Advice in the Age of Pandemic
The world is experiencing a public health and economic crisis unlike any other in modern times. We are in uncharted territory. While the COVID-19 pandemic will have a profound impact on almost every aspect of life for some time, Lake Street is pursuing opportunities in this moment to take advantage of the unique, if unsettling, circumstances we are all experiencing:
1. Harvest tax losses. By selling at a loss and buying a similar position (to hold for at least 30 days), investors can lock in a capital loss tax asset to be used in the future against other capital gains.
2. Rebalance portfolios. We are strong believers in asset allocation being the primary driver for return. As scary and counterintuitive as it may seem to be buying equities today, maintaining a target allocation in times of volatility (both to the positive and negative) is what forces one to “buy low and sell high.”
3. Transition to ESG-focused investing (if this is a desirable objective). Where the tax cost to move from a traditional portfolio to a portfolio with an ESG focus might have been prohibitive last quarter, that cost has likely been materially reduced or eliminated by the current market drop.
4. Refinance mortgages. Mortgage rates dropped significantly last week, and though they have since risen modestly, it may still make sense to refinance at a lower rate or at an equivalent rate for a longer time period.
5. Refinance intra-family loans. April’s federal rates were announced and also reflect a significant drop. For families that have existing loans between family members or entities, refinancing those loans can save material dollars and effectively transfer more assets outside of their estates at no cost.
6. Make gifts, establish new GRATs, or initiate new loans to intentionally defective grantor trusts. While the markets may well continue to decline for a bit, we do believe they will recover eventually. For individuals whose goal is to transfer additional assets outside of their estates, using wealth transfer techniques with assets that are relatively depressed in value allows for a greater chance of a successful and material transfer.
It is important to remain disciplined and steadfast during a market disruption like the one we are currently experiencing, yet still be nimble and proactive with the unambiguous opportunities we see before us. While economic data and the fallout of today’s crisis are not yet known, there is plenty to do today in order to take advantage of the moment.