirement plans, including IRAs, between January 1st and December 30th of 2020. These distributions will not be subjected to the 10% early withdrawal penalty.

In addition, a COVID-19-related distribution can be included in income in equal installments over a three-year period and one has three years to repay and undo the tax consequence.

There are also provisions of the CARES Act that allow for retirement plans to relax rules for loan amounts and repayment terms, including the suspension of loan repayments that are due from March 27th through December 30th. Further, dollar amount on loans made between March 27th and September 22nd is increased to $100,000, up from $50,000.

Expanding the Qualification Criteria

The definition of those who qualify under the CARES Act was also expanded by the IRS. As copied directly from Notice 2020-50, a qualified individual is anyone who:

• Is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or

• Experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):
  • being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
  •  being unable to work due to lack of childcare due to COVID-19;
  • closing or reducing hours of a business that they own or operate due to COVID-19;
  •  having pay or self-employment income reduced due to COVID-19; or
  • having a job offer rescinded or start date for a job delayed due to COVID-19.

The IRS makes it clear that employers can decide whether or not to implement these new rules, so don’t assume your employer will implement them. That being said, even if your employer does not allow, an individual can still claim the tax benefits of the new rules, so long as they qualify.

What Should You Do?

Taxes are complicated enough, and the CARES Act spans more than 300 pages. Layer on the latest notice from the IRS (as well as previous notices), and reading, learning and implementing tax strategies that are most appropriate for you can be a daunting task.

Instead, consider the following:

• Reading about tax relief and other COVID-19 rules that impact your federal taxes on the “Coronavirus Tax Relief” pages of the IRS website (irs.gov); and
• Consulting your tax professional for guidance, especially with respect to whether or not you qualify.

Finally, make sure you talk to your financial advisor in order to confirm that the tax decisions you make are consistent with your overall financial plan.

Buying a home is a complicated process. Even finding the right home can be difficult in California’s inventory constrained market. Once you do, there is the negotiation process, contracts, inspections, appraisals, financing, and myriad other issues that pop up along the way. In many cases, your monthly mortgage payment when you do purchase a home can be more expensive than your rent, and that’s without considering the upfront cost of a down payment.

Taking all of this into account, why should you invest in homeownership? First, and perhaps most important, homeownership is the one tried and true way that Americans have actually managed to generate wealth in this society. In part, this is because home prices appreciate over time—even after adjusting for inflation. Back in 1980, the typical home in California cost less than $100,000. Today, that number is more than $600,000.

However, price appreciation is only part of the story. The  leveraged/collateralized nature of the investment is also critical. Let’s face it, if you walked into your local bank branch tomorrow and asked for $500,000 because you had a hot stock tip, the conversation probably wouldn’t last very long. However, if you ask that same bank for money to invest in buying your own home, there’s a much higher probability of  getting that loan. And, you are only required to produce a fraction of the upfront costs yourself—in some cases as low as 3.5%. However, when it comes time to sell, the bank does not require a 96.5% split of your profits—you keep it all despite putting a much smaller amount down.

Next, your rent will continue to increase, but your mortgage payment won’t. Aside from wealth creation, locking in a fixed-rate mortgage is one of the best ways to hedge against housing inflation. Since the 1980s, rents have more than tripled nationwide. In California, the typical apartment ranges from roughly $1,200/month for a studio to as much as $3,000 for a 4 bedroom unit. In some coastal metros, rents are significantly higher than that. Locking in a fixed payment now can generate significant savings over the course of 30+ years.

Also, interest rates are almost as low as ever. Today, the median-priced home in California exceeds $600,000, but rates have fallen back down to 4%. It has never been more affordable in modern history to borrow for
homeownership than in the past few years. Although rates are not forecasted to rise rapidly, even a small increase to 5% will cost you significantly more over time.

At 4%, the monthly mortgage payment for a median-priced home is $2,713 including taxes and insurance. At just 5%, that monthly payment goes up by $259 per month—costing you an additional $93,240, over the life of the loan.

Finally, your kids will lead better lives. Not only will your future generations benefit from the wealth creation and savings generated by your decision to purchase a home, but studies have shown that even after controlling for
parents’ incomes, race, education levels, and other socioeconomic factors, homeownership has a positive impact on children’s health, high school graduation rates, and college attendance.

Homeownership has big paybacks for the economy as well as society at large. However, you don’t need to be altruistic for homeownership to make sense—you will give yourself a springboard that you and your family will continue to benefit from for generations.

There’s a lot lining up in favor of IRA conversions right now but watch out for unintended consequences.

If you’re just skimming financial headlines, you might be inclined to order up a Roth IRA conversion–stat! “Now Is the Best Time in History to Do a Roth Conversion,” read the headline in one publication. “Now Is the Perfect Time to Convert Your IRA to Roth,” answered another.

It’s true that there’s a lot about the current environment that points to the advantages of converting traditional IRA assets to Roth–depressed balances (at least somewhat depressed; they’ve recovered a lot), temporarily low tax brackets for some investors, and tax rates that are low relative to historical norms.

But at the same time, investors barreling into conversions without doing some analysis may run into some nasty surprises. Unless you’re extremely conversant in tax matters, this is one area to get some tax advice before proceeding. For one thing, conversions will almost always result in a bigger tax bill, so you have to know how you’ll pay those taxes when they come due next year. (As Pimco’s Tim Steffen notes, it’s wise to pay the taxes with non-IRA.