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Artifex Financial Group

2020

SURVIVINGTHEPANDEMIC Financial Planning Tools & Tips Fr om Ar tifex Financial Gr oup

Dou g Kin sey, CFP®, CIM A® Par t n er , Ch ief In vest m en t Of f icer

"HAVEANUP-TO-DATEFINANCIALPLAN INPLACE"

Ar t if ex Fin an cial Gr ou p

| Surviving the Pandemic

The subject of this r epor t is pr obably the last thing I thought w e'd be addr essing this year. Com ing off of a banner year in the m ar kets in 2019, hopes w er e high for continued econom ic and investm ent gr ow th. W hile ther e w as som e concer n that the m ar ket w as at a point of fair , if not over valuation, it's safe to say that nobody expected w hat w as to com e. How ever , life has a w ay of thr ow ing cur ves, and w e all need to adjust our tactics to continue hitting and scor ing in our por tfolios and our per sonal lives. This is an unpr ecedented per iod in histor y, and as w e ar e in the pr ocess of digesting the daily data and evaluating w hat this per iod m eans for pr ofessional advisor s as w ell as clients, som e them es ar e em er ging, w hich I w ill attem pt to addr ess in this com m unication. The goal is to pr ovide you w ith ideas and concepts to w eather this stor m , and com e out on the other side w ith your finances intact.

Wealt h Pr eser vat ion & Fin an cial Plan n in g It pr obably goes w ithout saying, but have an up-to-date financial plan in place. Have this com pleted w ith a fee-only fiduciar y advisor , one w ho w ill not tr y to sell you pr oducts or ear n outside com pensation (com m issions) for the advice. This w ill ensur e an objective analysis of your situation, and avoid conflicts-of-inter est. The plan should include such things as: -

An analysis of your cur r ent living standar d and pr ojected r etir em ent needs. Alter nate best-case, nor m al and w or st-case scenar ios. Investm ent allocation r eview s and r ecom m endations. Insur ance sufficiency analysis. Estate planning r eview. Tax pr ojections. Appr opr iateness of Roth IRA conver sions, RM D r equir em ents, and Social Secur ity planning. A cur r ent r i sk an al ysi s evaluation.

Am ong other potential consider ations.

Level On e - Ver i f y t h at you h ave am pl e l i qu i di t y Although the inclination m ay be to r educe or elim inate all debt at this tim e, take a balanced appr oach to this idea. W ith the uneven state of the economy and em ploym ent, w e advocate incr easing your em er gency funds and cash cushion at this tim e. We've alw ays r ecom m ended that r etir ees keep enough of their por tfolios in safer , liquid investm ents to get them thr ough 5-7 year s of living needs. If you'r e still w or king, this w ould be an excellent tim e to evaluate your cash position. This is not the tim e to tr y to outsm ar t the m ar kets and "buy the dips." It is a tim e to evaluate the "best-case," "w or st-case," and "nor m al" scenar ios. Even though cash investm ents and shor t-ter m bonds m ay not cr eate m uch of a r etur n, it's tim es like these w her e "cash is king."

Level Tw o - I n com e The outlook for bonds is challenging. In a nor m al m ar ket, bond funds and individual bonds add a sm all am ount to r etur ns, and w e expect the next few year s to dim inish those r etur ns even fur ther. We expect yields to fall, possibly to the point w her e incom e investor s w ill gener ate little to no r etur n. That m eans potentially consider ing high-quality stocks of com panies w ith str ong balance sheets that pay r eliable dividend str eam s of incom e. W ith the r ecent r out in the equity m ar kets, ther e ar e som e oppor tunities her e to pick up shar es of select com panies at r easonable pr ices.

Th r ee Levels of Con sider at ion

Level Th r ee: Gr ow t h For m any people w ith longer tim e hor izons, being too conser vative w ith their por tfolio is a pr escr iption for failur e. An allocation to gr ow th for a por tion of assets is alm ost a necessity. So w hat to do now ? -

Be nar r ow ly focused - this isn't the tim e to blindly follow m oder n por tfolio theor y and spr inkle your assets acr oss the globe or acr oss br oad-based indexes. Som e sector s of the dom estic and global econom ies ar e not going to r ecover for year s. Som e com panies w ill cease to exist. Don't expose your por tfolio to pockets of disaster. Be ver y cautious of sm all cap, inter national, high-yield debt, unsustainable dividend payor s, and other asset classes or sector s that w ill be br uised and batter ed in the com ing year s. Be sensitive to valuations, as investor s w ill bid up pr ices of favor ed equities, w hich w ill per iodically be over valued to the point of becom ing non-investable. Be patient. This is a tim e for cautious action, not plunging in on the latest idea or fad. Consider alter native investm ents that pr ovide a higher degr ee of flexibility, and that offer r isk m anagem ent char acter istics not found in tr aditional equity m utual funds. Ther e ar en't m any w or th investing in, but w e've identified a few. Don't buy annuities - the im puted yields w ill not pr ovide a r easonable r etur n on investm ent and these types of pr oducts tend to be outr ageously expensive.

Wh at ar e Alt er n at ive In vest m en t s? The term "alternative investments" can refer to a variety of non-traditional assets that add additional diversification or protection to a portfolio. We typically think of hedge funds, real estate, private businesses, commodities or "long-short " strategies as alternatives. In "normal" times, they don't really add a lot to performance, but can serve to smooth returns and provide for non-correlated volatility, i.e. when the stock market zigs, alternatives zag. I've never been too keen on many "long-short " strategies, as the fund managers often do not deliver on their stated promise. We have, however, identified some in the more recent years that do perform as advertised, and have a reliable track record. So, we are using these in a methodical, measured way currently, and hope to be able to revert back to more traditional approaches

later, when the economy stabilizes. While there's nothing wrong with using these strategies in the long run, they tend to moderate positive returns in exchange for reducing negative returns. More conservative investors may prefer this trade-off, but we've found that a more traditional diversification approach when economies are working normally will reduce management costs and provide for a more identifiable risk-return projection.

"LOOKATYOURASSETSINTHREE LEVELS- LIQUIDITY,INCOMEAND GROWTH."

Ar t if ex Fin an cial Gr ou p| Surviving the Pandemic

Kn ow Th yself an d You r M on ey Relat ion sh ip You m ay be w onder ing w hat this headline is all about. Under standing your behavior al tendencies and thought pr ocesses ar ound m oney decisions is a cr itical par t of financial planning, and one that is often given ver y little attention by typical financial planner s. We believe that it is integr al to the pr ocess.

Th e f i r st st ep

W ith the help and guidance of a qualified advisor , asses your built-in tendencies w hen m aking m oney decisions. Ther e ar e som e ver y good tools available to assist you in this pr ocess. We pr efer to use the "Your M oney M ind" quiz and r epor t, cr eated by FinLife Par tner s, our national advisor y netw or k . It's a quick exer cise, and is based on behavior al science as pr oposed by Daniel Kahnem an, the author of "Thinking Fast and Slow " w hich theor izes that w e all tend to m ake decisions w ith the fast par t of our br ains (w her e biases and behavior al histor ies r eside), and then tr y to justify them w ith our slow , or logical br ain. W hat w e lear n thr ough the M oneyM ind exer cise is to r ecognize w hen w e m ay be falling pr ey to em otions over logic, and to identify situations w her e this tendency m ay der ail our financial decisions. If you'd like to get a fr ee M oney M ind r epor t, you can access the quiz h er e.

Kn ow Th yself an d You r M on ey Relat ion sh ip

Th e secon d st ep It's tim e for a r isk sensitivity check-up. In this step, you'll find out about your over all attitude tow ar d por tfolio r isk . Again, ther e ar e m any tools available for this step, but not ver y m any good ones, in my estim ation. These types of analysis tend to be m isused as w ell, and find their w ay to setting investm ent policy if other factor s ar e not consider ed, such as lifestyle, per sonal pr efer ences, and financial capacity to achieve goals. We only use this as one data point, and as a w ay for us to m ake sur e w e under stand each client's feelings tow ar d var ious por tfolio types. The pr ogr am w e use for this stage is Riskalyze, and it has becom e the gold standar d for r isk pr efer ence evaluation, in my opinion. If you w ant to check out your per sonal r isk pr efer ence, use this link and w e'll send you a com plim entar y r isk toler ance r epor t: Ri sk al yze

Th e t h i r d st ep The fir st tw o steps w ill give you insight into your cur r ent m indset dur ing this cr isis. The thir d step is to take stock of your over all financial pictur e, and to either cr eate or update your financial plan w ith a qualified fiduciar y advisor. W ith the r ecent m ar ket volatility, this is a gr eat tim e to have a r eview m eeting to deter m ine if your goals, assum ptions, r esour ces and tim e fr am es ar e still valid. This should give you added confidence and the infor m ation you need to navigate the cur r ent econom ic cr isis. Her e ar e som e things to consider : -

Has your spending changed as a r esult of stay-hom e or der s or r educed enter tainm ent, dining, tr avel, and fuel costs? Has it incr eased due to scar city of gr ocer y or per ishable item s, or constant or der s on Door Dash? Have you or your significant other exper ienced a change or loss of incom e? Does the cur r ent situation alter your thinking on your stated goals, such as r etir em ent dates, planned lar ge expenditur es, etc.? Do your tax planning assum ptions need to change? Ar e your investm ents pr oper ly positioned given the sudden global and dom estic econom ic changes?

If w e can be of assistance, schedule a discussion w ith us h er e. If you ar en't an existing client, the intr oductor y discussion is com plim entar y.

Ar t if ex Fin an cial Gr ou p

| Surviving the Pandemic

CARES Act an d Tax Law Ch an ges Ther e has been a flur r y of legislative activity since the inception of the Covid-19 pandem ic. M ost of this is tar geted to either help businesses or individuals sur vive financially dur ing this per iod. Fr om PPP loans to IRA distr ibutions, the r ules have changed substantially for this year. Her e ar e som e things to be aw ar e of if you ar e in need of cr eative solutions for financial stability.

"THEREAREDEFINITELY OPPORTUNITIESTOCONSIDERATTHIS TIME...BUTDON'TGOITALONE."

1. For 2020, Requir ed M inim um Distr ibutions (RM D's) fr om IRA accounts ar e not r equir ed. 2. Distr ibutions fr om IRA's pr ior to age 59 1/2 of up to $100,000 ar e not subject to the 10% excise tax. 3. Distr ibutions of up to $100,000 this year can be r epor ted as incom e over thr ee year s and/or r epaid. In or der to qualify for item s 2&3, you need to be affected by the Cor onavir us in var ious w ays - either contr acting the vir us, being quar antined, fur loughed, laid off, having r educed hour s, unavailability of car e, and som e additional factor s.1 Additionally, it is also possible to tem por ar ily discontinue loan paym ents to 401(k) plans, if you have taken a loan or plan to take one fr om your plan. It is also possible to take an incr eased loan am ount dur ing this per iod of up to $100,000 if necessar y. It has also becom e appar ent that m any loan pr ovider s, such as m or tgage com panies, banks and cr edit car d com panies ar e offer ing paym ent suspension options for a per iod of tim e. W hile these options ar e not par ticular ly attr active or r ecom m ended dur ing nor m al econom ic per iods, if you find your self in a financial cr unch as a r esult of all of this, it's good to know w hat's available. It's im por tant to talk to your advisor and / or accountant about this pr ior to taking action.

1Ber nie Kent, COVID-19 And Your IRA: Her e's W hat You Need to Know , For bes M ar ch 28, 2020 https://www.forbes.com/sites/berniekent/2020/03/28/covid-19-and-your-ira-heres-what-you-need-to-know/#353e6df82131

Ther e have been quite a few tax law changes in the past thr ee year s, fr om br oad tax legislation to changes r elating to the CARES act. Now is an excellent tim e to discuss these changes w ith your advisor , par ticular ly if you ar e in need of extr a funds, or if you do not need to take RM Ds fr om your IRA accounts.

Additionally, the legislation ar ound PPP loans is in flux and w or th a discussion if you ar e a business ow ner. We have a separ ate set of r esour ces r egar ding PPP loans. Reach out if w e can help you navigate this ar ea.

CARES Act an d Oppor t u n it ies

Hope an d Oppor t u n it y In the m idst of the changes w e've all encounter ed over the last few m onths, ther e is hope that the cr isis w ill be m anaged, and the econom ic situation w ill r etur n to a state of nor m alcy. Ther e ar e definitely oppor tunities to consider at this tim e, w hether it's sim ply to r eallocate your holdings, r evise your plan, or take advantage of depr essed asset pr ices. But don't go it alone, as ther e ar e also danger s to be avoided.

I n t i m es l i k e t h ese, a qu al i f i ed adv i sor i s w or t h t h e cost In m or e nor m al tim es, a qualified, fiduciar y financial advisor is w or th it, as the pr ocess of financial planning and coor dinating your investm ents to m eet your goals is an endeavor that w ill add im m easur ably to your r esults. An exper ienced advisor y fir m w ill add incr em entally to that benefit in tim es of cr isis, by ser ving as a sounding boar d and adding per spective to ever y financial decision. The caveat her e is that any fir m you hir e should be m ade up of exper ienced pr ofessionals w ho ar e com pletely objective in their advice and investm ent im plem entation. This m eans that the advisor should be fee-only and a full fiduciar y. Not sim ply "fee-based." You'll only find these advisor s in independent Register ed Investm ent Advisor y fir m s, pr efer ably m em ber s of NAPFA, the National Association of Per sonal Financial Advisor s.

For m or e infor m ation on selecting an advisor , ask us for our r epor t on that topic. We'll be happy to give you a checklist of best pr actices to look out for.

Visit our w ebsite for m or e infor m ation about how Ar tifex Financial Gr oup w or ks w ith individuals and business ow ner s to live their "one best financial life."

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