27 Mar 2020 Where We Are

The stock market has enjoyed three straight days of gains after the Senate passed a massive economic stimulus bill in an effort to cushion the U.S. economy from the impact of the coronavirus outbreak.  The stimulus bill will now head to the House, which will push to pass it sometime this morning. Yesterday (Thursday) was a great lesson in the unpredictability of the stock market.  Who would have expected a 6% rally on the same day the U.S. coronavirus infection totals surpassed those of China and the Labor Department reported that jobless benefit claims soared to a record 3.28 million.  While there is almost certainly more volatility ahead, it does feel reassuring to have recovered nearly a third of the 34% decline from the stock market’s all-time high.

Lately, we’ve been sharing how the indices that comprise our Beacon Model portfolios have been doing relative to the stock market for your assurance. As of yesterday’s close the stock market as measured by the S&P 500 had fallen 22.2% from its peak, but the sum of the indexes that comprise the Beacon 60 model portfolio (60% stock, 40% bonds) was down only 11.8%.¹

Here at Beacon we’re practicing social distancing and adapting to the current circumstances.  Jared, Ryan, Patty and I are working from home while Sam covers the Beacon house.  As we’ve mentioned before, were an exclusively cloud-based firm so we are all able to remain fully functional from any location as long as we have an internet connection and a phone. That means we’re continuing to stay in communication with you, monitor your portfolio and plan and perform all our normal daily functions.  Rest assured, we are on the job and available to you just like always.

In fact, as we work, here are some of the things that we’re currently thinking about at Beacon…

Rebalancing portfolios. Considering the decline the stock market has experienced over the last couple weeks, there’s a good chance that stocks make up a smaller percentage of your portfolio than you intended. Selling some of the bonds in your portfolio and using the proceeds to buy stock to bring your portfolio back to its intended allocation is a natural way to buy low and sell high and take advantage of drops in the market. Here’s an example of rebalancing from one of Ryan’s recent Briefs. If you’re a Beacon client we’ll be talking to you about rebalancing soon if we haven’t already.  In addition, if you have a retirement plan at work, we encourage you to rebalance it as well – let us know if we can help.

Tax-loss harvesting: Due to the recent decline in the stock market, you may hold some investments that are worth less than you paid for them.  Tax loss harvesting is the practice of selling those positions in a taxable (non-retirement) account at a loss. By realizing, or “harvesting” the loss, you’re able to offset taxes on both realized taxable gains and ordinary income (up to $3,000.)  The sold security is replaced with a similar one, maintaining your optimal asset allocation and expected returns.

Beneficiary designations on your IRAs, 401(k)s and life insurance.  It’s always important to ensure that your money would go where you want it to go should something happen to you.  Times like this remind us of the importance.  Now is probably a good time to review your beneficiary designations.  Beacon clients, you can log into your Charles Schwab account to check your beneficiary information.

Cash cushions.  Times of uncertainty can be a good time to consider your cash on hand.  A couple things to think about.  Do you have the appropriate amount of savings should the unexpected arise?  A good rule of thumb is 3 months expenses for dual income families and 6 months expenses for single income families or individuals.  Is your savings in an FDIC insured bank account (and under the current FDIC limits.)?  Are you earning somewhere in the neighborhood of 1.5 to 2% – hint, big banks are probably not paying anywhere near that.

If you’re a Beacon client you can be sure that we will continue to stay informed for you and alert you to any necessary changes to your plan or portfolio.  In the meantime, please let us know if you have any questions or concerns.