Second Quarter 2020 Newsletter

INVESTMENT QUARTERLY

THOUGHTS FROM A REMOTE COVID-19 BUNKER

Sitting in my bunker to comply with the social distancing of Coronavirus or COVID-19 has brought back some personal family remembrances. I never knew my maternal grandfather as he passed in 1918 from the Spanish Flu. Until recent news reports I had no idea this earlier pandemic caused over 50 million deaths world-wide and 675,000 in the United States. All I knew was that my grandfather had died from the flu and my grandmother came down with it as she tried unsuccessfully to nurse him to health. Fortunately, my grandmother survived and lived until her late 80’s. This second-hand remembrance of events from 101 years ago has given me an understanding of the impact this virus can have on families for years. My plea to all of you is to take this situation seriously. Please follow medical and government directives designed to curtail the spread of the virus. We wish you good health.

We have closed our office until further notice, but we continue to work remotely from home. We will provide the same responsive service that you, our clients’, have come to expect. It is amazing how much you can do with Facetime and Zoom. We hope you will call on us if we can do anything to help you through this crisis.

Before getting into our usual economic discussion, it might be helpful to discuss some important changes that can impact your financial situation. In a recent quarterly we discussed one change the SECURE ACT brought to IRAs. In addition to shortening the years a beneficiary IRA could run to 10 years, the act delayed the age at which one has to start required minimum distributions (RMDs) from 70½ to 72 years old starting in 2020. The CARES ACT grants a waiver to all IRA or 401k owners who skip their required minimum distribution in 2020. It even allows those who have already taken a distribution in 2020 to put it back in the IRA as long as it is redeposited within 60 days. All funds redeposited in this manner are not subject to income tax in 2020. If you do not need your annual distribution for your annual living expenses, you might want to consider this benefit.

We hope all of you have established estate plans to provide for yourselves and your families. It is probably a good time to review these to make sure you are utilizing them to the fullest extent. You should review your Health Care Proxy and Durable Power of Attorney to be sure that they still reflect your wishes. These two items are primarily for your benefit but can also help avoid family disputes if you are incapacitated. If you have a trust or trusts, you should be sure that there are not any changes you should make as your family has aged. If you have trusts you also want to be sure that your assets are properly registered so that they end up where you want them without having to go through probate. And, if assets are not properly registered you could end up with unbalanced estate values and lose the federal or state estate tax exemptions that your plans were originally designed to capture. If you haven’t put plans in place, there is no time like the present to create them for you as well as for your children over eighteen. It looks like COVID-19 will be with us for a while so hopefully you have some time to get this done, but starting early is the best approach.

The economic problems caused by COVID-19 are likely to be significant and long lasting. It is likely that there will be significant changes in personal and corporate behavior as a result. It is also likely that the world will fall into a recession in 2020. What are the chances of a depression with potential 20 percent unemployment, and how do you tell the difference between the two? Someone once said, “If you lose your job it’s a recession, but if I lose mine it’s a depression.” A recession is defined as two back-to-back quarters with negative Gross Domestic Product. A depression is a longer lasting and deeper recessionary period. The world-wide economic impact of this pandemic is so severe that any recovery will likely take longer than normal. The speed of the latest market decline set a record as the shortest time for the market to decline over 30%. This gives credence to the Wall Street adage “The stock market goes up on an escalator and down on an elevator.” The Dow Jones Industrial Average dropped 38% from its February highs only to quickly rebound by 26% after the Treasury and Fed announced their programs to flood the market with liquidity. Volatility is the order of the day.

The strength and speed of the rebound has caused some analysts to project a swift economic and Coronavirus recovery leading to a strong equity market. A recent chart comparison of today’s decline and recovery with a chart during the Great Depression shows a similar early pattern. In the depression period the initial market recovery was really a bear market rally following which the market declined over 80% and the economy required years to recover. Only time will tell which of these scenarios will prevail.

If we look at the economic damage already caused by the COVID-19 it is severe. While the Atlanta and New York Fed GDP formulas project first quarter GDP of between 1.5 to 1.7 percent, the Blue-Chip Consensus forecasts a negative 2%. For the second quarter an early forecast by Goldman Sachs projects a horrendous decline of 34 percent. If the Blue-Chip and Goldman forecasts are true, we will be in a recession with two negative quarterly GDP results. We need to see first quarter results, paying close attention to corporate guidance on revenue, to get a good idea of where the economy is likely to go. With streets empty, people aren’t buying so sales will continue to be weak. First quarter results will not reflect a full quarter of declining sales so second quarter results could be worse. People’s consumption behavior changed in the Great Depression so it will be interesting to see what develops from the current environment. The consumer is 69% of our economy historically and 84% of the period since 2014 so consumer spending will determine how rapidly the economy recovers. Balance sheets will be more important than income statements now.

Companies can never cut expenses fast enough to keep ahead of falling sales so there will be a huge negative impact on earnings and cash flow. Lower earnings and cash flow could lead to dividend cuts if companies don’t earn their dividend, or need the cash to make interest payments on outstanding debt. Focusing on high stock dividend yields could be treacherous without an understanding of the effect of falling revenue on earnings. Even if the economy is slow to recover though, current and future stimulation programs could provide enough liquidity to move the market to short term highs if there is any good news on the rate of infections, discovery of a treatment or the development of a vaccine. It is a dangerous time if the market does one thing while the economy does another. Right now, with all the economic uncertainty, chasing yields is like trying to catch a falling knife.

For the quarter the Dow Jones Industrial Average returned a disturbing -20.0%, the Russell 3000 Index a negative 18.4% and the S&P 500 a modestly better, but still disappointing, -17.2 percent. The Bloomberg 1-5 year Corporate/Government bond index returned a positive 2.1% as the Fed’s move to a near zero rate posture provided one of the few bright lights for the quarter. The unexpected landing of the COVID-19 Black Swan caught the market by surprise and took no prisoners. Early forecasts for the second quarter may not give the equity market much support either.

Robert B. Needham, CFA

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8 Financial Steps to Finish 2024 Strong with Needham Advisory

September 16, 2024

As we enter the final 100 days of 2024, there's still plenty of time to make this year count. At Needham Advisory, we've compiled a list of eight essential steps to help you finish strong and set yourself up for success in the new year. These actions can provide a financial cushion, streamline your investments, and give you a head start on your 2025 financial goals. 1. Save $1,000 with Daily Contributions By setting aside just $10 every day for the rest of the year, you can save $1,000. This simple strategy creates a financial cushion or helps you reach a specific savings goal with minimal daily effort. 2. Max Out Your Retirement Accounts Make the most of your retirement accounts by contributing the maximum allowable amounts. In 2024, the contribution limit for a 401(k) is $23,000 (or $30,500 if you're 50 or older). For Roth IRAs, the limit is $7,000 (or $8,000 if you're 50 or older). Maximizing these contributions not only boosts your retirement savings but also takes advantage of potential tax benefits. 3. Roll Over Old 401(k)s If you have any old 401(k) accounts from previous employers, now is the perfect time to track them down and consider rolling them over into a current retirement account. This can streamline your investments and potentially reduce fees. However, keep in mind that rolling a 401(k) into a post-tax account like a Roth IRA means you will have to pay taxes on the 401(k) balance. 4. Research High-Yield Savings Accounts Consider moving some cash from your checking or savings account into a high-yield savings account (HYSA). HYSAs typically offer higher interest rates, which can help your savings grow faster, maximizing the returns on your emergency fund or other cash reserves. 5. Take Advantage of Gift Exclusions This year, you can give up to $18,000 per person without incurring any gift tax. Consider giving financial gifts to family members as a way to help them financially while also reducing your taxable estate. 6. Review Your Budget Take a fresh look at your budget to identify areas where you can cut back or reallocate funds. Even small adjustments can lead to significant improvements in your financial health. If you anticipate receiving end-of-the-year bonuses, plan now for how you will use those funds wisely. 7. Start Preparing for the Holiday Season Early Set aside a little money each week for holiday expenses. Consider affordable gift options, such as homemade gifts or experiences, and start organizing any travel plans to secure better deals and ensure a smoother season. 8. Check in with a Financial Advisor Schedule a quick call or meeting with a financial advisor to enter 2025 with a clear, up-to-date plan and some financial planning momentum. Whether it’s refining your budget or optimizing your investment strategy, getting expert advice now can set the tone for a successful new year. These steps can significantly impact your financial stability and preparedness as we approach the end of the year. If you need help with any of these strategies, we at Needham Advisory are here to assist you. Let’s make the most of the remaining days of 2024 together!

Understanding the Massachusetts Wage Act: Protecting Workers' Rights

By duda • August 17, 2023

In the realm of labor laws, ensuring fair compensation for employees is a cornerstone of workers' rights. The Massachusetts Wage Act, consisting of Massachusetts General Laws Chapter 149, sections 148, 149, and 150, stands as a crucial piece of legislation that safeguards the rights of workers in the Commonwealth. Enacted to address wage-related issues and promote fair employment practices, the Massachusetts Wage Act plays a pivotal role in creating a just and equitable work environment for employees across various industries. The Basics of the Massachusetts Wage Act The Massachusetts Wage Act encompasses three key sections: 148, 149, and 150. Each section addresses specific aspects of wages, penalties, and legal recourse for employees facing wage-related violations. Section 148: This section focuses on timely payment of wages. It mandates that employers must pay their employees all earned wages within a certain timeframe, often weekly or bi-weekly. In the case of involuntary separation, employers are required to pay all wages due to the employee on the day of termination. If an employer fails to meet these requirements, they may be held liable for treble damages, which could amount to three times the unpaid wages. Section 149: Section 149 pertains to minimum wage regulations. It establishes the minimum hourly wage that employers must pay to their employees. This provision ensures that workers receive a fair wage that aligns with the cost of living and prevailing economic conditions. Employers are obliged to adhere to the minimum wage requirement, and failure to do so can result in penalties. Section 150: Section 150 deals with legal actions and remedies available to employees in cases of wage violations. If an employer unlawfully withholds wages, an employee has the right to file a complaint or bring a civil action to recover the unpaid wages. Moreover, employees who prevail in their legal claims under this section can recover not only the unpaid wages but also reasonable attorneys' fees and costs. Significance and Impact The Massachusetts Wage Act serves as a powerful deterrent against wage-related abuses and unfair labor practices. By establishing strict guidelines for payment of wages, minimum wage standards, and legal remedies, the Act empowers workers to seek recourse when their rights are violated. This legislation not only supports individual employees but also contributes to a more equitable labor market and promotes a healthier employer-employee relationship. Challenges and Controversies While the Massachusetts Wage Act is a commendable effort to protect workers' rights, challenges and controversies have emerged. One area of contention is the determination of what constitutes "wages." Some employers might argue that certain forms of compensation, such as bonuses or certain benefits, are not covered by the Act, leading to disputes over what is legally owed to employees. Additionally, enforcement and compliance can pose challenges, especially for small businesses with limited resources for administrative tasks. The Massachusetts Wage Act stands as a testament to the Commonwealth's commitment to ensuring fair and just compensation for its workforce. By outlining clear guidelines for payment of wages, setting minimum wage standards, and providing legal remedies for violations, this legislation bolsters employee rights and contributes to a more equitable workplace. As workers continue to play a pivotal role in the state's economic growth, the Massachusetts Wage Act remains a cornerstone of labor law, championing the rights of employees and fostering a more balanced employer-employee relationship.

Understanding the Massachusetts Independent Contractor Statute

By duda • August 17, 2023

In the modern gig economy, the classification of workers as either employees or independent contractors has become a significant legal and economic concern. In Massachusetts, the issue is addressed through the Massachusetts Independent Contractor Statute, found under Mass. Gen. L. c. 149, s 148B. This statute plays a pivotal role in determining a worker's classification, affecting their rights, benefits, and the obligations of employers. In this blog post, we will delve into the key aspects of the Massachusetts Independent Contractor Statute, exploring its implications for both businesses and workers. Understanding the Massachusetts Independent Contractor Statute The Massachusetts Independent Contractor Statute, often referred to simply as Section 148B, was enacted to prevent worker misclassification and protect individuals by ensuring proper classification and fair treatment. Under this statute, individuals are presumed to be employees unless all three prongs of the "ABC Test" are met: A: The worker is free from control and direction in performing the service, both under the contract for the performance of service and in fact. B: The worker performs services that are outside the usual course of the business of the employer. C: The worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed. Implications for Businesses For businesses operating in Massachusetts, correctly classifying workers as employees or independent contractors is essential. Misclassification can lead to legal consequences, including back payment of wages, taxes, and potential fines. By adhering to the requirements outlined in the ABC Test, businesses can ensure compliance with the law and avoid potential liabilities. Additionally, businesses must be cautious about reclassifying employees as independent contractors without substantial changes in the working relationship, as this may be seen as an attempt to evade employment-related responsibilities. Implications for Workers Workers in Massachusetts who are classified as employees enjoy various legal protections and benefits, including minimum wage guarantees, overtime pay, workers' compensation coverage, and access to unemployment benefits. On the other hand, independent contractors may not be entitled to these benefits, but they have the advantage of greater flexibility and control over their work. It's crucial for workers to understand their classification accurately, as misclassification can lead to them being denied their rightful benefits and protections. Challenges and Controversies The Massachusetts Independent Contractor Statute has been the subject of debates and challenges, particularly regarding its potential impact on businesses and the gig economy. Critics argue that the ABC Test can be too restrictive, making it difficult for some businesses to classify workers as independent contractors even if the working relationship genuinely aligns with such a classification. Proponents, however, emphasize the importance of protecting workers' rights and preventing exploitation through misclassification. The Massachusetts Independent Contractor Statute, Mass. Gen. L. c. 149, s 148B, plays a vital role in defining the working relationship between businesses and workers in the state. Its implementation through the ABC Test ensures that workers are correctly classified, granting them the appropriate benefits and protections. Businesses must be diligent in understanding and adhering to the statute's requirements to avoid legal consequences, while workers should be aware of their classification to assert their rights effectively. As the world of work continues to evolve, the statute's significance remains undeniable in maintaining a fair and balanced labor landscape.