What can we say about 2020? This was a year that many would be glad to never re-live. As Christians, it is precisely years like this that make us grateful to have our confidence and hope fixed on the most certain truths we can count on… the steadfast love of the Lord, the forgiveness of our sins, and the guarantee of a home in glory.
Rather than rehashing much of what happened last year, let’s discuss stewardship lessons from 2020.
8 Stewardship Lessons from 2020
# 1: Emergency Funds are still really important – Over the years, we’ve encouraged our clients to keep an emergency fund of 3-6 months of living expenses available. It is helpful to have a good idea of what it costs to survive each month. This information helps determine how much cash you may need to get through a period with lost income.
# 2: Change is inevitable – If we have learned nothing else this year, it’s that circumstances can change quickly, creating imbalance in our lives and our finances. While a plan won’t prevent shifting circumstances, having a plan in place can help ensure you’re in a better position to weather change. Proverbs 22:3 says it is wise to be “proactive” rather than “reactive”.
# 3: Don’t try to time the market – Short term market movements are impossible to consistently predict. When the markets bottomed out in late March, no one knew that this was going to be the low for the year. It wasn’t until several months later, once the market recovery was well established, that it became apparent that the March lows were behind us. Some of those who pulled out during the downturn are still in cash today. They tried to prevent losses, but instead, locked in their losses and failed to benefit from the remarkable rally. We saw this same pattern repeat itself with investors during the election. We continue to be committed to a prudent, long-term investing mindset.
#4: Stay disciplined by avoiding emotion-based investment decisions – As humans, we are too easily swayed by the emotions of fear and greed. This year, both of these emotions created opportunities for investors to abandon long-term plans in order to avoid losses or seek to profit in the rebound. As Christian Wealth Managers, we help our clients to establish a strong long-term plan. This plan accounts for both good and bad market environments. In other words, when you maintain a disciplined investment plan it is more likely that your portfolio will easily weather the ups and downs of the market. Once the overall objective is set, it may be appropriate to have an opportunistic bucket of money that can be used to buy quality investments at bargain prices.
# 5: Look for opportunities during a recession/market decline – Periods where investment accounts experience lower valuations may be a great time to employ one or more of the following strategies:
- Convert Retirement funds into your Roth IRA. Roth IRAs are an important part of a retirement plan. Income that has already been taxed can be invested in a Roth and then grow tax-free. Roth IRAs are not subject to Required Minimum Distribution (RMD) requirements during your life. A stock market decline can be a great time to convert more of your Traditional IRA dollars into your Roth IRA, limiting tax impact or accelerating the conversion process. The next time the markets act up, you should consult with your Financial and Tax Advisor(s) to see if a Roth Conversion is right for you.
- Put cash to work. If you have money sitting in cash and you have no expectation that you will need those funds in the short term, you may want to use a portion of those funds to increase your holdings in quality investments that are temporarily “on sale.” While there is no guarantee that this investment will make money, many times this is a great way to grow a portfolio.
- Harvest losses in taxable accounts. If a taxable (non-retirement) investment account has positions that are showing losses, selling those “losers” can offset gains in other holdings. This can be a good way to limit taxes. Be sure to talk with your advisor as there are several considerations that must be reviewed before losses can be successfully harvested.
# 6: Diversification still matters – When we spread out a portfolio between several different asset classes, we can reduce the risk that a single market condition may hurt the overall portfolio. This year, some of the asset classes that normally steady a portfolio have been slow to recover (such as dividend-paying strategies). Other higher-risk holdings ended up adding great value to the portfolio. Our job is to create a balanced portfolio that offers strong diversification. While diversification does not protect against losses, it can reduce the likelihood that one bad apple will spoil the rest.
# 7: The right legal documents are essential – The global pandemic got a lot of people thinking about who would take care of them or make important financial and healthcare decisions on their behalf if they became incapacitated. While a pandemic is an extraordinary occurrence, it’s important to remember that an accident, illness, or other unexpected event can happen at any time. That’s why it’s critical to have a plan in place to protect your interests and the people who depend on you. If you haven’t recently reviewed or updated your will, powers of attorney, healthcare directives and other critical documents, plan to do so soon. If you have minor children, it’s critical to name a guardian. Otherwise, a court will appoint one for you.
Confidence comes from knowing you have the right legal documents in place and have appointed people you trust to manage your affairs, if you’re unable to do so yourself. And don’t forget about beneficiary designations. Review the beneficiaries you have named on your retirement accounts and life insurance policies, at least annually, to ensure they’re current. Also, please be sure we have an updated copy of your Wills and Power-of-Attorney documents to protect your family.
# 8: Predictions are useless – Who would have predicted a Global Pandemic? Pundits guessing what the markets will do in the year ahead are rarely correct. Don’t put much stock in what anyone says about the future. Not only does this apply to the markets and the economy, it also applies to politics. Many predicted that if a certain presidential candidate wins the election the markets would tank. Well, we are now 2 months removed from the election, and the markets are at all-time highs. The future is unknowable to anyone but God. Our advice is to tune out pundits and tune in the Word of God. Those are words to live by.
At the risk of contradicting lesson 8, let’s address what we are watching for in 2021.
- Political slide to the “Left.” At the time of this writing, it looks like the Democrats will have control of the White House, Senate, and Congress, the latter two by the slimmest of margins. This means that we could see more of the liberal agenda passed into law. Our hope is that the new administration’s focus on COVID response and the extremely narrow margins of Democratic control in the House and Senate will diminish the opportunity for sweeping legislative changes before the midterm elections in 2022.
- Taxes are likely to rise. Regardless of the outcome of this past presidential election, many expect that income taxes are likely to rise over the next few years. This is to pay for the stimulus which was passed to stabilize the economy and provide enhanced jobless benefits for those who lost jobs. Areas to watch include potential changes to capital gains tax rates, expanded wage base and tax rate for Social Security, increased Full Retirement Age for Social Security, and rollbacks of some of the Trump era tax reforms.
- Economy to begin to recover. Many are hoping that with the vaccine(s) the pandemic will get under control and the economy can begin to recover. Everyone would like to see the jobs market and the hospitality sector recover.
Are you looking forward to all that God is going to do in 2021? We sure are! Stay in touch and let us know if anything changes in the months ahead. May God richly bless you and your family in 2021.
Roy Russell, Tim Russell, Jeremy Ehst, Mark Magruder, Stephen Virkler
LFG Advisory Team
P.S. Going forward, tax planning is going to be extremely important. Let us help you with your tax planning needs. Beacon Tax and Accounting Services is here to help you manage your taxes and provide advice along the way. Drop off, mail in or eMail your tax paperwork to us. You can also visit our website for more information – www.BeaconTax.org
P.P.S. 2020 has been a great year in the advancement of the great mission of Life Financial Group. We exist to help Christians become even better stewards of all their assets. While our ability to deliver our teachings through our 3-day seminars has been diminished due to COVID, we now have a way to share our message of Biblical Stewardship to everyone. Check out our new Website and Podcast at StewardologyPodcast.com