As always, if you have any questions, please do not hesitate to call by contacting Amy at 800-WAY-KOOL, (800-929-5665)

After nearly six months of back-and-forth negotiations, and in response to the economic hardship that many Americans face from the ongoing COVID-19 pandemic, Congress proposed a new, $900 billion relief package.

Many elements—like stimulus payments and PPP loans—will sound familiar from earlier this year.

However, debate surrounding certain provisions in the economic stimulus and relief package has intensified since it left Congress, and as of this posting, President Trump has yet to sign the bill.

Luckily, should it become law, few measures in the whopping 5,593-page bill require prompt action before the end of 2020. Nevertheless, extensive media coverage has prompted questions regarding how it will affect you and your family. To help offer some clarity, here’s a high-level breakdown of six important provisions in the bill you need to know about.

Stimulus checks

The latest round of stimulus checks largely mirrors the rules and guidelines that were used for the first round authorized by the CARES Act, with a few notable changes. The most significant change for most people is that the latest round authorizes a base credit of $600 per eligible individual. Eligible individuals include the taxpayer (or, in the case of a joint return, the taxpayers) filing the return as well as any children for whom a Child Tax Credit may be claimed (they must be younger than age 17). As was the case under the CARES Act, your base rebate under the latest stimulus bill begins to be phased out as your income exceeds an applicable threshold.

As was the case under the CARES Act for the initial Recovery Rebate, your base Additional Recovery Rebate under the latest stimulus bill begins to be phased out as your income exceeds an applicable threshold. More specifically, for every $100 of Adjusted Gross Income (AGI) you exceed your applicable threshold, $5 of Additional Recovery Rebate will be phased out.

Thus, the phaseout range varies from taxpayer to taxpayer, depending upon the size of your base Additional Recovery Rebate (i.e., the more eligible individuals, the larger the dollar amount to be phased out at $5 per $100 of AGI, and the more income it will take to fully phase out the rebate check).

The AGI thresholds (unchanged from the CARES Act) where a taxpayer’s base Additional Recovery Rebate begins to be phased out are:

• Single Filer: $75,000
• Joint Filer: $150,000
• Head of Household Filer: $112,500

Finally, it’s worth noting that while the Additional Recovery Rebate is a 2020 refundable credit, it will be paid as soon as possible based on the AGI report on your 2019 tax return.

Return of the Paycheck Protection Program

One of the centerpieces of the latest COVID-19 relief package is the introduction of a potential second loan under the Paycheck Protection Program (PPP).

It reopens the original PPP, makes meaningful revisions to the rules (applicable to both the original and the new versions), and provides important clarifications. All of this additional relief may come as welcome news if you’re a small business owner whose revenue continues to suffer as a result of the COVID-19 pandemic.

For those businesses who have yet to receive a loan under the PPP, the ability to apply for round one financing will be reopened. The qualifications and the rules for that program remain largely the same.

By contrast, those businesses who have already received a loan under the original PPP but need additional capital may be able to receive a second loan under the new version. The program’s latest iteration, however, has more stringent qualification requirements than the original PPP.

Changes to the PPP under the new stimulus and relief package include:

• Additional authorized expenses
• Flexibility in selecting covered period
• Simplified forgiveness application for loans up to $150,000
• Borrowers who returned funds can reapply
• Maximum allowable second-draw loan amount under the program’s new version is capped at $2 million (compared to $10 million under the original PPP)

Expansion and extension of the Employee Retention Credit

The Employee Retention Credit first introduced by the CARES Act is a refundable payroll tax credit available to certain businesses whose quarterly revenue has declined as compared to an appropriate reference quarter, and is calculated, in part, based on wages paid to employees. The new legislation extends eligibility for affected employers for the first half of 2021. What’s more, not only does it dramatically increase the maximum benefit, but it also makes it easier to qualify to receive that benefit.
Extension of larger unemployment benefits

When the CARES Act was passed in March, it created a host of out-of-the-ordinary unemployment benefits. Many of those benefits have been extended, or reinstated, under the new coronavirus relief package, including 11 weeks of extended unemployment compensation (including for those individuals who don’t usually qualify), and an additional $300 per week for 11 weeks on top of regular state-determined unemployment compensation benefits.

Modified and extended tax incentives around charitable contributions

When the CARES Act was introduced in March 2020, it included new tax benefits for those making charitable contributions, including an above-the-line deduction for cash contributions for those who do not itemize deductions on their tax return. The new legislation extends this benefit to 2021 and in addition, for 2021 only, it removes the marriage penalty, by allowing joint filers to claim a deduction of up to $600.

Personal Income Tax Changes and Extensions

Various parts of the bill make changes to the rules governing your personal income taxes. Some of the more substantive changes include:

• Carry-forward relief for Flexible Spending Account funds unused at year-end
• Exclusion for employer payments of student loans extended through 2025
• Permanent reduction in the AGI hurdle for medical expense deductions

What’s not included in the Consolidated Appropriations Act of 2021?

Understanding what’s not in the stimulus and relief package – that is, what didn’t carry forward – can also be helpful for planning purposes. To this end, the following are issues/items that it did not address.

• No waiver of future Required Minimum Distributions (RMDs)
• No additional relief for unwanted 2020 RMDs
• No further student loan relief

The various adjustments, extensions and new rules that come with Congress’s latest economic relief and stimulus package are significant and complicated. As mentioned above, this bill has not yet been signed into law, and therefore any of the terms are still subject to change. We’re here to answer any questions you might have about what this legislation may mean for you, and your financial plan, over the next year and beyond.

A recent New York Times article discussed the stock market impact of Joe Biden winning the 2020 presidential election. The article quoted Lori Calvasina, head of US equity strategy at RBC Capital Markets, who said “The market is starting to worry that Trump will not be re-elected. Trump is consistently viewed as a positive for the stock market.” Before you make changes to your portfolio as a result of these predictions, consider the following three points:

1. Markets have already priced in the possibility of a Biden presidency.

2. Two-step forecasting is difficult.

3. Your political beliefs can lead to investing mistakes

Markets Have Already Priced in the Possibility of a Biden Presidency

Right now, if you look at the odds on betting markets, the consensus estimate is that Biden has about a 55% chance of winning the election, while Trump has about a 40% chance. The remaining 5% is allocated to various candidates and non-candidates. What will wind up moving financial markets is if conditions change such that the odds of Biden becoming president significantly increase or decrease.

President Trump was a heavy underdog in 2016; betting markets gave him just a 20% chance of winning the day before the election. And yet, even after the surprise outcome, market moves were relatively muted the day after the election (the S&P 500 was up 1.1% that day). It should be noted that some forecasters were predicting a sharp decline if Trump won. Dallas Mavericks owner and TV personality Mark Cuban said “there is a really good chance we could see a huge, huge correction” in the event of a Trump victory

Two-Step Forecasting is Difficult

Two-step forecasting is when someone says, “I forecast X, and as a result Y will happen.” Let’s say you’re 60% sure Biden is going to win (which is roughly in line with the consensus estimate). Let’s also assume that you’re 60% sure a Biden victory means stocks will decline in value. Then assume that if you’re wrong and Trump wins (a 40%chance) there’s another 30% possibility that stocks will decline for other reasons.

Keep in mind that going back to 1926, the S&P 500 has had negative returns in 27% of calendar years, so these assumptions are essentially saying that a Biden presidency is more than twice as likely to cause a stock market decline as has happened historically, while a Trump presidency means that the chances are roughly the same as history.

Using the above assumptions, the math works out on this so that there is a 36% probability (60% x 60%) that you’re right about Biden winning and then also right about the market declining as a result, plus another 12% probability (40% x 30%) that you’re wrong about Biden winning but accidentally right about the market decline anyway. This totals out to a 48% chance of getting your two-step forecast correct, or essentially a coin-flip.

Of course, so far I haven’t even mentioned how difficult it is to get the first prediction correct, much less getting both predictions right. Philip Tetlock, who teaches psychology, business and political science at the University of California, Berkeley is the author of “Expert Political Judgment: How Good Is it? How Can We Know?” The book, which was published in 2006, discusses the findings of his 20-year study, the first scientific study on the ability of experts from various fields to predict the future. Tetlock found that so-called experts who make predictions their business are no better than random luck. RBC head of US equity strategy Lori Calvasina should have learned this lesson in October 2019, when a Bloomberg Businessweek article shared her analysis of the Democratic presidential primary: “If politicians were stocks, she would advise shorting Joe Biden. Elizabeth Warren, on the other hand, looks like a buy.”

Your Political Views Can Lead to Investing Mistakes

There’s actually evidence that election results have the power to affect how investors handle their portfolios. The 2010 study “Political Climate, Optimism, and Investment Decisions” examined the link between investors political affiliations and their investment choices. Simply put, when your political party is in power, you feel much more confident about the economy and markets, and vice versa.

Being aware of your biases can help you make better investment decisions. Trying to time the market due to concerns about the upcoming election is not likely to be a winning strategy. The reason is that you have to be right not once, but twice. In order for market timing to work, you need to know when to get out and when to get back in. Suppose you get out now. Do you get back in if Trump wins? Or if, Biden wins, do you stay out of the market for four full years waiting for the 2024 election? The bottom line is that you shouldn’t let the latest economic or political news cause you to abandon your well developed plan.

These days, most people can’t afford to reach their financial goals – like retirement – on their employment income alone.  The cost of living is simply too high.  That’s why investing is so important: Because it allows you the opportunity to put your money to work for you.  Through investing, you can potentially grow your money and seize opportunities for additional income. 

But it’s not enough to simply throw your money at the stock market.  You must invest wisely if you’re to reach your financial goals.  You must be a financially savvy investor. 

To help, I’ve created a special infographic called Four Steps to Becoming a Savvy Investor.  Please take a minute to look it over.  These steps are all very simple to understand, but they’re critically important. 

Seventeen seconds left, it’s game six of the 1998 NBA finals between the Chicago Bulls and the Utah Jazz, with Chicago trailing Utah 85 to 86. Who do you let take the last shot? Ron Harper? If you watched “The Last Dance,” the 10-part documentary series
that aired on ESPN recently, then you’re probably screaming Michael Jordan. But are you sure?

Yes, you’d be right. But recall that before Jordan hit that last-second shot to win game six in spectacular fashion, he airballed the potential winning shot in game five, missing 20 shots altogether. And those aren’t the only shots Jordan missed in his career. In fact, he’s been quoted as saying he missed more than 9,000 shots, lost over 300 games, and 26 times was trusted to take game-winning shots but missed.

If in the final seconds of game six you want to give the ball to the player with the best in-game shooting percentage during that contest, then you may be relying on the fact that even though Harper made a solid three out of four shots that night, he only made 44.6% of his shots on average over his career. On the other hand, Jordan made 49.7% of his shots on average over his career. Evidence suggests Jordan was the better option.

Assuming that Harper’s “hot” streak would make him a better choice for taking the game-winning shot is a classic example of the “hot-hand fallacy,” which is the belief that recent superior performance will improve the future odds of success. This phenomenon plays out in sports constantly—is it happening with your investments, too?

The belief that streaks have predictive power is an illusion that can cause investors to make poor decisions. For example, U.S. stocks outperformed their international counterparts by 8.1% last year. Are you going to buy only U.S. stocks and avoid international stocks the next time you add money to your account? That might prove to be a rash decision, as year-over-year performance between the two asset classes for the longer period since 1972 skews only slightly toward the U.S. at 52.1% of the time. Or will you remember that just because an asset class performs at the top of the list one year
doesn’t mean it won’t be at the bottom of the list the next year? And, perhaps like what might have happened had you chosen Harper over Jordan in game six, if you miss, you could miss badly. The biggest out-performance by U.S. stocks over this period was 32.2%; it was even higher for international stocks at 48.6%.

The rapid market decline in March and subsequent rebounds have many investors wondering if 2020 will be an up or down year for 2019’s winning  asset classes. Maybe things will look similar, and maybe they won’t. But understanding how the hot-hand fallacy can affect sports and financial  decisions alike may help keep you from making unnecessary changes to your long-term plan.  

In honor of Memorial Day, I’d like to tell you a story about a man named Ben Salomon. 

Ben Salomon was a dentist.  He went to school, got his degree, and started his own dental practice at the tender age of 23.  The most trying ordeal he was ever supposed to encounter was a mouth full of cavities or a particularly tricky root canal.  But when his country called, he answered – serving as the dental officer for the 105^th Infantry Regiment of the U.S. Army. 

The year was 1942.    

Ben Salomon was a dentist, but he still had to train like a regular infantryman.  He qualified as an expert with both rifle and pistol and was even declared the unit’s “best all-around soldier” by his commanding officer.  Soon, he was promoted to the rank of captain.  Two years later, he went into combat – specifically, to an island in the Pacific called Saipan. 

Ben Salomon was a dentist.  But during combat, a toothache was the furthest thing from most men’s minds.  The Battle of Saipan was fierce, with the U.S. suffering over 13,000 casualties. So, with little dental work to do, Salomon volunteered to go to the front lines, to replace one of the surgeons who had been wounded. 

It was July 7, two days before the battle would end.  As the U.S. advanced across the island, the wounded began to pile up, and it wasn’t always possible to transport them back to the regiment’s main base.  So, Salomon set up a tent barely fifty yards from the frontlines to serve as an immediate aid station.  Just after dawn, approximately 4,000 Japanese soldiers launched one of the largest counterattacks of World War II.  Within minutes, Salomon’s tent filled up with wounded soldiers, many of whom had to be physically carried in.  Undaunted, Salomon got to work, trusting the line would hold and the enemy be repelled. 

That was when he saw his first Japanese soldier. 

Ben Salomon was a dentist.  But when he saw the foe attacking the wounded men lying outside his tent, he remembered his training.  He grabbed a gun, fired, and returned to his work.  But then, two more enemy soldiers entered the tent.  Salomon dealt with these, too – only for another four to emerge from beneath the tent walls.  Shouting for help, Salomon rushed them head on.  He defeated three on his own; one of his wounded comrades stopped the fourth. 

But the front lines were punctured, and the bleeding couldn’t be stopped.  The enemy was overrunning the foxholes, and the aid station was doomed.  Realizing what was about to happen, Salomon ordered the wounded men to retreat, supporting and carrying each other as necessary.  In the meantime, Salomon said, he would hold the enemy off.

The wounded soldiers staggered out the rear of the tent.  Ben Salomon left by the front. 

When they found his body two days later, Salomon was alone, clutching a machine gun.  The bodies of ninety-eight enemy soldiers were in front of him.  He had seventy-six bullet wounds and dozens of bayonet wounds, many of them suffered while he was still alive.  While he was still fighting. 

Ben Salomon was a dentist.  He was also a warrior, a patriot, and a hero.

***

Fifty-nine years later, Ben Salomon was posthumously awarded the Medal of Honor.  This often happens with those who have died in battle.  Their names are preserved in records, but entire generations can pass before history gives them their due.

Despite receiving the Medal of Honor, and despite the incredible heroism he displayed, few people have heard of Ben Salomon before.  That’s not a surprise.  After all, over one million men and women have died serving our country.  They were all heroes, yet most can’t be found in history books, documentaries, or even Wikipedia articles.  In a sense, Ben Salomon is fortunate. The Medal of Honor is given to those who have “distinguished themselves by acts of valor.”  But surely there are tens of thousands of people who never received such a medal even after their death – because their own acts of valor are lost to time.    

I think this is one of the reasons we observe Memorial Day every year.  Whenever we visit a cemetery, whenever we flip through a photo album or scrap book, whenever we comb through the stories of our friends, family members, and ancestors who made the ultimate sacrifice, we commemorate the Ben Salomons of the world.  They weren’t superheroes like you see in movies, with magical powers or unworldly strength.  They were teachers and taxi drivers, farmers and factory workers, students and scientists.  They were dentists.  Every Memorial Day, we ensure their memories, their deeds, and their sacrifices are never forgotten, and thus never in vain.  We award them our own personal medals of honor – for deeds that mean so much to the world, and everything to us. 

That’s why we observe Memorial Day.  To ensure that, while people die, valor lives on forever.

It got lost in the crazy shuffle of current events, but this past April marked the 50^th anniversary of one of the most compelling dramas in recent history: the events of Apollo 13. 

It was April 14, 1970.  What would have been the third mission to land on the moon was going swimmingly.  The astronauts – Jim Lovell, Fred Haise, and Jack Swigert – had just filmed a televised tour of their spacecraft.  Music played, jokes were swapped, and Haise even played a prank on Lovell by hitting a button that caused a startlingly loud bang. 

Two minutes later, another bang resounded throughout the spacecraft.  But this one was no joke.  It was an explosion.  Here’s a transcript of what happened next.¹ .

Swigert: “Okay, Houston…we’ve had a problem here.” 

MISSION CONTROL: “This is Houston.  Say again, please.”

Lovell: “Ah, Houston, we’ve had a problem.”

MISSION CONTROL: “Okay, stand by, 13.  We’re looking at it.” 

No one knew it yet, but at that moment, the astronauts were flying a dying spacecraft.  Over the next several days, they would have to manage with limited food and less sleep.  They’d contend with falling temperatures and rising carbon dioxide levels, with dehydration and urinary tract infections.  Back on Earth, hundreds of flight controllers, engineers, scientists, and other astronauts worked around the clock, trying to improvise an entirely new mission than the one they planned for: Bringing the crew home alive.      

If you had never heard of Apollo 13 before, and you looked at the transcript of the incident, you would never guess there was any real danger at all.  Despite the crew being 178,000 nautical miles from Earth, and despite the spate of alarms and warnings confronting both the astronauts and flight controllers in Mission Control, there was no panic.  No cursing.  No shouting.  No finger-pointing.  Instead, there was only one thing: teamwork. 

“When bad things happened, we just calmly laid out all the options, and failure was not one of them.  We never panicked, and we never gave up on finding a solution.” ² – Jerry Bostick, Flight Controller

Between the fateful explosion that crippled Apollo 13’s spacecraft and the time the astronauts landed in the Pacific Ocean, this amazing team of professionals had to work together to figure out:

• How to use the craft’s Lunar Module (the section that was supposed to physically land on the moon) as a lifeboat
• How to conserve desperately-needed power to keep the astronauts alive while still leaving enough to return home
• How to filter carbon dioxide out of the Lunar Module (famously devising a way to “fit a square peg in a round hole” using plastic, paper, duct tape, and a sock) 
• Because there wasn’t enough power, how to keep the spacecraft on a proper course despite not being able to use their guidance computer (they figured out how to use the line between night and day on Earth as a reference point)
• How to power up the Command Module from a full shutdown in order to re-enter the atmosphere, even though it had never been done before and getting it wrong would have been disastrous.

It was a laundry list of seemingly insurmountable problems.  In many cases, NASA had only hours to solve them.  At a glance, it may seem like the astronauts survived due to sheer good fortune.  In reality, they survived thanks to their training, preparation, discipline, foresight, attitude, and values.  These values were summed up three years earlier by Gene Kranz, the legendary flight director who helped guide Apollo 13 back home.  In a speech to his flight control team, Kranz said:

From this day forward, Mission Control will be known by two words: ‘Tough’ and ‘Competent’.  Tough means we are forever accountable for what we do or what we fail to do.  We will never compromise our responsibilities.  Every time we walk into Mission Control we will know what we stand for.  Competent means we will never take anything for granted.  We will never be found short in our knowledge and our skills.  Mission Control will be perfect.  When you leave this meeting today, you will go to your office and the first thing you will do there is write, ‘Tough and Competent’ on your blackboards.  It will never be erased.  These words are the price of admission to the ranks of Mission Control.³

Fifty years later, I think there’s a lot for us to learn from Apollo 13.  You see, we will all face crises in our lives.  Some will be physical, some emotional, some professional, and some financial.  We are facing a crisis right now due to the coronavirus pandemic.  The question is, how should we deal with these crises?  Will we panic and point fingers – or will we be tough and competent?    

I think the answer can be found by remembering Apollo 13.  When crises happen, we deal with them the same way they did: Through planning and preparation.  Through discipline and attention to detail.  By finding ways to take responsibility instead of assigning blame.  And most of all, through teamwork.  Like the three astronauts, we don’t have to deal with crises alone.  We have people all around us – friends, family, neighbors, and even trusted professionals – who can help us solve even the most difficult of problems.  When we find ways to work together with others, there’s no challenge that can’t be overcome. 

Despite never reaching the moon, Apollo 13 has frequently been described as “NASA’s finest hour.”  Fifty years later, if we apply the lessons those heroic astronauts, controllers, and engineers taught us, I know we can turn adversity into our finest hour, too.