InSight

Financial Planning Dentist
Investment With

InSight

Menu

Market InSights:

Second COVID-19 Stimulus Niceties and Notes

We have an agreement, which means we can begin to criticize it and plan for the investment and economic effects. The bill is a litany of half measures, no long term solutions, and likely sets up a couple of battles in the next congress. 

Congress punted on evictions, postponing medical payments until early next year, and there is still an ongoing debate regarding the amount it is issuing in direct payments. The looming liability concern for businesses is still being discussed.

Here is what got done: 

Individual payments for many

Easily the most asked about part of the legislation is the direct payment to individuals that begin going out today. The passed version included $600 going to individual adults with an adjusted gross income of up to $75,000 a year based on 2019 earnings.

An increased amount will be going to those that file as heads of households who earn up to $112,500 and couples (or someone whose spouse died in 2020) who make up to $150,000 a year would get twice that amount.

This continuing political battle to raise this number from $600 to $2000 is still going on today, passing with all democrat and some republican support in the house. The senate is questionable as a few Republicans have endorsed the idea, including the two high profile candidates in Georgia – Loeffler, and Purdue.

McConnell has blocked the bill as of 10:20 am as I am writing this article. 

Unemployment benefits

With almost 7% of Americans still unemployed and millions more under-employed, Congress acted to extend multiple programs to help those out of work, albeit at less generous levels than in the spring. Too much of the surprise of those tracking the issue, the final bill doesn’t include the expanded coffers many anticipated and is considered a skinny agreement. 

The agreement would include:

  • 11 weeks, providing a lifeline for hard-hit workers until March 14. 
  • Up to $300 per week (half the amount provided by the original stimulus bill in the spring)
  • Pandemic Unemployment Assistance — a program aimed at a broad set of freelancers and independent contractors — for the same period, providing an additional $100 per week

Better late than never, the expanded agreement is a second band-aid for those Americans that continue to seek employment as employers have halted hiring. The near term negative effect of unemployment cannot be understated. But as we look out to the intermediate (6 months) range seems to hold a fantastic capacity for consumers to unwind pent up spending in short order. The unemployment insurance isn’t expected to be much but will support many Americans who put more and more spending on credit cards in the second half of the year. 

Funds for Child Care, Schools, and Colleges

School budgets have been uniquely impacted by the pandemic and have left their outlook for the year to some impaired:

  • $82 billion for education and education service providers, 
  • That figure includes $54 billion for stabilizing K-12 schools
  • It also includes $23 billion for colleges and universities
  • $10 billion for the child care industry

K-12 schools saw more support than the initial package in dollar terms, and even more than the proposed package in November; however, the funds still fall short of what both sectors say they need to blunt the effect of the pandemic and to support operations in 2021. 

The majority of school districts transitioned to remote learning and as a result, we were asked to make expensive adjustments to accommodate while seeing enrollment drops upend budgets. Colleges and universities are also facing financial constraints amid rising expenses and falling revenue.

Child care centers that are struggling with reduced enrollment or closures will get help to stay open and continue paying their staff. The funds are also supposed to help families struggling with tuition payments for early childhood education. 

Funding for broadband infrastructure

The stress on national broadband has been higher than ever, remote work and education on top of the expanded requirements of technologies like Zoom, have put a major strain on national networks. The legislation includes $7 billion for expanding access to high-speed internet connections. Much of this spending was anticipated in an infrastructure bill, that has been brought forward as a result of the pandemic. Two major points in this part:

  • Half this stimulus is earmarked to cover the cost of monthly internet bills by providing up to $50 per month to low-income families.
  • $300 million for building out infrastructure in underserved rural areas and $1 billion in grants for tribal broadband programs. (Part of another infrastructure bills spending prior to the pandemic) 

Extension of aid for small businesses (PPP)

The bill puts forward $285 billion for additional loans to small businesses under the Paycheck Protection Program. This renews the program created under the initial stimulus legislation and is largely an extension of dollars that were repurposed.

Funding for vaccines and eldercare facilities

The source of concern early in the pandemic and the ongoing requirements to overhaul the elderly care facilities are addressed by this legislation as it sets aside nearly $70 billion for a range of public health measures targeted at elderly care facilities and the distribution of the vaccine. This breakdown includes: 

  • $20 billion for the purchase of vaccines 
  • $8 billion for vaccine distribution 
  • $20 billion to help states continue their test-and-trace program
  • Earmarked funds to cover emergency loans aimed at helping hard-hit eldercare centers.

A ban on surprise medical bills

The Bill supports efforts to help Americans avoid unexpected medical bills that can result from visits to hospitals. The legislation also makes it illegal for hospitals to charge patients for services like emergency treatment by out-of-network doctors or transport in air ambulances, which patients often have no say about. This measure has had some long time support from Democrats and was criticized for not including some provision in the Affordable Care Act. 

Rental protections

One more month of halting evictions is pushed out to the end of January. The Department of Housing and Urban Development separately issued a similar moratorium on Monday that protects homeowners against foreclosures on mortgages backed by the Federal Home Administration. It runs until Feb. 28. This has had several enforcement issues and while the legislation is a fantastic lipservice, the issues of evictions for individuals with a history of rental disqualification from before the pandemic are a continued source of evictions.

The bill DOES NOT include liability protection for business

A criticism by many that Democrats largely held out a provision for liability protection for companies trying to reopen. This element, opposed by labor unions and supported by the national Chamber of Commerce was a sticking point that went without inclusion. The discussion was important because it would allow businesses to follow their local recommendations to reopen to have legal insolation from lawsuits later on. This will continue to be a discussion in congress as a “reopen” is structured and the liabilities for business owners regarding COVID exposures are defined. 

Conclusion:

This gets us through the winter and hopefully the hump of COVID as the vaccine gets rolled out. It still leaves too much for the 2021 congress to cover and cover quickly. What the continued political, monetary, and fiscal landscape reactions look like is still up for debate. The curvature of risk in equities peaks in February (as I write this) so markets are pricing in a 2 month include equities and a political battle come early spring.

More related articles:
Articles
Kevin Taylor

The Rules of Self-Directed IRAs

At InSight, our clients know that when you understand the rules you make better decisions. Our InSight-Full® plan is about marrying the goals that you have with the right Rules of Self-Directed IRAs and the right strategy. We cannot stress enough the importance of knowing the rules and how to avoid problems both now and in the future. By Kevin T. Taylor AIF® and Peter Locke CFP® The first rule is when you open a self-directed IRA you’re not the owner. The tax code requires the assets in a Self-Directed IRA (SDIRA) and its owner remain separate and not used in a way that one indirectly enriches the other (beyond permitted rules). When you think about investing into something using your IRA think of it as solely an investment and not for personal use.  The IRA owner and anyone else responsible for the account is prohibited from commingling their vested interests of the SDIRA with its owner or any “disqualified persons” which includes: The fiduciary of the account including the SDIRA owner Family member (ancestor, spouse, lineal descendant, or spouse of a lineal descendant Corporation, partnership, trust, or estate where 50% or more of the shares/profits/beneficial interests are owned by any of the above Officer, director, or 10% or more shareholder or partner of an entity above If someone is a disqualified person, they’re prohibited from directly or indirectly transacting between the SDIRA and the disqualified person in the following manners: Transfer, use, or benefit of the assets Lending or extending credit (both ways) Sale, lease, or exchange of property Furnishing of goods, services, or facilities Dealing assets for your own benefit as the fiduciary Personally receiving consideration as a fiduciary from a third party that engaged in a transaction with the IRA This means that if any of these transactions listed above with any disqualified person occur even if done at fair market value, will be subject to severe consequences. The standard penalty is 15% of the amount involved in the transaction which is imposed on any disqualified person engaged in the transaction. Furthermore, if it’s not resolved by the end of the year in which the violation occurred, the penalty is increased to 100% of the transaction amount. And to top it off, the entire account loses its tax-deferred status and is treated as if the entire account was liquidated and distributed as of the current year. The majority of clients for asset protection purposes and clean book keeping manage their self-directed IRA inside of an LLC. Don’t have your IRA own the property, have your IRA own an LLC that has a bank account that you’re the manager of.  Then the LLC is the owner on the contract. This like any other rental property gives you the ability to have limited liability in the event someone comes after your assets. These are investment assets not personal assets, this is definitely a breach of rules of self-directed IRAs. You cannot live there, your parents, kids, or grandparents cannot live there. You cannot sell your own property or buy a piece of property from yourself using the IRA. Don’t take a salary or commission (prohibitive transaction).  Any repairs or maintenance must be done by a third party. The reason is if you were to work on it on your own then you’re self serving and this could be viewed as a contribution to the IRA which is prohibited. Also, if you own a property management company and are a 50%+ owner, your company cannot do work on the property. The easiest thing you can do is separate yourself completely from the investment and let third parties do the work. If you follow through with the purchase, keep all accounting separate. You don’t want to accidentally make a mistake and disqualify yourself by accidentally mixing personal use assets with your Self-Directed IRA. For example, if you think you can use a credit card to pay for the repair of something you cannot. All expenses come out of the IRA not your bank account. Another prohibited transaction in this type of account is transacting with prohibited parties or disqualified persons such as kids, parents, spouse, grandparents, spouses of your kids and yourself. Although, siblings are allowed.  The rule specifies disqualified persons as ancestors. Keep your Self-Directed IRA separate from your business where you’re a 50% or more owner. In this case, your IRA is a prohibited party and therefore you cannot loan to an LLC that is associated with your business. If you’re not putting down the full amount to buy in this case a rental property, you’ll need to get a non-recourse loan. This means the bank will charge a higher interest rate but if you default then they will only take the property. Having a non-recourse loan in an IRA means you will be subject to unrelated debt taxable income (UDTI). UDTI is generated when you finance the purchase of property in an SDIRA. Unrelated Debt Financed Income (UDFI) and Unrelated Business Taxable Income both trigger UBIT (Unrelated Business Income Tax). To even the playing field for everyone (because using leverage in an IRA and collecting income is way to get huge contributions into your IRA which isn’t fair to non-exempt persons) the IRS made it so tax-exempt entities you must pay income tax on the income they realize from the UDFI that year at the Estate Tax level which is much higher than ordinary income levels. Lastly, invest in what you know. Don’t take unnecessary risk by breaking one of the Rules of Self-Directed IRAs, and don’t invest in your friend’s start-up that you know nothing about. If you know rentals buy rentals, if you know commercial real estate buy commercial real estate. Just like anything we do here at InSight, have the right people, process, and policies set up to hold yourself accountable so you make more informed investments.

Read More »
November 20, 2020 No Comments
Articles
Kevin Taylor

The investment opportunity in semiconductors

Microchips, more commonly known as computer chips or integrated circuits, have become an integral part of our lives. They are present in everything from our smartphones and laptops to our cars and household appliances. In recent years, the importance of microchips has grown exponentially, particularly with the rise of artificial intelligence (AI) and machine learning. At their core, microchips are essentially tiny electronic circuits etched onto a small piece of semiconducting material. They contain transistors, which are essentially tiny switches that can be turned on and off to perform calculations and process information. The number of transistors on a chip has been increasing rapidly over the past few decades, following Moore’s Law, which states that the number of transistors on a chip doubles approximately every two years. The increasing number of transistors on a chip has led to the development of more powerful and efficient processors, which are the backbone of computing power. The more transistors on a chip, the more calculations can be performed simultaneously, and the faster and more efficient the processing power becomes. This has allowed for the development of faster and more sophisticated computing systems, from supercomputers to smartphones. However, the significance of microchips extends beyond just computing power. With the rise of AI and machine learning, microchips have become the cornerstone for the development of these technologies. AI relies on large amounts of data and complex algorithms to make decisions and predictions, which require immense computing power and the ability to process vast amounts of data quickly. This is where microchips come in, providing the necessary processing power and efficiency to support these complex algorithms and enable the development of AI and machine learning systems. As AI continues to evolve and become more advanced, the demand for more powerful and efficient microchips will only increase. Companies that specialize in the design and manufacture of microchips, such as Intel, AMD, NVIDIA, and Qualcomm, are at the forefront of this rapidly growing industry. Investing in these companies can be a smart move for those interested in the potential growth of the microchip industry and the continued development of AI and machine learning technologies. Microchips are a revolution right now, the backbone of modern computing, and are crucial for the development of AI and machine learning. The increasing number of transistors on a chip has led to more powerful and efficient processors, which have enabled the development of faster and more sophisticated computing systems. As AI continues to evolve and become more advanced, the demand for more powerful and efficient microchips will only increase, making them a crucial investment opportunity for those interested in the future of technology.

Read More »
April 18, 2023 No Comments
Boulder Investment Management
Articles
Kevin Taylor

The Hidden Risks of Bond Funds: Diversification and Redemptions

Investors often turn to bonds as a lower-risk alternative to stocks, and for many, bond funds offer a convenient way to diversify their portfolios. However, the notion that bond funds are an inherently safer bet can be misleading. In some circumstances, bond funds can actually carry more risk than the underlying bonds themselves. Let’s dive into how the supposed advantages of bond funds, like diversification and pooled investment, can sometimes be double-edged swords. The Myth of Diversification  The basic principle of diversification is “not putting all your eggs in one basket,” but what if some of the baskets are riskier than you’d like? In a bond fund, your investment is spread across various bonds issued by governments, municipalities, or corporations. While this mitigates the credit risk associated with any single issuer, it also exposes you to sectors or asset classes you might prefer to avoid. Unwanted Risks Bond funds often hold a wide range of assets, including corporate bonds, high-yield (junk) bonds, and even international bonds. For example, if you buy into a fund for its exposure to high-quality corporate bonds, you might unintentionally take on exposure to lower-rated or riskier bonds. You may also be exposed to interest rate risk, credit risk, and even currency risk if the fund invests internationally. Lack of Control  Unlike direct bond investments, where you can pick and choose your level of risk and yield, bond funds don’t offer the same level of control. You rely on the fund manager’s judgment, which may or may not align with your own risk tolerance and financial objectives. The Domino Effect of Redemptions One of the biggest risks with bond funds comes from the potential for large-scale redemptions. Unlike individual bonds, which you hold until maturity unless you decide to sell them, bond funds are subject to the investment whims of all the participants in the fund. Forced Selling If a significant number of investors decide to pull out of a bond fund, the fund may have to sell bonds to provide the cash for redemptions. This is especially problematic if the bonds have to be sold in a declining market, as it locks in losses that are passed on to remaining investors. Liquidity Concerns The need to meet redemptions could force the fund to sell its most liquid assets first, leaving the fund holding a larger proportion of illiquid or lower-quality bonds. This can affect the fund’s performance and potentially increase its volatility. The Importance of Due Diligence The key takeaway here is that while bond funds offer the advantage of professional management and diversification, they are not without their risks. Due diligence is crucial before adding any investment to your portfolio, including bond funds. If you or the person who manages your money insists on just stuffing more money into bond funds, it comes at a substantial cost you you in the form of added fees, performance, and risks.  Investors should carefully read fund prospectuses and reports, understand the risks associated, and possibly consult a financial advisor to see if the fund aligns with their risk tolerance and investment goals. Only then can you make an informed decision about whether a bond fund is a right investment for you.  

Read More »
August 31, 2023 No Comments

Pin It on Pinterest