There are many different events that affect us throughout our lives. One of the most heart-breaking is death. As we live our lives, it is likely that at some point we will either receive an inheritance or know someone that does. It can be a stressful time as you are trying to manage your emotions along side managing financial decisions. What do you want to do with the money? And what should you do first? Below are a few things to consider:

• Grief. Grieving is a natural part of the process of the passing of a loved one. It is a crucial step before any major financial decisions are to be made.
• Consider emotional, spiritual, or practical uses for the inheritance. There are many ways to honor a loved one. You could utilize the inheritance in a way that they would see fit for themselves, in a way that makes you happy, or in a way that unites both ways and establishes a connection with them. An example of this would be to purchase something small, that reminds you of the person that was lost.
• Once you have come to an agreement with yourself in terms of basic ideas of how you would like to utilize the inheritance, it is time to start really planning out the angles of how to manage the funds that are not always clear as day for non-financial folk. The boring stuff – and the stuff that can have an immense impact on an inheritance and the way you choose to take / use it. This includes tax planning, estate planning, investment and spending options. There may be options available to you that you do not realize. (lump sum vs. annuity; selling real estate vs. utilizing it for income etc.)
• Once you are ready to take these steps, it can be crucial that you work with a fee-only, fiduciary advisor to assist you. With them it is important to discuss:
  • Tax Implications
  • Distribution Strategies
  • Gifting Strategies (if charitably inclined you can possibly lower the tax liability)
  • Estate Planning
  • Insurance (insurance coverage should match your level of net worth/item value)
  • Annuitization / Income strategies to manage & create a reliable cash flow system
  • Debt management
  • Investing, Investing, Investing!

As mentioned above, it is a great idea to work with a Fiduciary, that has no conflict of interest in any area they advise on. This is not only helpful when you are stricken with a windfall from inheritance sums, but at other times and parts of your life. It is always good to take a moment and reflect on what you wish to accomplish with your money, and to make sure your advisor knows your goals as well. Working with your advisor closely to achieve your goals ensures the fastest and easiest approach to your financial and personal freedom.

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.

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

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.

Change your lens…change your story. Like putting a wide lens on a camera, choosing a different perspective can not only broaden our current perception of events but influence our behavior to produce more positive and long-lasting outcomes. We often let not only the history of our lives but the fear of the unknown control how we view present situations. These limiting perspectives often prevent us from seeing the true breadth of possibilities that lie before us. This narrow lens keeps our vision limited and restrained but in times of uncertainty, when it is easy to feel out of control and our stress levels begin to rise, the lens through which we choose to view the situation can be our most powerful tool. During difficult times, simply by realizing you choose your perspective, you empower yourself to influence the outcomes. Below are a few tips for changing your lens to better shape your narrative.

The Optimist’s Perspective

When we are stuck in a pessimistic perspective, which we can very quickly gravitate to in uncertain times, it prevents us from being curious and creative with the way we think about the future and the choices we have to forge a new path forward. What if, instead, we choose an optimistic perspective? What if we choose not to focus on anxiety and worry of the unknown and instead focus on positive outcomes by noticing what we can control? We empower ourselves to be optimistic realists who take positive steps towards conquering the challenges we face. We look instead through a lens of hope as we shift our vision to the big picture and find inspiration to get there one accomplishment at a time.

Focus on Resilience

“I’m sorry for what I said during quarantine.” No doubt this will become a popular meme post Covid era. During these unique and trying times we are all experiencing challenges in some way, shape or form. Our limits are being tested. Our patience, willpower and resolve are all on trial. Rather than looking through the lens of self-criticism, what if instead, you choose a growth mind set and find lessons in these missteps. What are we learning about ourselves? What have you overcome? What can you overcome? Some of the situations we find ourselves in may even be temporary. It’s an opportune time to take inventory of our blessings and be grateful for what we do have, including our own resilience.

See the Opportunity

Many of us are finding ourselves in new situations that are unfamiliar, unchartered and even unusual. It’s human nature for fear to take over the choices we make and it can quickly shape outcomes into disappointing results. There is opportunity here…to do things differently. Try new things. Take small risks. What are you noticing that has been missing from your life? What steps can you take to change that? When this is over and some normalcy returns to our lives, how will your life look? How do you want it to look?

Right now, due to quarantine, we are stuck in our homes and it sometimes feels as though it will never end. But there will be life after quarantine is over, and there is no better time to prepare for it than now. If you could go anywhere or do anything, what would it be? What do you want your life to look like? What is important to you?

When thinking about what you want, it is necessary to consider both the big picture and the details. Perhaps being at home has made you realize that you want to travel. Maybe you want to go on multiple small trips a year, or one bigger trip annually.   Perhaps, it’s even a once in a lifetime trip around the world that you desire. Each of these options requires different financial considerations. The cost, how frequently you will need the money, and how soon the funds need to be available, are all financial considerations that change based on what you want your travel plans to look like.

You may hate traveling and view your home as your oasis, but being home has you noticing things you haven’t before and inspiring you to make some changes. These changes can range from a new coat of paint, to renovating a bathroom, to an addition, or even deciding that your home is too small or too big to fit your current needs. Putting some money aside weekly to save up, getting a mortgage or Home Equity Line of Credit (HELOC), or withdrawing funds from a savings or brokerage account are just some options to obtain these goals.   It’s important to be sure that you are using the best financial plan for you to fulfill your needs.

The recent rise in unemployment may have you looking at your budget and deciding it is time to reduce your spending and overall debt, or wishing you had a bigger financial security net. Having your children or grandchildren virtually going to school at home may have you thinking about wanting to help them through college and potentially opening a Uniform Trust to Minors Act (UTMA) account or 529 account for them. The additional time at home may have urged you to spend more time on your hobbies, or finding a love for a new hobby. If you grant yourself the time to evaluate what you value, and determine your goals, you can accomplish more than you might even be able to imagine.

Most people have more than one goal they would like to obtain. It is important to consider what you value most and prioritize your goals. Then, a plan can be created to help you reach those goals. This way you can be sure that what you value most is receiving most of your attention. Everyone has different goals, values, and needs. How they are met changes from person to person and family to family. There are no right or wrong goals, only what is right for you and your family.

Things can happen to derail your plans. Some obstacles may be small and possibly avoidable, some may seem insurmountable, some you will never see coming. Three months ago, no one would have imagined our lives looking the way they do at this moment. This does not mean that your goals cannot or will not come to fruition. The important thing is to accept that things beyond your control happen, forgive yourself for mistakes you make, adjust the plan when necessary, and continue to keep moving toward your goal.

At Lighthouse Financial Advisors we know our client’s values and goals are important to them and make it a point to help you get to where you want to be in life. LFA is lucky to have clients who share pictures of their journeys with us. Some pictures have been taken in their backyards, others are from around the world. You can view some of their pictures on our website at the link below. Life is a journey, not a destination. Enjoy it!

https://lighthousepro.wpengine.com/clients-enjoying-the-journey/