Breadcrumbs

While the title may take you back to the classic rock era and create a sense of nostalgia and fond memories of how things used to be, the reality is that life as we know it has changed. Yes, we said it. Each day, we see and feel the effects the current pandemic has on our lives. Things we never before had to think about are our new normal. We now ask ourselves, “Did I remember my mask to wear to the grocery store?” or “Did I review my child’s lesson plan before they attend class via Zoom?” One thing that is certain: 2020 is a year that most of us did not expect.

A natural byproduct of this is the literal pause in many areas of our lives. Some of these hiatuses are dictated by the restrictions in effect, and others are borne out of fear of the unknown or a desire to wait for things to “return to normal.” But something that has not changed, or could be more important than ever, is the need to navigate the current financial landscape.

My friends, we are afraid we may be watching opportunity pass us by if we wait for things to get back to where we were. It is commonly accepted that the reopening of society will not take us back to where we were as we welcomed 2020. Social distancing will remain the norm, and we will all have to adapt to how we manage our daily lives.

A good example of this can be found in something as simple as checking the mail. Previously, if someone in our office was away for a couple of days, there was a healthy pile of unopened mail to greet them. However, when they were away potentially for a week or more, there was relatively little. When we pondered the lack of logic in this outcome, we were struck with a realization — when the rest of the team knew the employee would return soon, it was acceptable to delay action, so the mail piled up. But when the team knew it was a longer trip, they knew items had to be completed to not delay or miss an opportunity. Indeed, with today’s news changing not only daily, but almost hourly, these are the times to not just wait but to take advantage and move forward.

Here are some of the items we have helped our clients through during these unprecedented times to not miss an opportunity:

  1. Low Interest Rate Environment
    • Mortgages — Some major banks offer a one-time rate adjustment to your mortgage. You might have to pay a fee up front, but you are able to reduce your mortgage rate without the hassle of doing a total refinance and go through underwriting. But if this is not an option, it is a good decision to weigh the costs of doing a refi vs. your current mortgage rate. This could lead to big savings compounded year over year.
    • Intrafamily loans — The IRS publishes rates every month known as Applicable Federal Rates (AFR), and these dictate the amount of interest needed to be paid for a loan to not be considered a gift. These rates are at unprecedented lows, between 0.25%-1.15% (May 2020), depending on the term. If you currently have any of these loans outstanding, a refinance should be reviewed, or it’s also a great opportunity to maybe help your child purchasing their first home.
  2. Roth IRA Conversion — If you believe your taxes will be higher in retirement or you have irregular income streams, you should look at converting a portion of your IRA to a Roth. This can take advantage of the current market decline and potentially pass on reduced taxes to your heirs.
  3. Grantor Retained Annuity Trust (GRAT) — If you currently hold low value assets (either liquid or illiquid like a closely held business) but want to take advantage of the anticipated recovery, maybe a GRAT would be right for you. In basic terms, a GRAT is a trust that receives a gift of assets and repays the transferor an annuity for a term while the appreciation stays captured within the trust. Low interest rates and decreased valuations of securities make this an ideal time to consider this strategy.
  4. Tax Loss Harvesting — This is the act of selling losing investments to offset capital gains and then reinvesting the cash in a similar yet different investment to take a tax loss but also to be invested when the market rallies. An advisor with a keen tax eye can review your portfolio with an eye for efficiency. Even if your portfolio doesn’t have capital gains, you can deduct $3,000 against ordinary income and carry it forward into future years. We often see advisors who only review portfolios for this opportunity in December, but it should be evaluated whenever there is volatility, such as we saw in March and early April.

If your advisors are not helping you to identify opportunities such as these, then a change may be in order. And while we would prefer things to return to normal in order to pursue this, we are facing the same predicament as it relates to important decisions. While we all prefer to make important decisions with input from our advisors and in-person meetings to reach these decisions, our ability to do that is going to be limited or completely impaired for an undetermined amount of time. We must, for the foreseeable future, adapt to conducting our business and decision-making in new ways via phone, video chat, etc. to ensure an opportunity is not left untapped.

Further, the very uncertainty that is creating this challenge is the same uncertainty that is presenting opportunities for our advantage that will, when things get back to normal, have evaporated. So, while our current situation is far from ideal, we must remember to surround ourselves with a team who will help guide us to accept our new normal.

Robert H. Wyche & Lara Dalton, CFP®

Partner and Managing Director

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