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Jenn Juarez

Charitable Giving

Charitable donations are a great way to show your support for an organization and, at the same time, provide tax-saving opportunities.  Not only does the charity benefit when an investor makes a gift, but the taxpayer may also be eligible to receive a tax deduction.

Earlier this year, the Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act, was signed into law.  Among the provisions provided for in the Act is an incentive to encourage charitable giving.  The provision is available for cash contributions and provides a benefit for both types of taxpayers:  the itemizer and the non-itemizer.

  • For taxpayers who do not itemize deductions: these taxpayers are permitted an above-the-line deduction for a cash contribution of up to $300.  The goal is to help increase donations from those who otherwise may not choose to make a charitable contribution. This charitable giving benefit extends beyond the 2020 tax year.
  • For taxpayers who itemize: these taxpayers can deduct up to 100% of their adjusted gross income (AGI) in cash contributions, raised from 60%. This charitable giving benefit applies to tax year 2020.

Other beneficial charitable donation options remain in place from previous years including:

  • Qualified Charitable Distribution (QCD)
  • A distribution that would normally be taxable from an IRA owner who is eligible to receive a required minimum distribution and is paid directly to the qualified charity.  The distribution lowers the IRA owner’s adjusted gross income, effectively reducing his/her income taxes.
  • Donor Advised Fund
  • A donor can create an account and make a contribution of cash, securities or other appreciated assets.  The donation is eligible for a current-year tax deduction for the gift.
  • In-kind Stock Donation
  • Consists of gifting highly appreciated securities directly to a charity.  The charity can sell the securities and use the proceeds without having to pay tax on the gain.  The donor generally receives a deduction for the fair market value.

The benefit of a charitable gift can be significant. In order to maximize your giving and potential tax saving opportunities it is important to plan carefully and consult with your financial, tax and legal professionals.

As always, we are available to discuss these and any other planning goals in your life.

RW Investment Management, LLC dba R|W Investment Management (“RWIM”) is a Registered Investment Advisor.  This document is solely for informational purposes.  Advisory services are only offered to clients or prospective clients where RWIM and its representatives are properly licensed or exempt from licensure.  Past performance is no guarantee of future returns.  Investing involves risk and possible loss of principal capital.  No advice may be rendered by RWIM unless a client service agreement is in place.  The Firm is not a legal or tax advisor.

Investing During Election Years

The 2020 Election and Market Implications

2020 has been a notable year for stocks and the global economy. On February 19th, the S&P 500 reached an all-time high of 3,386 and was immediately followed by one of the quickest declines in history — falling 34% from its peak by March 23rd. The bear market resulting from the coronavirus pandemic, and the fact that 2020 is an election year, has caused many investors to question whether they should take a more conservative approach with their investment allocations.

What should you as an investor do to protect your assets?  Should you sell your stocks now and wait to see how the election turns out? Do you stay the course and hope your desired party is elected?  These are questions that investors are wrestling with as November approaches, but the truth is that none of us know what the result of the election will be this fall, or what its immediate impact will be on the market.

Let us look back at what has happened with the market since January 1926 under the various presidential parties.  The top line of the chart represents the growth of $1 invested in the S&P 500 from January 1926 through December 2019.

Markets Have Rewarded Long-Term Investors under a Variety of Presidents

Growth of a Dollar Invested in the S&P 500:  January 1926-December 2019

As evidenced in the chart above, the political affiliation of the party in office does not necessarily influence the long-term result of stock returns.  And while the market does experience periods of downside volatility, investors should not base their investment strategy on the unknown, such as the perceived outcome of an election.

Take, for example, the following news headline from September 2016: “Mark Cuban Predicts a Stock Market Crash if Trump Wins the White House.” Mark Cuban, a successful entrepreneur and billionaire, predicted the stock market would crash if Trump were to be elected in 2016.  Unfortunately, investors who heeded Mr. Cuban’s advice quite possibly missed out on all, or some portion, of the 47% increase in the S&P 500 since then.

Historically, there is no evidence that supports a correlation between the party holding the office of president and stock market returns.  While selling equities in anticipation of the unknown may feel good for a while, the decision to sell will eventually turn to regret when the market resumes its upward trend.

 In US dollars.
Past performance is no guarantee of future results. Declines are defined as months ending with the market below the previous market high by at least 10%. Annualized compound returns are computed for the relevant time periods after each decline observed and averaged across all declines for the cutoff. There were 1,115 observation months in the sample. January 1990-Present: S&P 500 Total Returns Index. S&P data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. January 1926-December 1989; S&P 500 Total Return Index, Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago. For illustrative purposes only. Index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the management of an actual portfolio. There is always a risk that an investor may lose money.

 

Timing Market Cycles

In the last 2 decades, there have been 3 notable market corrections that have sent the global economy spiraling into economic recessions. In 2000 we saw the S&P 500 drop nearly 50% due to the technology bubble. In 2008 the financial crisis caused an even larger drop of 57%. And now, a little over a decade later, the 2020 Covid-19 pandemic resulted in yet another 30+% decline.

Most investors are willing to accept the inherent volatility that comes with owning equities in exchange for the higher potential return they will receive.  However, wouldn’t it be nice to experience all the market upside and avoid the downside?  The strategy of selling equities now and waiting to get back in at the bottom of a market decline can be tempting.  And while it seems reasonable, there is a problem with this approach: Timing market bottoms is next to impossible.

Take a look at this chart illustrating market trading days over the past 27 years. Each line represents the daily percentage gain or loss of the S&P 500. Equities have historically had a 55% likelihood of going up and a 45% likelihood of going down on any given day. They also have historically had a 70% chance of being up in any given year.

Note that big down days are often followed by large up days — and therein lies the problem of attempting to time the market. When investors exit the market they take on an enormous amount of risk by potentially being out of the market on the large up days.  The chart below refers to the deviation in returns that resulted from being out of the market for various periods of time from 1990 – 2019.  Remaining invested throughout the entire period yielded the highest annualized compound return.

During a bear market, some investors believe that selling out or exiting the market will relieve them of the stress that results from riding the up-and-down rollercoaster of owning equities. But this stress is often immediately replaced by the new worry of trying to decide when to get back in.

Trying to time markets is not an investment strategy – taking an evidence-based approach and systematically rebalancing your allocation periodically is. Sticking to your long-term investment plan will have a far greater impact on long-term results than trying to win this losers game.

Information provided by Dimensional Fund Advisors LP.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.In US dollars. For illustrative purposes. The missed best day(s) examples assume that the hypothetical portfolio fully divested its holdings at the end of the day before the missed best day(s), held cash for the missed best day(s), and reinvested the entire portfolio in the S&P 500 at the end of the missed best day(s). Annualized returns for the missed best day(s) were calculated by substituting actual returns for the missed best day(s) with zero.  S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. “One-Month US T- Bills” is the IA SBBI US 30 Day TBill TR USD, provided by Ibbotson Associates via Morningstar Direct. Data is calculated off rounded daily index values.

March 17th Market Update

We know there is uncertainty, as this is uncharted water for the world. While pandemics are not new, this particular virus strain is new, and as such, we are simultaneously trying to learn and understand while developing a response and treatment.

The uncertainty is being felt around the globe, and it is unsettling on a human level.

Unknowns are unsettling. Lack of understanding can lead to fear, fear can lead to panic and panic can lead to poor decision making and reactionary behaviors. The markets are no more immune to this virus than humanity.

With this in mind, our firm would like to share an internal philosophy that we adopted years ago.  We see our firm as an “ark” providing shelter to our clients to weather the storms. But, what is an ark? If you remember the story of Noah, the ark was a haven that allowed for shelter from the storm. It was a vessel that did not have a rudder or a propeller or even an oar. It was simply a refuge. A place to wait and be safe, while minding the ship.

This is how we view our firm. While we cannot control the pandemic, we will be a refuge while weathering “the storm”. We will mind the ship and provide counsel and services with your best future in mind. We will be a sounding board and a strong shoulder to help bear the load. We will do our best to keep your money working for you.

The thing about storms is that they eventually end. This will end. Just as the ark had to “wait and weather the storm”, so do we. However, when the storms and floods passed, those who emerged from the ark found themselves surrounded by newness and a hopeful promise for a bright future. We will continue to strive to place our clients in the greatest position of strength for a hopeful tomorrow.

In addition, we have attached our current office meeting contingency plan.  Until further notice, we will not be conducting in-person meetings to protect the health and well-being of our employees and clients.

As the day on Monday, March 16th came to a close – we were reminded that storms do pass with a beautiful rainbow over our great city of Boise.

Please call with any questions or concerns.  Stay healthy and strong. This too shall pass.

RW Meeting Contingency Plan - March 2020

March 12th Market Update

This past Monday – March 9 – was the eleventh anniversary of the crescendo of global panic that marked the bottom of the bear market of 2007-09.

It is a thing of the most wonderful irony that the world has elected to celebrate this iconic anniversary with – you guessed it – another epic global panic attack.

The morning of March 9th the opening level of the S&P 500 was 2,764, down over 18% from its all-time high, recorded on February 19. Declines of that magnitude are fairly common occurrences – indeed the average annual drawdown from a peak to a trough since 1980 is close to 14%. But such a decline in barely a month is noteworthy, not for its depth but for its suddenness.

As we all know by now, the precipitants of this decline have been (a) the outbreak of a new strain of virus, the extent of which can’t be predicted, (b) the economic impact of that outbreak, which is equally unknown, and (c) most recently, the onset of a price war in oil. (That last one is surely a problem for everyone involved in the production of oil, but it’s a boon to those of us who consume it.)

The common thread here is unknowability: we simply don’t know where, when or how these phenomena will play out. And in our experience, the thing in this world that markets hate and fear the most is uncertainty. We have no control over the uncertainty; we can and should have perfect control over how we respond to it.

Or, ideally, how we don’t respond. Because the last thing in the world that long-term, goal-focused investors like us do when the whole world is selling is – you guessed it again – sell.  Instead, we encourage you to focus on the sale prices of The Great Companies of America and the World.  They’re enjoying markdowns which we historically don’t see more often than about one year in five, on average

On March 3, the erudite billionaire investor Howard Marks wrote, “It would be a lot to accept that the US business world – and the cash flows it will produce in the future – are worth 13% less today than they were on February 19.” How much more true this observation must be a little over a week later, when they’re down over 20%.

This too shall pass.

February 27th Market Update

Over the last week concerns over the spread of the coronavirus and its potential economic impact have caused global stocks to drop and interest rates to fall.  As of February 27th, the S&P 500 Index has declined approximately 12% from its recent all-time high, causing the financial media to ring the “correction territory” bell.

We do not claim to have any idea how far this outbreak will spread, nor how many lives it will claim, before it is brought under control. We’re reasonably certain that many (or perhaps most) of the world’s leading virologists and epidemiologists are working on it and believe that their efforts will ultimately succeed.  This of course is our opinion.

But if the history of similar outbreaks in this century is any guide, this would seem to be a reasonable hypothesis.

We draw your attention to:

  • SARS in 2003-04, also originating in China
  • The bird flu epidemic in 2005-2006
  • In 2009, a new strain of swine flu
  • The Ebola outbreak in the autumn of 2014
  • The mosquito-borne Zika virus outbreak in 2016-17

On that first day of the litany of epidemics cited above, the S&P 500 closed at 855.70. Seventeen years and six epidemics later (including the current one) the Index is fairly close to three and a half times higher.

Because markets hate uncertainty there has been and will likely continue to be higher volatility in the short-term.  However, it is doubtful that the long-term viability of companies like Exxon and Chevron, or Microsoft and Amazon, or Nestle and Coca-Cola are in danger. Despite the inherent volatility, we believe ownership in companies like those cited provide the best opportunity to protect your purchasing power and grow your families wealth over time.

Our advice is to remain focused on that which remains in our control: asset allocation, diversification, and rebalancing. For our retirees, we have built your fixed income portfolios to provide a minimum of 5 – 7 years of spending without the need to sell stocks. This allows us time to withstand stock market volatility. For accumulators, we will continue to dollar cost average into your diversified portfolios, perhaps accelerating buys as the market drops further.

We believe the coronavirus scare is another example of the market overreacting and therefore a buying opportunity for investors.  Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.”  You may see activity in your accounts in the days and weeks ahead as we look to take advantage of this opportunity.

FT Cornoavirus Economic Impact

Top Ten Fiduciary Responsibilities

A plan fiduciary plays an important role in the organization’s financial health. Not only do they oversee the fiduciary process, but they identify and serve the best interests of a retirement plan’s participants and beneficiaries. Here are 10 important responsibilities to keep in mind.

1. Limit liability: As a fiduciary, it is imperative that you understand ERISA so you can keep yourself and your business safe from liability.
2. Find the right plan provider: Finding a retirement plan provider is much more complicated than many realize.
3. Keep costs low: No matter how big your business’s budget, always monitor fees to ensure you are getting the best deal.
4. Oversee plan performance: Once a retirement plan is in place, continuously monitor its performance.
5. Educate plan participants: Regardless of position and hierarchy, employees may come to you asking about plan options. What should you say?
6. Stay informed: Your role is to know more about your business’s retirement savings plan than everyone else, so education is vital.
7. Avoid personal gain: As a fiduciary, it’s important to distance yourself from any situation that could be perceived as personal gain from the retirement plan.
8. Diversify investments: The investment options offered in your plan should be diversified. This limits financial risk and helps balance risks and rewards.
9. Monitor participant satisfaction: Evaluate employee satisfaction with the plan. Follow up on complaints, and regularly gauge the plan needs to determine the right time for change.
10. Ensure employees understand their options and monitor their satisfaction levels.

This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.