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Coronavirus and Emergency Funds: Preparing for a Black Swan Event

Submitted by David Frederick, J.D., LL.M., Director of Wealth Planning at First Bank Wealth Management. In the world of investing, a “black swan” is an unforeseen event with devastating consequences. These events often strain the financial capabilities of families and households. The spread of the Coronavirus and the resulting shutdown of the economy constitute a black swan that is having terrible effects on work, income, investments, and every other aspect of our lives. The federal government has passed a $2 trillion aid package to help, but its effects are not yet clear. At times like this, it is important for everyone to have a financial plan that includes an emergency fund. An emergency fund is savings that is able to cover three to six months of living expenses. This is not a random range. The emergency fund is meant to cover a period of unemployment, which lasted, on average, about 21 weeks for Americans who became unemployed in 2019. The emergency fund is there to get a household ...

The Coronavirus and the Global Economy

As of February 26, 2020, the death toll from COVID-19 — the official name of the coronavirus first reported in Wuhan, China — passed 2,700, while the number of confirmed cases exceeded 80,000. Almost all were in China, most of them in Wuhan and the surrounding Hubei province. But more than 2,500 cases, including 46 deaths, had been reported in almost 40 other countries. A surge of cases and deaths in South Korea, Italy, and Iran caused new concern that the virus may be difficult to contain.1 Cities under lockdown By mid-February, at least 150 million people in China were under restrictions affecting when they could leave their homes, and more than 760 million — about 10% of the world's population — lived in communities under some form of travel restriction.2 Most global airlines cancelled service to and from China, disrupting tourism and business travel.3 The Chinese government enacted restrictions around the time of the Lunar New Year celebration, during which many bu ...

Market Month: February 2020

The Markets (as of market close February 28, 2020) With a growing number of countries reporting new cases of the coronavirus, the obvious spread of this dreaded virus prompted a massive panic sell-off, the likes of which haven't been seen since 2008. Investors' fears of widespread economic tumult caused by the coronavirus were too much to ignore, despite last Friday's statement from Fed chairman Jerome Powell that the central bank was prepared to cut rates if necessary when it meets in March. Crude oil prices fell by over $6 per barrel since the end of January. The 10-year Treasury note fell to a record low as money flowed into long-term bonds, pushing prices higher and yields lower. By the close of trading on the last day of February, each of the benchmark indexes listed here sustained major losses, led by the Dow, which fell by more than 10.0%. The small-cap Russell 2000 dropped more than 8.50% for the month, followed by the S&P 500, the Global Dow, and the tech stocks of the Nasdaq. Y ...

Dealing with Market Volatility

In recent days, the increase in volatility in the stock market has resulted in renewed anxiety for many investors. While it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself. Intra-Year Declines Exhibit 1 shows calendar year returns for the US stock market since 1979, as well as the largest intra-year declines that occurred during a given year. During this period, the average intra-year decline was about 14%. About half of the years observed had declines of more than 10%, and around a third had declines of more than 15%. Despite substantial intra-year drops, calendar year returns were positive in 33 years out of the 40 examined. This goes to show just how common market declines are and how difficult it is to say whether a large intra-year decline will result i ...

How Will Business & Succession Planning Benefit Business Owners?

It’s been said that dreaming is a form of planning. Although it’s nice to dream about success, that philosophy doesn’t necessarily apply when it comes to something as important as the longevity or profitability of your business. If you’re like most business owners, your business is something you’ve worked hard to start, sustain, and build. If you’re just starting out, developing a business plan and a robust succession plan should be on your list of things to accomplish. However, if you didn’t start off with a business plan, having one while building your business can be just as important. Furthermore, when potential retirement is nearing, it’s a good idea to consider the future and a potential exit strategy. “Having a solid business plan helps potential investors and financial providers realize your short and long-term goals,” said David Frederick, J.D., LL.M., and the Director of Wealth Planning at First Bank Wealth Management. “It&rsqu ...

MARKET UPDATE: Coronavirus Concerns Drive Stock Market Down

U.S. stocks are off approximately 12% over the past week, erasing the earlier gains of this year. It’s not only the amount of the drop, but how quickly the markets have dropped from recent record highs that has made investors nervous. The uncertainty from the spreading impact of the coronavirus, both from a health impact as well as an economic impact, is concerning investors. While there is still much uncertainty regarding the virus and the media is not helping with their constant bombardment of the latest scary headlines, we need to put things into perspective. The news on the virus remains very fluid and there are new developments daily, if not hourly, and there is much we don’t know yet about the virus and the potential impact. We aren’t healthcare experts as there are plenty of other sources with updated information on how to best protect yourself from the virus, but we’ll focus more on the economic and market impact. While we don’t want to make light of the current ...

Structures and Strategies: Family Business Succession Planning

Submitted by David Frederick, J.D., LL.M., Director of Wealth Planning at First Bank Wealth Management. A family business is more than just a business. It’s a livelihood, a life’s savings, a retirement plan, an inheritance, and a legacy. Family businesses face many challenges that require careful planning. Perhaps the greatest challenge is passing the business from one generation to the next and allowing it to successfully grow into the future. While a careful plan can help ensure the successful transfer and continued viability of the business, a lack of planning could effectively end the business during this critical juncture. Parents passing the business to the next generation generally have three areas of concern in common: economic benefit, control of the business, and tax reduction. The confluence of these concerns creates a complex environment that requires careful planning and a sound strategy. Families and individuals engage in business to earn a profit, or an economic benefit. E ...

How can I improve my credit report?

Most lenders use credit report information to evaluate the creditworthiness of potential borrowers. Borrowers with good credit are presumed to be more creditworthy and may find it easier to obtain a loan, often at a lower interest rate. You can do a number of things to help improve what's on your credit report, including the following: Pay bills on time. Your credit report provides information to lenders regarding your payment history. For the most part, a lender may assume that you can be trusted to make timely monthly debt payments in the future if you have done so in the past. Consequently, if you have a history of late payments and/or unpaid debts, a lender may consider you to be a high credit risk and turn you down for a loan. Limit credit inquiries. Each time you apply for credit, the lender will request a copy of your credit report. The lender's request then appears as a "hard inquiry" on your credit report. Too many of these inquiries in a short amount of time could ...

How can I lower my credit card debt?

If you find that you are struggling to pay down a credit card balance, here are some strategies that can help eliminate your credit card debt. Pay off cards with the highest interest rate first. If you have more than one card that carries an outstanding balance, one option is to prioritize your payments according to their interest rates. Send as large a payment as you can to the card with the highest interest rate and continue making payments on the other cards until the card with the highest interest rate is paid off. You can then focus your repayment efforts on the card with the next-highest interest rate, and so on, until they're all paid off. Apply for a balance transfer with another card. Many credit card companies offer highly competitive balance transfer offers (e.g., 0% interest for 12 months). Transferring your credit card balance to a card with a lower interest rate may enable you to reduce interest fees and pay more against your existing balance. Most balance transfer offers ch ...

The SECURE Act Offers New Opportunities for Individuals and Businesses

The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) is major legislation that was passed by Congress as part of a larger spending bill and signed into law by the president in December. Here are a few provisions that may affect you. Unless otherwise noted, the new rules apply to tax or plan years starting January 1, 2020. If you're still saving for retirement To address increasing life expectancies, the new law repeals the prohibition on contributions to a traditional IRA by someone who has reached age 70½. Starting with 2020 contributions, the age limit has been removed, but individuals must still have earned income. If you're not ready to take required minimum distributions Individuals can now wait until age 72 to take required minimum distributions (RMDs) from traditional, SEP, and SIMPLE IRAs and retirement plans instead of taking them at age 70½. (Technically, RMDs must start by April 1 of the year following the year an individual reaches age 72 ...

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Disclosure

All First Bank blog information and content is strictly informational. It is not intended to be specific investment, tax, or legal advice. If you need detailed financial, investment, or tax advice, please contact a First Bank qualified professional. Please note, First Bank occasionally shares third-party content we find to be relevant and helpful to our audiences.