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The Economy and the COVID-19 Pandemic
April 20, 2020
Shone-Markets-Fixed-Income
Reflecting on Another Month for the Financial Markets and Opportunities in Fixed Income
May 4, 2020

Stimulus News for Small Businesses and Tips for Economic Unrest

Shone-Stimulus-News

By the Shone Wealth Management Team

Over the past week, we’ve seen more action from the federal government in response to the COVID-19 pandemic and its impact on the U.S. economy. Today, we’re summarizing some of the most significant developments you should know, especially as they relate to your personal, financial and professional situation.

But first, a quick recap of the markets: The market gained momentum heading into the end of the week, with the Dow Jones Industrial Average (DJIA) closing 1.1% higher at 256 points. The S&P 500 ended the week up 39 points (1.4%) and the Nasdaq ended the week up 140 points (1.7%).

Though the markets have performed well since the low of March 23rd, we can expect that more uncertainty lies ahead. The pandemic aside, this is the nature of investing in the financial markets. Remember the principles we have reiterated over the past few weeks: stay focused on the factors you can control, such as broad diversification, tax efficiency and risk management through strategies like rebalancing. And most importantly, remember that short-term market movements are footnotes in the bigger picture of your long-term goals.

Policy Update: New Aid for Small Businesses

On Thursday, Congress officially passed a new stimulus package, worth approximately $484 billion. It is the latest attempt by lawmakers to cushion the economic blow of the ongoing COVID-19 pandemic. The package adds an additional $310 billion to the recently depleted Paycheck Protection Program (PPP); $60 billion in loans and grants for the Small Business Administration (SBA)’s relief fund; $75 billion for hospitals and health care providers; and $25 billion to expand and facilitate COVID-19 testing.

Paycheck Protection Program (PPP) Loan Forgiveness

A powerful pillar of the PPP is the loan forgiveness provisions stipulated under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Small business borrowers who comply with these provisions are eligible to have 100% of their loan forgiven, making it a loan in name only.

So, what exactly are the loan forgiveness provisions?

  1. Borrowers must use at least 75% of the loan on payroll costs.
  2. The remaining balance of the loan must be used on permitted non-payroll expenses incurred prior to February 15, 2020.
  3. The borrower cannot reduce their number of full-time equivalent (FTE) employees.
  4. The borrower cannot reduce the wages of their employees by more than 25%.
  5. The borrower must spend the loan eight weeks from the moment it is funded by the lender.

Personal Financial Tips for an Economic Downturn

It’s true that we are facing a tumultuous time for our global and national economies. The upside is that we have been here before and have the benefits of hindsight. Not only is our team working behind the scenes to ensure your long-term investment strategy is equipped to withstand these uncertain times, but there are other planning-based actions we’re taking today in order to safeguard your personal finances from economic turmoil:

1. Make Debt Management a Priority

Debt management is an integral part of our financial planning process, and it’s one that becomes essential during periods of economic unrest. If you have any outstanding high-interest debt, focus on paying it down now (especially while you’re staying at home and your spending has decreased). Our team can help take a look at any debt you (or your family members) have accumulated and implement a plan for paying it down within reason.

Bonus tip: If you or your children are still paying off federal student loans, the government has officially suspended payments for the next six months. Use a portion of those funds to put an even bigger dent into your higher-interest debt.

2. Focus on Building Your Emergency Fund

Preparing for the unexpected is a topic that is always part of our planning conversations with clients, as proactivity is crucial to financial security. If you or someone you know (such as a child or family member) has endured a job loss due to the pandemic, it’s important to revisit emergency-fund savings to ensure living expenses and other essentials can be covered. If you are fortunate to still be working and have no disruption in pay, then take this time to allocate extra dollars to your emergency fund to prepare for the unexpected. A good rule of thumb is to have three-to-six months of living expenses set aside in case of an emergency.

3. Revisit Your Cash Flow and Spending Plan

As part of our financial planning process, we stress-test our clients’ situations against various life scenarios, including the possibility of an economic downturn. One key item we review is spending and cash flow, including where to cut back in case of a sudden emergency, which becomes even more important to our clients who are in or nearing their retirement years. Times like these underscore why these conversations are so important, and we’ll continue to have them (albeit virtually) as the weeks go on.

4. Maintain Your Long-Term, Diversified Portfolio

This is an investment principle we repeat time and time again to our clients. Maintaining a portfolio that is broadly diversified across a wide range of international and domestic asset classes helps mitigate risk and improves your chances of achieving higher expected returns over a long-time horizon. We pair our clients’ long-term investment plans with proactive strategies like tax-loss harvesting and ongoing rebalancing to successfully navigate large market swings. (In an upcoming blog post, we’ll be taking a deeper dive into tax-loss harvesting, and how the strategy works for various different types of investments — so be sure to stay tuned for that!)

As always, we will continue to monitor all new and relevant developments related to the COVID-19 pandemic over the coming weeks. In the meantime, we also encourage you to stay connected through your local news outlets and messages from our team. We will remain diligent about communicating our operational plans and any changes to you.

If you have any questions about the information above or would like to speak about your personal financial or business situation, please reach out to our team. We wish you continued health, safety and security during this time.

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