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Stimulus Package—Quick Takes

The Senate passed the Stimulus Bill last night. Here are a few quick takes.

  • The bill will provide a one-time $1,200 payment if you make less than $75k or $2,400 to a married couple making less than $150k. After that it phases out until a $99k income threshold for individuals and $198k for a couple. It also provides $500 for each child.
  • The unemployment benefit will be increased by $600/week for 4 months, this is on top of what state programs pay.
  • Federal student loan payments will be deferred until September 30th.
  • The bill waives RMDs (required minimum distributions) for this year.
  • It also waives the 10% penalty on early withdrawals from retirement plans for those who have been affected by coronavirus (Please consider this option as the absolute last resort!!!…see below).
  • All testing for COVID-19 will be covered at no cost.
  • Provides $350 Billion as aid for small businesses in the form of loans guaranteed by the federal government.

Waiving the 10% penalty may make it seem like a great opportunity to take money out now from your retirement accounts. If you are considering this, please proceed carefully.

The markets have been scary and turbulent. The value of your retirement accounts has taken a huge hit. Understandably, you may feel the urge to do something. If you do, put some time distance between this urge and the action itself. Contemplate whether the decision is emotional, rather than necessary. Of course, unfortunately, some of us may end up needing their retirement funds to survive. It’s only then when you should resort to withdrawing money early from your retirement accounts.

If you need free guidance during this time, please feel free to reach out.

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Dejan Is Quoted In This FORTUNE Article On The Market Reaction To The Stimulus Package

Stocks swing upward on coronavirus stimulus package hopes
Fortune
Mar 17, 2020
Erik Sherman

I think right now the market participants only care about coronavirus containment and COVID-19 disease management, and that the reaction to the fed/administration easing credit, providing liquidity, and the stimulus package matters only within that context.

The economic stimuli proposed by the administration is irrelevant unless the virus infection rate and the spread is controlled. We need to put more experts and doctors in front of cameras who can qualify and quantify the extent of the crisis and what is being done to mitigate it (to flatten the curve).

“If news comes out tomorrow that the infection curve is continuing to steepen, then I think today’s news about the stimulus will take a back seat, like other recent attempts to prop up the economy,” said Dejan Ilijevski, president at Sabela Capital Markets.

Source: https://fortune.com/2020/03/17/stock-market-today-coronavirus-stimulus-check-trump-press-conference-mnuchin-fed/

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Dejan Is Quoted In This IBTimes Article on Trump’s Coronavirus Address

Did Trump’s Coronavirus Address Do More Harm Than Good? Analysts Weigh In
International Business Times
Mar 12, 2020
Marcy Kreiter

EXCERPT FROM ARTICLE

Dejan Ilijevski, investment adviser and president of Sabela Capital Markets, said the address “was another failure of leadership. Market participants are looking for less uncertainty, yet there continues to be nothing coming from this administration that personifies competence, expertise and collaboration.”

Ilijevski called the European travel ban a distraction to cover up the administration’s failure to provide adequate screening earlier. “Until this administration shows competence and leadership, there will remain too much uncertainty for the markets to stabilize,” he said.

END EXCERPT

Source: https://www.ibtimes.com/did-trumps-coronavirus-address-do-more-harm-good-analysts-weigh-2939063

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Dejan Is Quoted In This Forbes Article on the Coronavirus and Investing

Don’t Let The ‘CoronaCrash’ Mess Up Your Retirement
Forbes
Mar 12, 2020
Chris Carosa, Senior Contributor

EXCERPT FROM ARTICLE

“Market downturns and volatility spikes aren’t unique—even those that are caused by a potential pandemic, such as the SARS outbreak in 2003 and the Zika virus outbreak in 2016,” says Dejan Ilijevski, President at Sabela Capital Markets in Chicago. “Investors should try and understand that this turbulence doesn’t last forever and that markets can recover more quickly than you might think. Remember that investing is long term, and takes into account market dips and bumps along the way. Without risk, there is no expectation for reward.”

END EXCERPT

Source: https://www.forbes.com/sites/chriscarosa/2020/03/12/dont-let-the-coronacrash-mess-up-your-retirement/#5d642ee47941

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US Equity Returns Following Past Downturns

Sudden market downturns can be unsettling. Historically, US equity returns following sharp downturns have been positive (see chart).

  • A broad market index tracking data since 1926 in the US shows that stocks have generally delivered strong returns over one-year, three-year, and five-year periods following steep declines.

  • Just one year from a decline of 10% or 20%, returns were higher than the long-term average of 9.6%. And the return after a 15% decline was within half a percentage point of the average.

  • Looking three and five years later also shows annualized returns averaged higher than the long-term average.

FAMA/FRENCH TOTAL US MARKET RESEARCH INDEX RETURNS
July 1926-December 2019

Fama/French Total US Market Research Index Returns
Past performance is no guarantee of future results.

Periods in which cumulative return from peak is -10%, -15%, or -20% or lower and where a recovery of 10%, 15%, or 20% form trough has not yet occurred are considered downturns. For the 10% threshold, there are 3,442 observations for 1-year look ahead, 3,396 observations for 3-year look ahead, and 3,345 observations for 5-year look ahead. For the 15% threshold, there are 3,175 observations for 1-year look ahead, 3,167 observations for 3-year look ahead, and 3,166 observations for 5-year look ahead. For the 20% threshold, there are 2,561 observations for 1-year look ahead, 2,560 observations for 3-year look ahead, and 2,560 observations for 5-year look ahead. 1-year, 3-year, and 5-year periods are overlapping periods. The bar chart shows the average returns for the 1-, 3-, and 5-year period following market declines. Data provided by Fama/French, available at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html. Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP. Short term performance results should be considered in connection with longer term performance results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.

DISCLOSURES

Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP. Short-term performance results should be considered in connection with longer-term performance results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.

Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful.