As we discussed in last week’s Risk Advisory Alert, the chaos and uncertainty of the current climate spells opportunity for cybercriminals. We continue to see heightened activity in terms of fraudulent schemes and malicious attacks.

Two schemes currently popular among cybercriminals that you should be mindful of:

1. Emails alleging to be from the SBA (disastercustomerservice@sba.gov) that may contain an attached virus or malicious file. The uncertainty surrounding the SBA services and the CARES Act loan program it is administering makes users quick to click. The criminals know this.
   
   Recommendation: Be skeptical of all emails you receive. Don’t click on email attachments or links without verifying the source. In the event long wait times or off-hours make verifying difficult, try to access the information via the website of a credible source. For example, if the SBA were to send you information via email, they would have also uploaded copies to your user profile on their website. Therefore, we recommend you access this information via the website, not the email.


2. Technicians calling to claim your computer system or identity has been compromised and asking you to turn over your username and password—or other sensitive information—or requesting payment to fix the problem or update your system. Remote working arrangements have made for a way of doing business that is unfamiliar to many users.
   
   Recommendation: Don’t answer calls from unknown numbers and don’t trust phone calls from unverified sources. By not answering you eliminate the opportunity of being tricked; criminals who have managed to gather information about you can sound credible and be very convincing. If you do find yourself on a call with someone you don’t know, do not disclose personal information. And never make a payment by gift card, prepaid debit card or wire transfer.

Cyber threats continue to emerge and evolve. You are best served by maintaining a heightened sense of awareness and skepticism. Understandably, you would be eager for information about an SBA loan or other government benefit you might have applied for, but your distraction and sense of urgency are what cybercriminals like to see most in their targeted victims.

An interview with HBKS Advisor Matthew Costigan, CFP, CPA/PFS, Principal and Senior Financial Advisor, Pittsburgh; and HBK CPAs & Consultant’s Jeremy Hartzell, JD, MBA, Principal-in-Charge, Pittsburgh.

What are the added values of having a financial advisor and CPA working together in the same firm?

Matt: It doesn’t take clients who haven’t had that luxury before long to realize that it is a tremendous advantage, that we can solve a lot of problems collaborating behind the scenes and come back to them with big-picture solutions.

Jeremy: There hasn’t been a single day during this crisis when Matt and I haven’t talked about how to help a client. They have deep concerns: Should I still fund my retirement plan? Should I pull money out of 401k and if I do what are the tax implications? Being able to bring both financial and tax expertise to questions like those is a great value. A client the other day talking with his accounts payable person was asking what bills they should pay, and she told him to pay us because, “They’re the ones who are keeping us out of bankruptcy.” They know that we know how to find the most appropriate ways to use their assets to stay in business, things like helping them hedge their cash flow, and balancing their portfolio gains and losses with the tax consequences in mind.

Matt: For all of us now it’s about consulting. How can we help them immediately with their concerns now that business has pretty much come to a halt for a lot of them. For me, the best sign that clients appreciate the value of working with a team is that our services become indistinguishable. They’ll email me a tax question or Jeremy an investment question. It doesn’t matter who they ask, they know we’ll get back to them with an answer.

Jeremy: I love it when they talk to one of us about something that is the other guy’s expertise. They know we’ll get it done. They can talk to either one of us and a whole team will come together to help. We are their one-stop advisor because of the breadth of services. And they know we’ll point them to others they need like employment attorneys and labor attorneys, which has been happening quite a bit the past few weeks. We have the team to know how to do that, and can do it efficiently, quickly and even remotely because we have access to all their data.

Matt: Clients have told me that they think it’s amazing that we can do all this remotely. But truth is, we’re a collection of self-managed offices, so we’ve been operating remotely in a way all along. One of my clients put it interestingly in our call the other day, when a tax issue came up, saying, “Let’s just HBK it.”

It’s not uncommon for people I have a meeting with to hand over their tax information to me to pass it along. Point is we’re not a tax firm or an investment firm, we’re in the relationship business. I think our clients sense that we generally care about them and that it is more than just a business for us.

One example is a new client who moved their business to us in January, including their 401k plans. The game plan in transitioning the portfolio involved taking some gains in 2020 and holding onto others to take them in 2021. Those gains for 2021 evaporated in the market downturn, so now we’re speeding up the transition of the entire portfolio to see what losses we can take to offset the gains we took earlier. It comes back to understanding the client and the appropriate tax strategy. We look at the whole story and how to improve the bottom line results.

Jeremy: We’ve been able to save clients substantial money by collaborating. Recently we generated a net million-dollar savings on a $4 million dollar investment by working together. That was planning, bringing the right expertise to bear to do the right thing for the client, understanding their needs and objectives.

We know their whole picture. They’re calling about personal and business financial planning items that they need to understand, and with our team we can address each issue holistically and come up with appropriate solutions.

Are your business clients questioning you about how the stimulus package applies to them?

Jeremy: For the last 24 hours, it’s all I’ve been dealing with. They are most interested in keeping their employees employed and asking about the loans employers can get of up to $10 million to cover payroll, rent, mortgage and utility cost. We think it will be first-come first-served, so we’ve been on the phone telling clients to get their documents ready, to talk to their bankers so they’re in the queue and can be at the front of the line.

A laid-off employee can now actually make more money than they made working. Low income workers getting half their salary in unemployment plus the $600 additional weekly could wind up with a higher income. So unless there are benefits concerns, like healthcare coverage, there are financial reasons to have that conversation with those employees. It could be a win-win to lay them off now so you can make it through the crisis and be able to bring them back when this is over. We serve as CFOs to many of our clients, so we have the insight and understanding of their finances to provide that level of advice. Our clients understand the value of having a whole team of professionals in that role as opposed to one person.

Matt: It has been important for us to deliver that advice without involving the politics, just the factual information about the stimulus: how it’s evolving, who’s getting the money. They might be getting a clouded view and so we have to provide some clarity without making it more political than it is.

Jeremy: Yes, we have to keep our conversations apolitical. I had one client who wanted to talk about how he favored the stimulus package and another appalled at it. You just have to empathize with their position and keep your own political views aside.

What have been your greatest challenges to working together in this crisis environment?

Jeremy: Staying in touch day-to-day because we’re not in the office. But there’s nothing we’ve been unable to get done. The tax extension is a double-edged sword. On one hand we now have to July 15 to complete returns. But if we get through this crisis by sometime in April or early May, we’re going to have to work 60-hour weeks to make the deadline. So we’re continuing to work on returns so we don’t get into that position. As well, some of our clients have refunds coming and they need that money, so we are prioritizing to take care of the people with the greatest need.

Jeremy: We have to communicate more by phone or email with our own people as well as our clients. What we love most about our jobs is being with our clients and team members. All of us miss the person-to-person interaction. I had a client offer to come to my house and sit six feet apart and have a beer. Our clients are concerned about us and ask us if there’s anything we need, that if I need something, it’ll show up at my door.

Matt: That’s the silver lining of this cloud, we and our clients genuinely caring about how each other is doing. My clients know that I have kids and they are concerned about us. That’s even an escape of sorts from the isolation, that conversation, that positive vibe between us.

Jeremy: I hope that when this is all done, people would have spent time with their families and sort of retooled. We’ll have learned more about working remotely, that we can work successfully and still have time with our families.

What has been most rewarding about working with your team in this way?

Matt: Just seeing what people are willing to do to get things done, like working with clients on Roth conversions, how to accomplish the paperwork aspect efficiently. Everyone here is ready to pitch in and help. I think people are grateful to have a job like this, one where we can get things done working remotely.

Jeremy: Last week might have been the hardest week of my career. I had to suspend employment for seven interns here in my office. They couldn’t do what they do remotely, so one by one I had to bring them in and explain it to them. I spent a lot of other time responding to all the federal, state and county orders, realizing that in addition to my clients I had to figure out what to do for the fifty-plus people in my office who depend on me to keep the doors open. Most rewarding are the thanks I’ve gotten from my team members, that they appreciate the way we’re working through this to keep them employed. It’s a challenge for leadership but we have a great team around the firm who are communicating with each other, sharing best practices so we can continue operating with all the resources we need to serve our clients.

IMPORTANT DISCLOSURES

The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.

The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.

HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.

The effects of the COVID-19 crisis have been abrupt and wide ranging. As of March 23, the S&P 500 had declined nearly 30 percent from its highs just a few weeks before. But while the picture may seem bleak at present, history tells us we will come through this crisis stronger, more educated, and better prepared for similar crises. A look to our past might shed some light as to what the future might hold for investors.

The stock market is cyclical. There are periods of contraction and expansion. There have been eight market downturns in the last 47 years. While some periods of decline have been severe, the overall market has grown over time. No one can predict when the overall market will contract. But looking at historical data, we can gain insight and perspective on what a recovery looks like and what we could expect after this recent volatility.

The following chart shows the S&P index has often seen significant double-digit returns in the years following a bear market. In looking at the last eight bear-market lows, the average returns for the following year are 40.31 percent. This figure is stunning, but consider the three, five and 10-year average annual returns after market bottoms: 16.58 percent, 14.13 percent, and 9.71 percent respectively. The statistics demonstrate the importance of staying invested for the long term.

Many longer-term professional investors subscribe to the theory that, “time in” the market is a better strategy than, “timing” the market. Consider the famous bet that Warren Buffet made in 2007 with a hedge fund manager. Buffet claimed that his bet on a broad-based market index would outperform a basket of hedge fund managers over a 10-year period. Buffet bought an S&P 500 index and held his investment for the duration of the wager. At the end of the decade, Buffet outperformed the basket of hedge funds by a wide margin.

The Warren Buffet wager is one example of the importance of staying invested over the long term. Investors who try to time the market often run the risk of losing out on remarkable returns during a recovery period. The following Morningstar chart demonstrates the folly of trying to time the market after the most recent global financial crisis.

It is important to note the disclaimer: past performance is never a guarantee of future results. However, performance over the long term can be a fairly good indicator of what we might expect in the years to come.

In summary:

1. While it is difficult to make decisions when there are unknown variables, don’t panic. Often it is emotional short-term decisions that have long-term detrimental effects on the performance of a portfolio.
2. Volatility is nothing new. Periods of steep declines are a normal part of the market cycle. Since 1973 the markets have fallen more than 10 percent eight times. Sometimes these declines from peak to trough have been even more substantial. In all these instances, there has been a strong rebound.
3. Until the spread of Covid-19, the economy has been strong. We have had a strong labor market. Energy prices have been low. Corporate earnings have been strong. All leading indicators have been positive.
4. At HBKS®, we build portfolios to provide our clients with downside protection during volatile markets. Diversified portfolios often include fixed income investments designed to preserve capital and limit the effects of market stress.
5. You are not alone. HBKS is here to assist and answer any questions you might have regarding your portfolio, financial plan, or otherwise. It is important to maintain a long-term perspective. A good financial plan is designed to weather short-term volatility.

*Morningstar **First Trust: Source: Bloomberg. Performance is price return only (no dividends). Past performance is no guarantee of future results. For illustrative purposes only and not indicative of any actual investment. Returns are average annualized returns. Index returns do not reflect any fees, expenses, or sales charges. These returns were the result of certain market factors and events which may not be repeated in the future. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. Investors cannot invest directly in an index.

IMPORTANT DISCLOSURES The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.

The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.

HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.

The COVID-19 pandemic has triggered extreme market volatility and has shaken global economies. This has left investors understandably concerned and uncertain about the future. Our advisors at HBKS are committed to helping our clients get through this difficult time by providing timely information and addressing questions and concerns.

A special webinar hosted by Brian Sommers, Chief Investment Officer at HBKS. During this one-hour discussion, Brian will address the following topics:
1. Short-term and long-term economic impacts of COVID-19
2. Global monetary and fiscal stimulus measures
3. The US Market recovery and what we’ve seen historically
4. Our HBKS investment philosophy and response

Download the materials here.

Statistics tell us a lot about whether or not we should try to time the markets, in particular in periods of high volatility, like those we’re seeing in conjunction with the COVID-19 pandemic. Here are some interesting statistical takes:

• Missing the best days – Analysts at Putnam Investments examined the period from 2000 through 2014 and asked what would happen if an investor were to be out of the market completely for its 10 best days. A $10,000 investment at the outset would be worth $22,118 if left untouched in an index fund through that period of two bull and two bear markets. But just missing the 10 best days—three-tenths of a percent of the period—would reduce that gain by half. Missing the 20 best days would cut the gain by two-thirds to $7,297.¹
• When were the “best” days? – As opposed to some random point in the middle of a raging bull market, they occurred mostly in the worst of times. Of the 10 best days, seven were in the thick of bear markets. Two were in the first few weeks of the bull market that began in 2009, a time when few people believed and no one knew for sure that the worst stock selloff in 70 years had ended.
• Missing the 10 worst days – Invesco Calculated that the cumulative returns of the S&P 500 and its predecessor index from 1928 through 2014 would have grown $10,000 into $1.166 million. Missing the 10 worst days during that span, including the 1929 crash, 1987 Black Monday and multiple days around Lehman Brothers bankruptcy in 2008, would have been left the investment at $3.65 million at the end of 2014.
• Missing the best day – On October 21, 2008, the S&P 500 rose over 9 percent, a 10 Standard Deviation event, meaning it should occur once every 355,120,000,000,000,000 days.
• Black Monday – 1987’s “Black Monday” was a 21 Standard Deviation event.
• Most damage done – Dalbar Inc., a leading business practices evaluator, calculated the individual months when investors did the most damage to their long-run returns based on mutual fund cash flows. Topping the list was October 2008 when the Dow had its largest single-day drop after investors learned that Congress didn’t pass the bailout bill. Congress pushed it through days later, but the stock market was still down by nearly 17 percent for the month. Dalbar calculated that individual mutual fund investors lost over 24 percent of their investment value that month, the kind of decline that would normally take a couple of years of errors to account for.

1 – Jakab, Spencer. “Timing Isn’t Everything.” Heads I Win, Tails I Win: Why Smart Investors Fail and How to Tilt the Odds in Your Favor, 2016

IMPORTANT DISCLOSURES
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.

U.S. Treasury and Commercial Paper Markets are lacking liquidity.

Business activity has slowed dramatically due to the COVID-19 pandemic and businesses are finding it difficult to get the funding they need for their daily operations, to a great extent because banks have stopped extending lines of credit. As a result, they are selling even safe-haven assets like Treasuries, municipal bonds, and gold.

The selling has been exacerbated by investors using leverage in an effort to amplify returns by arbitraging the yield spread between Treasury bonds and other market instruments, including Treasury futures. The surge of sales, coupled with outflows from fixed income markets, forced the system to absorb a significant amount of bonds in a matter of days. Additionally, dealers are not taking on any market risk, so they are not providing liquidity. Even high quality investment grade corporate and municipal bonds cannot attract a reasonable bid.

The Federal Reserve has responded by flooding the repo market with liquidity. That has eased tensions somewhat. Nevertheless, the liquidity crunch is not over. On March 17, the Federal Reserve announced the establishment of a Primary Dealer Credit Facility, a tool it used during the Great Recession to extend loans to the biggest banks, to improve market functioning.

The Fed has also lowered the discount window rate to 25 basis points, which allows banks to convert risk-bearing assets into reserves with a small haircut, and also provide liquidity directly to large corporations via commercial paper purchases. With these actions in place, bankers’ anxieties over liquidity should begin to ease.

Still, banks are hesitant to extend credit as borrowers face escalating solvency risk—especially by consumers and small- and medium-sized businesses. A solution to this problem will likely be included in the proposed $1 trillion fiscal stimulus. Loan guarantees or state-sponsored loans will help private borrowers.

These actions by the Fed are similar to those taken during 2008 Financial Crisis, and should ultimately help facilitate more orderly trading by helping support the markets’ ability to serve their function as intermediary.

IMPORTANT DISCLOSURES
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.

The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.

HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.