Author Archives: Albion Financial

About Albion Financial

Established in 1982, Albion Financial Group is an independent, fee-only financial planner and investment manager located in Salt Lake City, Utah.

Planners’ Corner – May 15, 2020

Often, the Planners’ Corner is used to provide straight forward, actionable guidance from our planners and advisors. In these extraordinary times, it’s a piece of behavioral psychology that will beset the following text. We are working hard to provide insights into the changing world around us using a plethora of mediums – conference calls, blog posts, emails, phone calls, video chats, TV appearances, social media posts, etc. Yet we can’t discount that the world has seemingly tempered to a halt. As a community, we do our best to make do, but sometimes fear and anxiety permeate our best efforts at normalcy.

It was once thought that ostriches buried their heads in the sand to avoid danger. Although a reasonable assumption, it’s wrong. This hasn’t stopped the term “ostrich effect” from bleeding into the study of behavioral finance. The misconception about why ostriches bury their heads in the sand, led to a broad definition describing this effect as “avoiding exposing oneself to [financial] information that one fears may cause psychological discomfort.” As with every story, there are two sides – some tend to find themselves falling victim to the over monitoring of finances in periods of high uncertainty and volatility. Coined the “meerkat effect” due to a change in behavior that resembles more of a hyper-vigilant meerkat than a head in the sand ostrich. Regardless of whether we act more like ostriches, meerkats, or just humans – our built-in psychology can reinforce negative emotions in times of uncertainty.

Whether we like it or not, some aspect of the ostrich effect influences us within or outside of our financial lives – avoiding listening to a voicemail because we know its contents are undesirable, not checking financial statements for fear of unpleasant details, putting off an uncomfortable phone call, or unnecessarily rescheduling a filling at the dentist. We, as humans, experience this effect even with the most minor unpleasantries. Financial health is no minor detail. It’s easy for financial advisors and investment gurus to repeat the same truisms over and over in times like this to aid clients who are wading in murky waters. However, we should never discount the unprecedented nature of this pandemic as it relates to all of our ever-changing situations.

So why do ostriches bury their head in the sand? They dig holes to keep their eggs, and occasionally insert their heads into the ground to turn the eggs. They are nurturing, not hiding. This is time we can spend nurturing our financial eggs, controlling what we can control. Below are 5 steps we can take, together, to manage our financial and mental health during and after the novel coronavirus:

Talk to us, talk to others – We do our best to reach out to all clients personally, both prior to and during this time. Discussing finance, family, friends, canceled trips, or plans for the future are all suitable topics. We are here to listen to you, regardless of the topic. Communicating with our clients does as much for us as it does for you – we all need the personal connection right now. Remember to connect with those you love via phone or video chat or catch up with someone you haven’t spoken to in years.

Automate – Finances can fall by the wayside when our health is at risk. Manually making transfers, withdrawals, paying bills, and contributing to retirement accounts can feel tedious and stressful right now. Let us help you automate your financial life so that you can focus on what’s important.

Plan with real data – Financial planning is probably not near the top of many lists right now. However, I would be hard-pressed to find a better time to properly plan. Working together to understand and finetune your entire financial picture can be a great way to confront both sides of this psychological coin. Planning with estimates is good, planning with data is better. When we understand what is coming in versus what goes out while factoring in all assets you have, we can act faster with real data in times of need (good or bad). Please reach out to discuss formal planning and we will work together to realize its benefits.

Get informed – We work with some of the most intelligent clients out there, but no one knows everything about everything. Albion employees are working as a cohesive unit from home to deliver the most relevant insights and information for our clients. Following us on social media, attending our conference calls, keeping up with the blog, and dissecting our emails are great ways to understand where we stand on the most important topics facing the world today. We can’t cover everything, but we are willing and able to research or answer any tough questions that you have – don’t hesitate to make us your first call.

Take it slow, make a list – Whether we are busy or finding ourselves with too much free time, trying to tackle everything at once can be draining. We are here every day working to ensure your success but might not wholly understand what concerns you have for one reason or another – everyone has different worries and wants. Making a list of things we have been actively avoiding or overanalyzing is a logical first step. Acting on and completing this list over time yields the desired outcome. Small steps turn into big leaps with time.

COVID-19 Relief: Yellow Ribbon Network – May 7, 2020

The Yellow Ribbon Network is an online platform for veterans, active military and their families in need of counseling and resources to help with finances, housing, employment or education. The Yellow Ribbon Network has partnered with AFCPE® (Association for Financial Counseling & Planning Education®), whose mission is to ensure the highest level of knowledge, skill and integrity of the personal finance profession. AFCPE® aims to empower people to achieve lasting financial well-being through financial counseling, coaching, and education.

Together, The Yellow Ribbon Network with AFCPE® are currently offering free financial counseling to anyone who has experienced a negative change in income and/or budget due to COVID-19. This partnership has come about due to the widespread economic impact that COVID-19 has had on individuals and families. While the government has worked to expand public benefits and has distributed stimulus checks, there is still a great deal of financial stress and uncertainty for many people. The goal of this partnership is to help individuals navigate their financial situation in the short and long term.

The certified financial counselors and coaches will help you to make a plan and will provide you with unbiased, trustworthy advice. These sessions are available virtually – and are free.

An AFCPE® certified professional will never sell you products. They can help you to address your spending and savings plans, overcome debt, work through ineffective money management behaviors, and/or create a specific plan during this time of uncertainty. Your financial counselor will work closely with you to help you through today’s challenges and to develop a strong financial foundation for the future.

A member of the Albion Team donates her time as a volunteer CFP with the AFCPE.If you have additional questions about this service, please click the following link:

https://www.yellowribbonnetwork.org/COVID-19

From the desk of Doug Wells: “Should You Invest More Money in the Stock Market?” – April 19, 2020

On Monday March 23 both the S&P 500 and the Dow Jones Industrial Average hit their current lows for the year. In a month, investors saw the market fall by approximately 35% – the quickest drop of this magnitude since the Great Depression. On top of the market correction, it became clear that each of us would be directly impacted by what days earlier seemed like a distant possibility – a global pandemic and subsequent hard stop of most of the world’s economies. If you found those early days to be scary, you were not alone. All but the most optimistic amongst us felt some degree of fear contemplating what this new reality would mean not just for our investments but also for our own personal health and for those whom we love. Full candor – it was scary for me as well.

It is now four weeks since the March market lows. We have more information on how the pandemic will impact our lives and the economy and we have seen both bad and good come out during this unprecedented time.

Sadly, we have seen the virus spread quickly to every state in our nation.  Nationwide there have been over 750,000 cases and over 40,000 deaths. Many of our favorite local businesses have temporarily closed or dramatically scaled back their services, all of us know at least a few people who have lost their jobs and most of us have been sheltering in place for over four weeks.

There has also been uplifting news. Many of our neighbors have become local heroes by opening their hearts to help others – whether that be through grocery runs for others, celebrating a child’s birthday with a drive-by parade or health care workers continuing to risk their own well-being every day to help those infected. In addition, we have seen positive news on vaccines (J&J, Moderna, and others) and potential drug therapeutics (Gilead).

While the current situation remains scary, many of us have settled into our new temporary reality. And, the stock market has done the same. Since the March 23 lows, the market has made up roughly half of its losses and rebounded approximately 30%. As we adjust and get a bit more comfortable with our new daily routine, some people are asking “If I have additional capital, should I invest more in stocks?” As with most questions, the answer is – it depends. Below are a few of the factors to consider if you are contemplating investing new money into the stock market:

What is the purpose of each of my accounts? 

Most people have several accounts, each with different goals, and you want to make sure your investments match your goals. For example, you may have several college savings accounts for your children or grandchildren, an emergency fund with 6 months to 2 years of living expenses and your retirement accounts. The right answer for one account likely will not be the right answer for all of your accounts. For instance, your emergency account should be held in cash or high-quality liquid investments (like US treasuries). Adding equity exposure to this type of account likely does not make sense. For college savings accounts, it depends on how soon the beneficiary will need the money and your ability to add additional funds should the need arise. If the college funding is needed in the next 1-3 years, adding equity exposure likely does not make sense. However, if the child does not need the funds for 7-10 years, adding some equity exposure might make sense. For retirement accounts, if you have 5-7+ years of living expenses in bonds and/or cash, it might make sense to consider investing any new money in stocks.

Timeline – Strategy: What is the investment timeline for this new money?

Each market correction is different. In some cases, new highs are reached after just a few months. In other cases, it can take a few years. And, occasionally, it can take longer. Only invest new money in the stock market that you don’t need for several years, preferably 5 years or more.

Timeline – Tactical: How quickly should I make new investments?

Trying to call “the bottom” is an expensive exercise in futility. Yes, you might get lucky but, more likely, you will miss your opportunity. Most investors are far better off splitting their money into 4-6 tranches and investing regularly over a period of time. For example, invest 1/6 th  of the new money on the first trading day of each month for the next 6 months. This allows you to dollar cost average into new investments. A quick side note. If you believe the market will be higher in several years than it is today, you actually want the market to continue to fall as you invest as it will give you a lower average cost basis for your new investment.

What is my personality?

For investing, it helps if you are an optimist who believes in a better tomorrow. Yes, the next few months, and possibly years, will be challenging. Some companies will miss their earnings estimates, unemployment will almost certainly continue to rise to previously unthinkable levels, new coronavirus infections and deaths will continue, some cities and states will have setbacks after reopening their economies and there will be other expected and unexpected challenges. However, there will also be unforeseen positive developments such as promising news about vaccines and drug therapies, success stories from hospitals, cities, and states, additional fiscal policy support from the state and federal government and more. The point is, can you weather the bad news and a declining stock market if it continues over many months? Remember, your timeline for any new money invested in the stock market should be 5 or more years. That can be a  very  long time in a negative or flat market.

What is my goal?

I would argue that your goal should be to make a series of good financial decisions over several years. You will not get every decision “right”. But, if the vast majority of your decisions are sound and your mistakes are modest, you will likely do very well over time.

Is now the right time to start?

As I write this note (Sunday evening 4/19/2020), the S&P500 is at 2,875 – down just 11% year-to-date and very close to levels last seen in October of 2019. Think about that. If six months ago you had perfect clairvoyance and knew a global pandemic was coming and it would halt the world’s economies (and many of the small businesses in your neighborhood) what would you have predicted the stock market would do? “Flat” would not have been my prediction. Yet here we are.

At these levels, it feels as though there is a fair amount of optimism regarding the re-opening of the economies around the world, the power of unprecedented fiscal and monetary policies from various governments and the progress on drug therapies and vaccine candidates. Yes, I am optimistic on what the world looks like in 2 years. However, I am also a realist on what the path to get through this likely entails. The reality is that we will have some tough weeks and months in front of us as well as some heartbreaking setbacks in our fight against this virus.  It is impossible to know when the market bottom will happen.

Given the fear and uncertainty, a course of action could be to wait and start your first tranche of investing should the market fall another 5-10% from these levels.  But be clear this carries two big risks; first, the market may not correct the amount you’ve defined as your entry point causing you to leave you funds on the sideline. Second, you can be certain the headlines will look dreadful if/when the downdraft occurs. Will you be willing to buy in the face of really bad news?

In summary, is now a good time to invest new money? Maybe. But it is definitely a good time to plan how you intend to add to your equity exposure regardless of what the market does over the next several months.

On a similar note, if you found your portfolios a bit too aggressive in your current asset allocation, it makes sense to reevaluate and possibly de-risk some of your investment accounts. Your aim is for your asset allocation to match the specific account’s goals. With the market down just 11% year-to-date and at levels close to those seen in as recently as October of 2019, it may be a good time to evaluate a change like this.

Our goal is to help you make good financial decisions; often this includes helping you avoid short-term thinking with long-term assets (or, conversely, long-term thinking with short-term assets). Please reach out to your Senior Wealth Adviser if you would like to discuss any of the ideas shared in this note and how they might relate to your specific situation. Also, if any of your colleagues, friends or family are struggling to make good financial decisions during this stressful time, please feel free to let them know about Albion. We would be honored to have a conversation with them to see if Albion can be of service.

Doug Wells
Partner
Albion Financial Group

Roth Conversion Guide – April 14, 2020

Many of you may hear someone extolling the benefits of a Roth Conversion. While there are situations where a Roth Conversion makes sense there is also broad misunderstanding of what it is and what to look for to see if it might be right for you.

What is a Roth Conversion? 

A Roth conversion is a penalty-free taxable transfer from a traditional IRA to a Roth IRA. The dollar amount you convert – all or part of your IRA – will be taxable income to you in the year the conversion occurs. The amount converted to the Roth IRA will grow tax-free and can be withdrawn tax-free (if you have had a Roth open for at least 5 years and are over 59.5 years old). Other types of accounts that may qualify for a Roth conversion include qualified plans, SEP & SIMPLE IRAs, 403(b) Plans, and Section 457 Plans.

Roth conversions can be a great tool when used properly. Yet there are many factors to consider before proceeding with a full or partial Roth conversion. This post is meant to be a general guide to help evaluate if a Roth conversion is appropriate for you.

Why consider a Roth conversion? 

To diversify your tax exposure – If you convert from a traditional IRA or other tax deferred savings vehicle to a Roth, you are shifting a portion of your assets into a different tax-favored status. If most of your assets are currently tax-deferred, converting a portion of these assets to a Roth can help to manage taxes in your retirement years.

If you think taxes will rise in the future – Many taxpayers believe that income tax rates are only going to go up over time. If that is the case, paying the tax now and taking withdrawals tax-free later would be a benefit.

To maximize wealth transfer to beneficiaries – Because Roth IRAs are not subject to Required Minimum Distributions (RMDs) in the account owner’s lifetime, they can be an effective tool for legacy planning. Beneficiaries of Roth IRA’s are subject to different withdrawal rules depending on their relationship to the original account owner. However, if your ultimate beneficiary is a charity, a Roth conversion would not be beneficial.

Income expectations: if your income is expected to increase in the future or if you are currently earning lower than normal income – This scenario ties into higher future tax rates but is very relevant for what we see happening in 2020. If there is a year when your income is expected to be lower than usual, it might be a good time to consider conversion opportunities. This also applies if you expect that your income will substantially increase in later working years. Again, if you are in a lower tax bracket now than what you expect to be in future years, it may benefit you to convert.

Your income was too high to convert before the TIPRA changes – TIPRA stands for The Tax Increase Prevention and Reconciliation Act. Before 2010, some higher-earning individuals were not allowed to convert due to a MAGI limit of $100,000, along with marital status restrictions. Those income limits and restrictions have since been lifted and it might be worth taking another look at a Roth conversion if this changes your situation.

Is a Roth conversion right for me? 

This decision tree details specific questions you should ask yourself when considering a Roth conversion. Although it doesn’t provide a definitive answer, it can help you understand the underlying factors that make converting to a Roth IRA beneficial.


Taking money out of your emergency fund to pay taxes associated with a Roth conversion is not recommended. If you have the free cash flow to max out retirement accounts (Roth or otherwise) and are not currently doing so, we recommend that those contributions take priority. If you are maxing out relevant retirement contributions, have free cash flow, and answered yes to the questions above, then a discussion surrounding converting some or all of your eligible pre-tax dollars to a Roth IRA might be worthwhile.

This post is meant to be used as a tool to help you understand Roth conversions on a deeper level. However, we understand everyone’s situation is different, and questions may still linger. Your Albion team is available to answer your questions or concerns as they relate to your situation. Thank you all for staying engaged and allowing us to assist and guide you through these tough times.

Stay safe and healthy,

Patrick, Jen & the Albion Team

A Summary of the CARES Act – April 6, 2020

 

==== Important Disclosure.  Please read ==== 

The team members at Albion Financial Group are neither attorneys nor accountants. This brief summary is shared to make you aware of some of the provisions that might impact you in the massive $2 trillion CARES ACT that was signed into law on March 27, 2020.  We offer this summary only as a useful starting point.  Interested readers are strongly encouraged to contact their accountant or tax attorney for more information on any of the items below.  An excellent summary of many of the provisions of this act can be found at the National Law Review at: https://www.natlawreview.com/article/president-trump-signs-law-coronavirus-aid-relief-and-economic-security-cares-act 

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Recovery Rebates 

Approximately 90% of American families will see a one-time payment to help with the fallout from the coronavirus.  In general, the payments will be $1,200 for individuals and $2,400 married couples; plus $500 per child under 17 years old. There are income phaseouts that begin at $75,000 for individuals filing singly, $112,500 for head-of-household filers, and $150,000 for married couples (filing jointly) The phaseout means you lose $5 for every $100 above your threshold amount. It is believed these checks will arrive in mid-May.  You do not need to apply to get these checks.  Eligibility for rebate checks will be based on your most recently filed federal income return (either 2018 or 2019). If your 2019 income was substantially higher than 2018 you may benefit by delaying your 2019 filing (2019 filing deadline is now July 15, 2020) in order to have your recovery rebate calculated on your 2018 income. 

 

Enhanced Unemployment Benefits 

Prior to this outbreak, the average unemployment benefit was $380 per week and recipients had to wait one week before benefits began.  Under the provisions of the Pandemic Unemployment Insurance Plan, the one week waiting period is waived and recipients will receive a bonus check (in addition to their normal benefits) of up to $600 per week for up to 4 months.  The bonus checks will make a difference in the lives of millions of Americans unemployed through no fault of their own. Interesting fact:  Readers will note that $600 per week is equivalent to earning a wage of $15 per hour for a 40 hour work week. A worthwhile site to find out how to apply for unemployment in any state is https://www.careeronestop.org/LocalHelp/UnemploymentBenefits/Find-Unemployment-Benefits.aspx 

 

Small Business Loan (Paycheck Protection Program) 

The CARES ACT includes government guaranteed loans designed to provide a direct incentive for small businesses to keep their workers on the payroll.  They are available through SBA lenders and some or all of the loan may be forgivable if certain provisions are met.  Importantly, the monies for these loans are limited so it is important to apply early.  Contact your SBA lender for information on when their application process opens.  For instance, one lender – Silicon Valley Bank – has indicated that loan applications are now available online and can be submitted as early as Monday, April 6.  The final deadline for applications is June 30, 2020.  For more information, see https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp#section-header-0 

 

Employee Retention Credit (ERC) 

The ERC is designed to encourage eligible employers to keep employees on their payroll despite experiencing economic hardship related to COVID-19.  The ERC gives a refundable credit against payroll taxes owed of up to 50% of the wages paid to eligible employees after March 12, 2020 and before January 1, 2021.  The maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.  Importantly, not every business will qualify for the ERC.  In general, the business will have had their operations fully or partially suspended due to a government mandate or have suffered revenue losses of more than 50% versus the same quarter in 2019.  For more information, please see https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act 

 

Deferral of Payroll Taxes 

Employers, both businesses and non-profits, may be able defer payments for the employer portion of payroll taxes incurred between the date the CARES Act was enacted (March 27, 2020) through December 31, 2020. If deferred, the employer would instead pay 50% of this amount by December 31, 2021, and the remaining 50% by December 31, 2022. The eligible payroll taxes are the employer’s portion of Social Security taxes—6.2% of an employee’s wages.  Self-employed taxpayers can also defer the employer’s portion of Social Security taxes in the self-employment tax.  Per Senator Schatz’s website below, employers are eligible to defer their payroll taxes, unless they receive a loan under the SBA Paycheck Protection Program (see description above). More information at https://www.irs.gov/coronavirus and https://www.schatz.senate.gov/coronavirus/payroll-tax-deferral 

 

Other Important Provisions You Should Know About 

Below are several other important aspects of the Act that either you or those you love might benefit from knowing.  We share these in bullet point format and encourage you to call your Senior Wealth Advisor at Albion for more information if you feel you might want to explore them further: 

 

  • Early Withdrawals from Retirement Accounts – Up to $100,000 distribution, in total, from IRAs and employer plans without the normal 10% federal penalty for those under 59.5 years old.  Cautionstate penalties may still apply.  The distribution must be coronavirus related (fairly broad). Withdrawals are still taxable, but tax payments may be spread over 3 years.  Taxpayers may recontribute the funds to an eligible retirement plan within 3 years without regard to that year’s cap on contributions. 
     
  • Loans from employer retirement accounts (401k, 403b, etc.).  Normal loan limit is raised from $50,000 to $100,000 (or 100% of current value, whichever is less). Note: Employers will need to amend their plan documents to take advantage of this provision.
     
  • Required Minimum Distributions are suspended for 2020.  Might be able to “undo” 2020 disbursement already taken if within 60 days of distribution.
     
  • Deferral of Payments for Federal Student Loans – May suspend payments until September 30, 2020 and no interest accrues during the interim. Borrowers may have to proactively contact the lender if they wish to suspend payments. (Important note: these CARES Act provisions exclude borrowers with Perkins loans, FFEL loans, and private student loans).  
     
  • Above the line charitable donation of $300 is now available for donations to 501(3)(c) charities. Donation must be made in cash and can NOT be made to a donor advised fund or to a 509(a)(3) supporting organization.  An eligible individual is any individual taxpayer who does not elect to itemize deductions. 
     
  • AGI limit for charitable donations temporarily repealed.  Effectively raises AGI limit from 60% to 100%-of-AGI.  Again, cash contributions only and must go to 501(3)(c) NOT to a donor advised fund or 509(a)(3) supporting organization.