While the COVID-19 pandemic continues to be challenging to say the least, it presents an opportunity for communities to come together and for us to give back.  Charitable giving is meaningful for a multitude of well documented reasons. In addition to helping those in need or just brightening someone’s day, the simple, selfless act of helping others provides a great sense of personal satisfaction and growth.

While writing a check is undoubtedly helpful, small acts of service can really add up and go a long way.  Here are a few meaningful ways to pay it forward and give back to your community today:

  1. Cheer Up Those Around You. Give an old friend a call, check in on your neighbor, or simply make eye contact and give a wave the next time you’re on a walk or in the store. A smile or kind social interaction can go a long way!
  2. Donate your time. Seek out local institutions looking for volunteers or donations.  If you’d rather not go out in public, offer your services or skill set. Do you know of a friend out of work? Offer to proofread their resume, make an introduction, or practice a mock-interview with them.
  3. Support Local Business. Local businesses have been hit hard during this period of social-distancing with Americans out and about less. Consider picking up a bag of coffee beans from a local coffee roaster (Rook Coffee is my personal favorite!), or simply supporting your favorite local restaurants. All of these establishments play a part in making your community a place you call home, supporting them helps keep them going.
  4. Tip a little Extra. Now that we’re heading back to the salons, barbershops, and beginning to dine out, consider tipping more generously. It is no surprise that these industries have been deeply affected by the economic impact of COVID-19, so as we begin to support these establishments, keep the local workers in mind. With the reduction in hours and a reduced customer base, a little bit of an extra tip, if you’re able to, can make a huge difference.
  5. Do Your Research & Donate Money If you’re able to give monetarily, do the research to ensure your money is being effectively used by the charity. Donate locally, and if you’re donating to a larger institution be sure to vet them in advance. There are charity assessment tools which rate organizations based on financial transparency and how much goes toward the cause versus marketing, fundraising or administrative costs. Also, it doesn’t hurt that monetary donations have tax advantages too!

While social distancing can make us feel insular, a sense of community has never been more important. Consider some of these tips to help us all get through this challenging time, together

As US equities have outperformed non-US stocks over the last several years, some investors may question the role that global diversification plays in their portfolios.  It is very easy to get caught up in the market swings during this unprecedented time, along with the outperformance of the largest U.S. companies.

For the five-year period ending April 30, 2020, the S&P 500 Index had an annualized return of 9.12% while non-US Developed stocks (represented by the MSCI World ex USA Index) lost -0.27%, and Emerging Markets stocks (represented by the MSCI Emerging Markets Index) declined by -0.10%.

While non-US equities have recently delivered disappointing results, it is important to remember that investing globally provides valuable diversification benefits. The US stock market represents roughly 54% of world market capitalization, meaning that a portfolio investing solely within the US would have exposure to only about half of global companies.

Looking back to the “Lost Decade” (2000-2009) is a great example of the opportunity cost associated with not investing globally. From January 2000 to December 2009, the S&P 500 Index had a cumulative return of -9.10%, its worst ever 10-year performance. You may even expand the time period by three more years, covering 2000-2012, and see that the mighty S&P 500 Index failed to outperform 1-month US T-Bills. However, looking beyond US large cap equities during the “Lost Decade”, we see that investors who had exposure to other areas of the global landscape were rewarded with positive returns (see table below).

Cumulative performance from January 2000 – December 2019 reflects the benefits of having a globally diversified portfolio, especially a portfolio that targets areas of the market with higher expected returns.

This is why we urge, preach, and teach the benefits of diversified investing over the long term.

Total Cumulative Return (%) 2000-2009 2010-2019 2000-2019
S&P 500 Index -9.10 256.66 224.33
MSCI World ex USA Index (net div.) 17.47 67.89 97.22
MSCI World ex USA Value Index (net div.) 48.71 48.79 121.27
MSCI World ex USA Small Cap Index (net div.) 94.33 116.76 321.24
MSCI Emerging Markets Index (net div.) 154.28 43.50 264.91
MSCI Emerging Markets Value Index (net div.) 212.72 22.83 284.13

Diversification neither assures a profit nor guarantees against loss in a declining market

The CARES Act is 335 pages and has created a lot of opportunity for proactive tax planning, along with a lot of acronyms – CARES (Coronavirus Aid, Relief, and Economic Security Act), PPP, PUA, FPUC, EIDL, PPPHCEA & PEUC (Pandemic Emergency Unemployment Compensation) or Payments extend until Christmas.

A few of the CARES Act law changes for tax year 2020 on retirement accounts –

  • No RMD (Required Minimum Distribution) required for 2020 -YES not required to take funds from your IRA for 2020
    • Waiver applies to Traditional IRAs, retirement plans – SEP, SIMPLE, 401(k),403(b) & 457(b)
  • No required distribution from Inherited IRAs or Inherited ROTH IRAs for 2020
  • You can still take a distribution from your IRA if you need or want to (Taxes still apply to the distribution)
  • If someone passed away in 2020 and did not take an RMD the estate is not required to take the RMD.
  • Qualified Charitable Distributions are still allowed even though RMDs are not required
    • QDC – Charitable contributions paid directly from your IRA to the charity (Must be 501(c)3 & you need to be 70 ½)
  • Special Tax Relief for those who qualify – Coronavirus Related Distribution – CRD
    • Allows $100,000 penalty free distribution from IRA or company retirement plan
    • Don’t have to be over 59 ½
    • Allows distribution to be repaid TAX FREE – repayment period begins day after funds are received
    • OR allows Federal tax to be paid over 3 years / State income tax may vary
      • Qualifications only those individuals
        • diagnosed with the SARS-CoV-2 or COVID-19 virus by a test approved by the CDC
        • spouse or dependent is diagnosed
        • who experiences “adverse financial consequences” from being quarantined; being furloughed or laid off or having work hours reduced; or being unable to work due to lack of child care; or have closed or reduced hours of a business they owned or operated
    • Distribution taken prior to CARES Act also qualify

A lot of tax planning to think about and review for your 2020 tax projection. As with all tax law changes, we will work directly with you and apply these changes to your unique tax situation.

It is expected today that the President will sign bipartisan legislation to update the U.S. Small Business Administration (SBA) Payroll Protection Program (PPP) to make several changes to the rules governing the forgivable loan program designed to help small businesses keep employees on payroll. This is great news for businesses that received the PPP loan and were left with many unanswered questions.

The initial PPP provided small businesses (fewer than 500 employees) an opportunity to take a loan for 2.5 times their monthly payroll which could be used to maintain staff and cover some additional business expenses. The loan would be forgiven if all outlined conditions were met. At least 75 percent of the proceeds had to be used to cover payroll costs and up to 25 percent could be used for rent, utilities or interest on mortgages. Forgiveness was based on the employer maintaining the same employee and salary levels as pre-COVID-19 times. The borrower then had 8 weeks from the date the loan was received to meet the above terms or the borrower had to repay the unused portion over 2 years at 1%. All funds had to be used by June 30, 2020.

Due to the extended lockdown and the slow pace that small businesses have returned to “business as usual” (especially in New Jersey), the revisions to the Paycheck Protection Program Flexibility Act (Flexibility Act) serve to alleviate several areas of worry. The most noticeable changes are:

  1. Extension of Covered Period – borrowers now have the earlier of (a) 24 weeks or (b) December 31, 2020 to use the loan proceeds and achieve full forgiveness. As NJ businesses start to reopen in June/July, this is the biggest indication that most borrowers will qualify for full forgiveness. In particular, restaurants and seasonal businesses will benefit most. The recent decrease in unemployment numbers may be a direct result of the extension as employers have clearer expectations now.
  2. Minimum Amount for Payroll – The new minimum is 60% of PPP loans need to be used for payroll costs to obtain full forgiveness. However, up to 100% of proceeds can be used for payroll.
  3. Calculation of Full-Time Employees – since PPP borrowers have to maintain pre-COVID-19 staff levels, it was imperative that a large number of employees return to work. The extension of the hiring deadline from June 30 to December 31 provides great relief to businesses slow to return to fully operational status.
  4. Payroll Tax Deferral – the CARES Act allowed employers to delay paying the employer portion of social security tax (6.2% tax on wages) with one-half payable by December 31, 2021 and the remaining half by December 31, 2022. However, any business receiving loan forgiveness under PPP was not eligible for the deferral. The Flexibility Act allows all borrowers to defer 2020 social security payroll tax obligations.

Overall, we are delighted with the recent changes to the PPP and the clarification of the programs rules. This is great news for small business owners and the economy.