Reflections, The New Year

For some a new year is a way to reset intentions and focus on key areas of your life.  I feel it is important to reflect on the past year as you plan your 2021 goals.

“I feel some key things to focus on is understanding what’s important to you mentally, physically, emotionally, and financially.”  (CNBC – Quote by Zaneilia Harris)

As you reflect, consider all that has occurred in 2020 with COVID-19, a major decline in the stock market, The Cares Act, the Black Lives Matter protests, the government elections and the recent insurrection at the Capitol.  All of these events may have impacted your perception of the future and that of the US economy.  In reviewing all these different events, let’s analyze it from a financial and economic context.

Let’s start with understanding some key financial concepts.  A bear market occurs when the value of the stock market suffers a prolonged decline of more than 20% over a period of at least two months. On March 12, the S&P 500 plunged 9.5%, its steepest one-day decline since 1987.  However, by the end of the year, the S&P 500 was up 3.71% in December ending the year with a year-to-date return of 16.26%.

With all the events that have occurred in 2020 and continuing into 2021, there can appear to be a disconnect between the markets and the real-life realities people are experiencing.

Current Facts about the Stock Market:

• Since the low in March of 2020 to end of year, the S&P ended up 16.26%.
• Much of the gains in 2020 took place during the final two months of the year. November and December were the best end to a year since World War II.
• The past shows that a 10% or more gain in the final two months of the year has equated to a higher S&P 500 the following year.
• The strong end of year rally may be an indicator for higher prices into next year.

PPP Loan Alert:

• On January 11, 2021, the SBA reopened the Paycheck Protection Program (PPP) through March 31, 2021.
• PPP borrowers are eligible for an additional PPP loan if they employ fewer than 300 people; have used or will use the full amount of their first PPP loan; and demonstrate a minimum 25% reduction in gross receipts during any quarter in 2020 compared with the same quarter in 2019.
• The SBA has until January 20, 2021 to develop forms and instructions for a one-page forgiveness application for loans of $150,000 or less. Borrowers who qualify for simplified forgiveness will be required to sign and submit the form and include details such as the number of employees retained and the amount spent on payroll.
  • Supporting documentation for the simplified forgiveness application is not required, but should be retained for four years in case of a future review by the SBA.
• For SBA 7(a) loan borrowers, there are temporary changes to the program. The loan guaranty has increased from 75% to 90% and there are fee waivers through September 30, 2021.
  • Borrowers will receive an additional three months of payments from the SBA, beginning in February. Borrowers who take out new loans before October 1, 2021 will receive the first six months of principal and interest payments from the SBA. All payments provided for in the new stimulus law will be capped at $9,000 a month.
  • The law also provides for an additional five months of payments for existing borrowers (as of Dec. 27, 2020) in industries hit hardest by the pandemic.

In the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act (Economic Aid Act), our partners in Congress have set aside funds for new and smaller borrowers.  See specifics in the SBA’s guidance.

Covid-19 Effect

The death or disability of your partner due to COVID-19 may have a great effect on your family’s retirement plans.  Many people who have been infected with the virus have struggled to regain their pre-COVID vitality and energy. It is not yet known what the long-term effects of COVID-19 will be on an individual’s health.  Therefore, this may very well result in a higher percentage of individuals retiring earlier than expected due to disability caused by the virus.

There are those who unfortunately had to withdraw funds from their 401(k).  Taking a huge withdrawal from your retirement plan prior to retirement will impact the future cash flow of your retirement funds in retirement.  Thus, it is a great time to re-evaluate your financial plan to make adjustments to your retirement goals.  Also take time to review and update your investment asset allocations, insurance policies, and retirement beneficiary forms.

Real Estate Market

• Since the pandemic has changed the way we work and the extremely low interest rates, the real estate market has been booming.
• Employees in high-cost urban markets are shifting to properties in more suburban or rural areas of the US.
• Expensive cities such as San Francisco and New York are experiencing sluggish sales.

Retirement Planning:

For those who have experienced quite the opposite regarding your job prospects, 2020 opened doors and you have found better employment opportunities and grown your income.  This is a reminder of your retirement contribution limits.  For 2021, you can contribute $19,500 of your salary towards your employer’s retirement plan.  If you are over age 50, you can put in an extra $6,500 as a catch-up amount.

Business owners may want to review their 401(k) retirement plan and consider a new comparability profit sharing review that can offer additional options for you and your key employees.  Reflecting on the next phase of your business planning, such as how you can transfer or sell your business is an important step.  You’ve worked hard building, growing and surviving a tumultuous year.  Review your financial and business goals to ensure they align with your future.

Job Loses

As the United States experience continual job losses, women are being greatly impacted.  In August and September, 865,000 women left the workforce.  With the increase family demands due to the lack of childcare support and assistance with virtual learning environments, women are making the hard choice of withdrawing from the workforce.  This will have a huge impact on the overall economy, but also towards gender pay equality.  Research has shown a strong correlation between a company’s profitability and it having gender and ethnic diversity.  So instead, will this foster a future boom in mompreneurship and new innovations?  Can’t wait to see!

As opportunities present themselves, you evaluate your next steps, and review your current financial life, a financial planner is a great addition to your team of advisors. Remember a financial planner can assist with the following: helping you make smart money decisions that can grow your investments and retirement savings, helping you map out your future life plans to see if you are on track, helping you minimize your taxes and connecting you to other experts, protecting your assets for those you love, and providing guidance with your philanthropic endeavors.  While life can alter your course, know that having a plan and guidance can help alleviate your fears and provide clarity.

Click here to start the conversation with Harris & Harris Wealth Management.

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Zaneilia Harris, CFP®, is the President of Harris & Harris Wealth Management Group in Washington, DC. Follow her on Twitter at @hhwealth.