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Quick and dirty financial preps

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  • Quick and dirty financial preps

    What our family did to minimize what we perceived to be our risk to our financial store of value in case of a pandemic.

    Make financial plans
    and initiate them.
    • Make a list of all your accounts, retirement and otherwise, and know roughly what is in each, where it is, what is its level of risk, and can you move the investment with what kind of penalty (if any) if its a retirement fund, and what kind of tax burden if you cash out.
    • Consult a financial planner but know you will likely be given a "sell" of some sort if your choice impacts his or her business. You must take responsibility for your research and your choices.
    • Shift retirement funds to 2 and 3 yr treasury bills (T-Bills = bonds) if possible or into the least risky possible investment category; we found that some accounts cannot be moved.
    • Evaluate and cash out of equity investments (stock market) and
    • buy 2 or 3 yr treasury bills instead; you at least get back from the US government the face value of the investment (even if in inflated currency).
    • Financial planners suggest that 5% of your investments and maybe less should be in gold (a commodity) for safe haven and to hold as a hedge (gold is at an all-time high, we invested when it was low; it's volatile and much higher now)
    • some in cash, small bills (pre-pandemic they will not be contaminated).
    Consider paying down mortgage so payments are reasonable during pandemic.
    Buy stamps and envelopes to pay bills via snail mail if plastic and the online bill-pay fail. Re-instate paper bills received in the mail...

    Please note that my professional specialty is not investing or financial planning and I am only sharing what our family has done --for your consideration. It helps to be able to ask the right questions of those whose professional advice you seek.

    I was reminded by a friend that there's the general Rule of 100 to keep in mind when investing in normal times (although in my opinion all rules are out in pandemic times):
    "Rule of 100" = 100 - your age = the maximum percentage of your portfolio that should be invested in equities.

    We consulted two financial planners about 4 months ago and spoke with other financial managers associated with retirement accounts. Each one had a perspective that was based on how they made money in general and if and how they made money off our accounts in particular.

    The one that gave the best advice was the one that did not gain anything by any decision we made. He did have his own perspective for investing, however; it was easy to ask questions about that perspective and feel we got a straight answer that we could then weigh in making our decisions.

    Several other considerations:
    • Money market accounts (the ones at Schwab or Fidelity or Lehman Bros, or whatever company -- your brokerage firm) -- which is where your money often goes when you cash out of equities -- are not FDIC insured. As soon as you can, move the money into a 2 or 3 year treasury bill investment or into a bank account.
    • Instead of T-bills, a person could park (up to $100,000) with their local, financially-sound bank that is insured by FDIC (US government) for accounts up to that $100,000 limit; some people I know like to have their $$ right there locally; note that credit unions have a different kind of non-federal insurance that may not be so sound as FDIC.
    • We avoided investing in any type of account like an annuity that ended up being managed or backed by insurance companies. Brokerage houses can have such accounts as one of their investing options. In my opinion, insurance companies are likely to fail if this ends up being a worst case scenario pandemic.
    It's been an interesting path... may you also have an interesting and successful one.

  • #2
    Re: Quick and dirty financial preps

    Originally posted by Mellie
    ...
    • Shift retirement funds to 2 and 3 yr treasury bills (T-Bills = bonds) if possible or into the least risky possible investment category; we found that some accounts cannot be moved.
    • Evaluate and cash out of equity investments (stock market) and
    • buy 2 or 3 yr treasury bills instead
    It's been an interesting path... may you also have an interesting and successful one.
    Following up on Mellie's discussion, if you plan to move out of equity investments (stocks, stock based mutual funds) you would first do this in IRAs or tax sheltered accounts. Selling stocks and mutual funds inside a retirement account will not generate taxable capital gains as long as the funds stay in a retirement account. What that means is, that inside a retirement account, you can sell all of your appreciated stocks and equities, and use that money to buy bonds, bond funds, or Tbills within your retirement account without any tax consequences now.

    Conversely, if you unload stocks and equity funds that you have held for a long time in a regular brokerage account, you will have to pay taxes on any of the capital gains that you realized.

    If I were planning on redistributing my assets, but also keeping at least some stocks and equities, I would keep them in a regular brokerage account, not in a retirement account. If they eventually tank, you at least will be able to write off some of the losses, which you can't do in a retirement account.

    When making asset allocation decisions, it is important consider all of your accounts, personal and retirement together. And then carefully consider the tax consequences of any allocation decision.
    http://novel-infectious-diseases.blogspot.com/

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