Quote of the Month
The strength of a nation lies in the homes of its people.
– Abraham Lincoln
We can not only get through this pandemic, but we can also grow through it! If we can take the opportunity to make our home life stronger during the pandemic, we can come out on the other side stronger than ever!
Take some time to do a RESET, and use the opportunity to PIVOT to where you want to go!
Market Update
During April, the Dow Jones Industrial Average and the S&P 500 recorded their best monthly gains since 1987, per Marketwatch. It’s an amazing turnaround. Are we headed into another bull market so quickly?
Just a few short weeks ago we experienced a qualified bear market during a four-week 34% decline in the S&P 500. See the chart on FRED. Stocks imploded at a stunning pace as investors sensed the economy was running into the COVID-19 wall.
The rally over the last month has been nothing short of astonishing given today’s dire economic environment. Yet year-to-date, losses in U.S. stocks have been quite modest, as the table at left illustrates. There appears to be an incredible disconnect between the financial economy and the real economic situation.
Economic Speak
Some explanation of the economic world may exasperate why this market uptrend is so astonishing. Even though we had good economic fundamentals going into 2020, things have turned around fast with the coronavirus pandemic. High unemployment, low consumer spending, high government debt, and a deadly medical pandemic all add to the disconnect between economic fundamentals and the market results.
Monetary Madness
The Fed’s seemingly unlimited firepower has not been enough to prevent a debilitating economic decline, but its unprecedented steps may be keeping an economic crisis from morphing into another financial crisis, with a massive amount of liquidity and a promise of more support aiding stocks. On the surface, this creates a positive perception.
However, we need to keep in mind of monetary policy’s potential affect on the deficit and overall debt, per StLouisFed.org. Looking underneath the surface, the Fed’s emergency actions have expanded their balance sheet to $9.3 trillion. The 2020 deficit is now over $3 trillion. This puts the U.S. debt at about $25 trillion according to statista. Current GDP is at about $21.5 trillion per bea.
Those numbers put the debt-to-GDP ratio a little over 100%. Generally, most economists believe that the ratio should be less than 90%, otherwise an economic slowdown may occur.
Fiscal Follies
A government stimulus of over $2.5 trillion is helping sentiment. And, I believe, investors are looking to 2021, when there is the anticipation that corporate profits will turnaround.
Additional government spending and support may be needed to futher jumpstart economic activity, as the Fed Chairman, Jerome Powell, alluded to in his press conference. Deficit hawks may cringe at talk of new spending. Especially in light of the current programs frought with problems. So far, fiscal stimulus has received strong bipartisan support to help families with the short-term crisis. What is unknown is the long-term effects.
Consumer Conundrums
Another wildcard will be consumer behavior. Prior patterns are unlikely to return to pre-crisis behavior, at least right away. Social distancing at restaurants, airlines, and industries that require person-to-person interactions could limit activity and sales.
The high unemployment numbers prevent a significant portion of the population (approx 30 million unemployed) from doing any substantial spending. All of this culminates in a consumer conundrum: If you have the money, you are probably being very cautious on how you spend it. If you are unemployed, you’re probably not spending at all.
The conundrum puts 70% of the U.S. GDP in jeopardy. (Economics reminder: Consumers are a two-thirds to 70% component of GDP.)
Medical Miracle?
Talk of a vaccine or treatment that would end the pandemic has been a positive factor. Especially with the encouraging words that the vaccine development time may be decompressed from a normal 2-5 years development cycle to availability by January, 2021. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, thinks this may be possible, “as early as January, which would break records for the speed at which previous vaccines were developed” per an article in National Geographic.
Talk of the vaccine by January is a positive sign, but we still don’t know answers to the ‘under the surface’ questions:
- Will a 2nd wave of the virus ensue before vaccine availability?
- Can it be manufactured quickly enough by the millions?
- What will the side effects be?
- Will the virus morph into some different strain?
Additionally, we don’t know if the reopening of large swaths of the economy will go as planned or what will happen with the global supply chain.
All of the positive “surface” actions may be creating a positive atmosphere leading to more optimistic investing behaviors. My question is how will the “under the surface” economic issues and medical questions affect the market in the coming months?
Where is the Market Going?
Right now the market is responding well, despite the poor economic situation. Of course, the outlook is very uncertain.
Think of the market like this: The level and the direction of stocks is the equivalent of the collective wisdom and emotions of millions of small and large investors. Real people that buy and sell equities, hopefully using more wisdom than emotion. Right now, it appears that more emotion is factoring in.
No one has a crystal ball. No one can tell you where stocks might be at the end of the year. There are too many unknown variables. Those who make forecasts are simply offering opinions.
I understand the uncertainty facing all of us. We are grappling with an economic and a health care crisis. It’s something none of us have ever faced.
Our best strategy in this unknown environment, in my opinion, remains to be in a multi-asset approach based on age and risk tolerance. If you have that type of Investment Plan in place, properly allocated and correlated, you should do just fine in the long-term. If you are at or near retirement and following our bucket strategy recommendations, you are in a good position throughout your retirement time horizon.
Read on for more tips and news items at Kastler Financial Planning…
This Month’s Planning Tips
Update Medical Directives
You may want to consider updating your Medical Directive document as part of your Estate Planning strategy. If you elected ‘no ventilator’ under any circumstances, you may want to reconsider that in light of the Covid-19 crisis. A ventilator, in light of Covid-19, may be appropriate. It is your decision, of course. We just wanted to point out that some people’s views may have changed on this point.
Understanding your Essentials vs non-Essentials
As more people than ever have filed for unemployment, it is important to understand that hated “B” word, your Budget. If you need to cut expenses, start with the non-essentials! If you would like a tool to help you differentiate between essentials and non-essentials, go here.
Update your Retirement Plan
There was a nice article in Barron’s on the benefits of the Bucket Strategy and how it plays well during a serious market down-turn. If you have a subscription to Barron’s you can view it here: The Retirement Bucket Strategy Didn’t Leak During the Worst of the Crash…
We agree that the Bucket Strategy rocks for Retirement Planning! Our recommended retirement bucket strategy is to:
- Define an income stream to meet your monthly bills
- Have an Emergency Fund for unexpected expenses
- Design a well diversified and properly correlated portfolio for your long-term needs, such as Long-Term Care
If you do not have a Retirement Plan from us, it is worth a 15 minute read on our philosophy here: Main Pillars of Retirement Planning.
What’s New at Kastler Financial Planning
We are 100% Virtual!
Since May 2019 we have been 100% virtual, visiting clients as necessary in their homes or at our local library where we sponsor a nice conference room. Now even those meetings can be conducted securely through video conferencing. Thus our potential client geography has expanded to almost anywhere in the U.S. We welcome out-of-state referrals!
The easiest way to schedule time with us is through the Calendly button that floats along the right bottom of each webpage. It will automatically search for an open time slot and put your request on my calendar! Don’t forget to click all the way through to submit!
Cybersecurity Update
In light of the security concerns over using Zoom as a video conferencing tool, we have added Cisco’s WebEx as a tool we’ll be using for reviewing client data. There is no major issue with Zoom if used properly, but since many are leary, we have added WebEx. We will still use Zoom for general meetings and webinars.
New On-Going Offering for Do-It-Yourselfers
If you’ve wanted to take advantage of the On-Going offering but the $100/month minimum was a bit too much, this is a perfect time to reconsider. We are now offering a $50/month package that is perfect for the Do-It-Yourselfer. You will have on-going access to our financial planning software and our ever-popular exclusive, relevant, and timely reports, checklists, and flowcharts. If you need financial planning support, you can still get it at the hourly rate if and when you need it. Please check out our fee schedule for price comparisons.
This Month’s Deliverables for On-Going Clients
If you are an On-Going client, check your Egnyte folder for this month’s deliverables:
- Checklist: What Issues Should I Consider During a Recession or Market Correction?
- Checklist: What Emergency Relief Options Should I Consider During the Coronavirus Pandemic?
- Article: Benchmarking – The Art of the Science
About Kastler Financial Planning
We are a fiduciary, fee-only, and independent financial consultancy firm. Our core purpose is to improve the financial life for each and every client we serve. Our vision is that people have access to affordable and professional fiduciary financial planning, retirement planning, and investment management services, without the pressure or bias of product sales or commissions.
We specialize in fee-only Financial Planning services for young to mid-career families, Retirement Planning for those at or near retirement, Small Business Retirement Plan Consulting for small business owners, and Investment Management Services. We perform these services either as hourly, a one-time fee-only project, as on-going financial planning, or Assets Under Management (AUM), depending on your needs.
Whether you live in our backyard or across the country, we aim for a pleasant client experience through our Client Portal and computer screen-sharing technology.
Contact Us
If you have any question on how our services may apply to you, please contact us at the number below or submit an email through our Contact Us form.
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Kastler Financial Planning | Clarkston, MI 48346
248-564-1404
