Ric Edelman was three times ranked the #1 independent advisor in the nation by Barron’s1 Edelman Financial Engines is ranked the #1 independent investment advisory firm in the nation by Barron’s2

Ric Edelman’s Inside Personal Finance JULY 7, 2020 RicEdelman.com 1

The Covid-19 Crisis Isn’t Over Yet Our investment strategies can help get you through it. After falling 20 percent in the first quarter, the S&P 500 gained 20 percent in the second quarter. Such back-to-back returns have occurred only once before, in 1932, during the depths of the Great Depression. In other words, investors shouldn’t assume that the stock market will continue to post such lofty performance in months to come. Indeed, it’s quite possible that recent gains are merely a “bear market rally” — a term Wall Street uses to describe short-lived spikes in stock prices that occur during lengthier downward spirals. Past performance doesn’t guarantee future results, of course. Concern about current stock prices was voiced last week by the International Monetary Fund, which warned that stock markets could fall 10 percent or more in coming months. We’re concerned that many investors are giddy beyond reasonable explanation. Consider that more than 40 percent of the companies in the S&P 500 (that’s 220 companies) have pulled their guidance — meaning they don’t know how their company will fare in coming months. If a company’s own management doesn’t have a clue, how can investors pretend to know? Uncertainty is high, and is likely to stay that way for some time. So, you tell me: On Dec. 31, will prices be higher or lower than they are today? And if they are lower, how much lower might they go? Nobody knows. So, here’s what you should do: Make sure you have 24 months’ worth of spending in cash reserves — so you can maintain your lifestyle even if you incur a sustained interruption in income (say, from a job loss). Keep the rest of your money in your highly diversified portfolio, and be prepared to continue owning it for 10 years or more. Along the way, we’ll continue rebalancing your portfolio as necessary for you. And if you anticipate that you might need to access your money during this time (perhaps to help family members who run into financial problems), or if you might not want to tolerate the extreme volatility that may come before this crisis is over, talk to your Edelman Financial

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Engines financial advisor now, so we can give you the advice you need about changes to your portfolio’s asset allocation. It’s best to make any needed changes now.

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Growing Older at Home in the Time of Covid-19 Help your parents safely live longer in their home. Where will your parents live as they age? Clearly, most older Americans prefer to age in place. More than 75 percent of those 50+ say so, according to AARP. But is that best if your parents are in their 80s or 90s? Living home alone can exacerbate social isolation, a problem for many seniors even before the pandemic. The current lockdowns and social distancing are causing many elders to feel lonely and helpless as family members and friends minimize their contact. Technology can help, of course. Frequent telephone calls and video chats can help your parents feel connected to you and the family. But that’s not enough. You also want to ensure that your parents are maintaining their health and safety. Medical technology devices can help. For example:

• Wellness monitoring sensors tracking a senior’s activities can be placed on beds, chairs, wheelchairs, on doors and windows and in bathrooms. These sensors allow caregivers to stay in touch, set reminders and track wellness. Sensors can detect if a senior falls without them having to wear a device or press a button, automatically notifying caregivers or emergency responders.

• Electronic, prefilled dispensers can tell seniors when to take their medications; the

devices open compartments and alert caregivers if a dose is missed. Some even have locks to prevent unauthorized or erroneous access.

• Fire-prevention sensors automatically turn off stoves and ovens if unattended or if

smoke is detected.

You can also improve your parents’ safety by making a few simple alterations in their house. Here are five simple tips:

1. Install a ramp with handrails to the front door.

2. Remove area rugs to avoid the risk that your parents might slip and confirm that all carpets are firmly fixed to the floor. Likewise, place nonslip strips or nonskid mats on tile and wood floors, and on any surfaces that might get wet.

3. Install grab bars near toilets and in the tub or shower.

4. Replace knobs with levers on all doors, drawers and faucets.

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5. Replace light switches with motion sensors, so lights automatically turn on when your

parent approaches. We recommend that you contact your parents’ local Area Agency on Aging for additional recommendations.

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Are You Getting Everything You’re Entitled to From Social Security? SSA says many retirees aren’t receiving as much as they could be getting. The Social Security Administration sends money every month to almost 68 million Americans. Retirees and disabled workers, as well as their eligible dependents and survivors, all get vital financial payments from the system. But mistakes can happen in a program governed by 2,700 rules — and those mistakes can be costly. SSA’s Office of Inspector General says more than 15,000 widows and widowers are eligible for $193 million in benefits they aren’t receiving. And 12,000 of them could lose another $531 million over their lifetimes. One big reason: Thousands of people get retirement benefits based on their earnings when they are entitled to more in survivor benefits. Dually entitled beneficiaries (people who have their own work record and who are or were married to someone who is/was also entitled to benefits) are allowed to choose whichever benefit provides them with more money. If you don’t choose wisely, you can short-change yourself. Clearly, knowing when and how to claim your Social Security benefits can make a big difference to you in retirement. As our client, we can review your Social Security claiming strategy. Ask your family and friends if they have had a professional review theirs. We’d be happy to help them too.

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Video: Are You Getting Enough HUGs? We need to hug each other more often and for longer. Ric and Jean Edelman explain the biological benefits of human touch.

Play Video

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A Vacation Tip for the ‘New Normal’ Don’t count on travel insurance to protect your plans from the virus. Americans are on the move once again. And many are making vacation plans. About 22 percent say they are planning to travel this summer. Another 25 percent plan to travel in the fall. Before you go, protect yourself financially if you must cancel that trip. It’s quite likely that the virus will interfere with your plans. Standard travel insurance won’t help, as most policies don’t cover pandemics. (Never buy travel insurance that is offered with your tickets.) Although many insurers offer coverage in the event of unforeseen illness, injury or death, policies vary in how they define injury and illness, and in the documentation they require to prove your claim is covered. Typical policies cost 9 percent of the trip’s cost and reimburse you for up to 70 percent. Generally, though, you have to become ill or injured, or the destination has to become unavailable, for a claim to be honored. Just changing your mind won’t get you any reimbursement — unless you have “cancel for any reason” coverage. These riders cost as much as 15 percent and they are hard to get these days due to Covid-19 (many insurers have stopped offering them). Watch out: Some “for any reason” policies don’t cover cancellations due to the coronavirus. Instead of buying insurance, try negotiating directly with the hotel or airline, or hire an experienced travel agent to negotiate for you. Many companies in the travel industry are desperate for business, so they may be willing to waive fees if you cancel — even the day before your departure or arrival date. Also, many credit card companies offer travel protections, such as reimbursing you if an airline or hotel goes out of business. Check with your card company. If you’re attracted to low-cost airfare or hotel rates, remember that you’re unlikely to get any refunds if you end up not going — regardless of the reason. Our advice: Treat any money you spend on deposits like a visit to the casino — be prepared to lose it all.

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Long-Term Investor Q: I've had my own trading account for more than 30 years. I’m an avid market watcher and a fan of yours. We've listened to Federal Reserve Chair Jay Powell talk about the V curve and the U curve for recovery. Where do you think we are in this cycle, in your opinion? Well, my opinion is worthless, because everyone has an opinion. But since you asked … In my view, there is a massive disconnect between the economy and the stock market. This doesn’t matter much for long-term investors who have sufficient cash reserves and no plans to sell their investments for 10+ years, but it’s worth paying attention if you are a short-term investor or if volatility scares you. The unemployment rate is at the highest level at any time since the Great Depression, and twice as high as during 2008’s recession. And the virus is still here, meaning this ain’t over yet. The National Institutes of Health says it will be early 2021 before a vaccine is developed, and another six to 12 months for it to be widely distributed. Thus, our current situation can be expected to last for a lot longer than most people anticipated. As a result of the lockdown, corporate profits have shrunk dramatically, and Powell says interest rates will stay near zero until at least 2023. This is bad news for savers who need interest income to help pay their bills, and it doesn’t do much good for insurance companies, pension funds and banks, either. Meanwhile, the stock market is trading at 23 times forward earnings. Normally, the Price/Earnings Ratio is 15 (and the higher the number, the more expensive stocks are considered to be). There’s debate as to how reliable a predictor the P/E Ratio is, but it hasn’t been this high since the Dot Com Bubble — and we know how that ended! (In case you don’t: The Nasdaq fell 78 percent when the bubble burst in 2000.) And if 23 isn’t alarming enough, consider that Amazon’s P/E is 72. Netflix’s is 62. Zoom’s is 1,421. Investors are saying that they expect these companies to generate huge profits beyond what they’re already earning. If that doesn’t happen, these and other stock prices could fall substantially. Investors seem to believe that corporate profits will quickly return to pre-Covid-19 levels and go even higher. I don’t subscribe to that view. Instead, I expect that we will continue to see market volatility. A couple of weeks ago, the Dow Jones Industrial Average fell nearly 1,900 points in a

Q

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single day — a decline of 7 percent. There have been many days of 500-point moves, as investors try to figure out what’s going to happen next. In the last recession, the stock market fell 57 percent over 16 months. And this crisis is widely considered to be worse than that one. Will the market fall like it did last time? We saw a 35 percent drop at the start of the pandemic, but prices have largely recovered since then. Investors have been encouraged by the Fed and Congress, which have provided massive amounts of stimulus — $5 trillion and counting, so far. Will investor confidence be sustained? Those $1,200 stimulus checks were one-time only, and the extra $600/week unemployment benefits go away on July 31 unless Congress acts. What will happen then? What will happen if the latest resurgence in the infection rate causes another lockdown? Investors are clearly expecting (not unreasonably) that Congress will provide more stimulus to help the nation contend with this crisis. Will the stimulus be enough to satisfy investor expectations? In the most recent poll, 20 percent of teachers say they refuse to return to the classroom, due to infection fears. How will schools respond? If students attend half-days, who will provide them with day care when they’re not in school? Looks like parents will have to stay home with them — preventing millions from returning to work and delaying economic recovery. Meanwhile, July 1 was the start of the new fiscal year for 46 states. Budgets must be balanced by state law in 49 states — and because they are suffering an average 20 percent reduction in tax revenue (due to lower income, sales, gas, gaming and property taxes), states must cut their budgets by 20 percent. Watch for massive layoffs of state and local employees and cuts in vital social services unless Congress provides stimulus payments to the states. In my view, the stock market is ignoring all this. A decade from now, we’ll get past this. But the short term will be … bumpy. My conclusion is that, for now, we are still on the left side of the U. I expect continued stock market shocks until vaccines are developed and distributed. Again, none of this matters if you're a long-term investor. But if you’re not expecting market shocks and prices then fall dramatically, you might panic. And in the midst of that panic, you might sell at the very moment you shouldn’t. Millions of investors did that in 2008, after the market had already fallen 30, 40, 50 percent. They panicked and sold at or near the low, then missed the recovery that occurred in the following 12 years. My fear is that this might happen to you. I’m not worried about the country or the market because, long term, I know both will be fine. But I’m worried about you and how you will respond during this crisis. Even if you don't panic, you may sell unexpectedly because you lose your job, or you may get infected and need to take off from work, or your adult child may lose their job, or your parent or sibling may incur a medical, financial or marital issue or who-knows-what asking, “Hey, brother, can you lend me a dime?” Any of that could force you to sell — not because you want to or because you’re panicking, but because you simply need to help your family.

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For all these reasons, I want you to have sufficient cash reserves so you can handle whatever comes without having to liquidate your portfolio prematurely and unexpectedly. And if I'm wrong and the markets don't fall, well, then OK. No big deal. You stayed invested and you hung in there and everyone's happy.

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One Advisor or Two? Q: Edelman Financial Engines manages my wife’s individual retirement account (IRA) using a diversified approach. I'm now retired and thinking about moving my 403b into an IRA with your firm. Does it make sense to have all of our assets with one advisor? I worry about putting all our eggs in one basket. I'll explain why we generally recommend that you should have all of your money with a single advisor — whether us or someone else. When you have all of your household’s investments with us, we are aware of all the assets. We're able to construct a comprehensive portfolio for you. If your advisor is managing only part of your assets, they might not be aware of all the money you have. And if some of your money is with a second advisor, you could end up getting investments that are redundant or in conflict with each other. You could end up paying more in fees because you are getting no economies of scale (our fee is based on the total household assets; the higher the assets, the lower our fee’s rate). When you have money with two advisory firms, you double your tax-reporting and record-keeping requirements. You become the person who has to coordinate everything. That's a lot of extra work, and I'm not sure you get any real benefit from it. One reason to have money with two advisors is to avoid the risk that one of them is a crook. People who had all their money with Bernie Madoff lost it all; those with only half their money with him lost only half. But it’s easy to avoid crooks; Madoff’s clients violated many basic rules (never write checks payable to your advisor; never let your advisor be the sole producer of account statements; never select an advisor who refuses to explain how your money will be invested; never believe claims that you’ll earn consistent returns regardless of market conditions; never believe that you’ll always earn above-market returns; and never choose a firm whose auditor is a one-man shop working in the same office as your advisor). In our experience, clients are generally better off having a single advisor.

Q

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Inheritance Taxes Q: My brother recently passed away and left me as the beneficiary of his retirement account worth approximately $100,000. I would like to split it with my two siblings and my dad. Is there a way to share this without taking a distribution and the entire tax hit myself? I'm sorry for your loss. Your options are limited. I’d suggest you withdraw the money and pay the taxes. Then, split the net result with them. Say your tax bill is $30,000. That leaves $70,000; split that four ways and give each of them $17,500. That money then will be considered a gift, and you can only give $15,000 to any one person in any one year; any excess is subject to the gift tax (which you pay as giver, not them as recipient). There are several easy ways to avoid the gift tax:

1. If you are married, you give them $15,000 and let your spouse give them $2,500. (If you have a joint checking account, writing a single check from it for $17,500 will suffice.)

2. If they are married, give $15,000 to them and $2,500 to their spouse. 3. Give them $15,000 in 2020 and give them $2,500 in January 2021. 4. Give them the $17,500 and file Form 709 with your tax return; this lets you charge the

$2,500 excess against your lifetime gift limit of $11.58 million. I am certain your siblings and father will appreciate your generosity.

Q

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Audio: How Are Americans Feeling About Their 401k Accounts?

We are the largest independent provider of advice to workplace retirement plans. Listen to Ric Edelman discuss the results of a recent survey we sent to plan participants with our very own Kelly O’Donnell, executive vice president and head of workplace.

Play Audio InvestmentNews ranking and status for 2019. For independence methodology and ranking, see InvestmentNews Center.

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Quick Tips Haven’t Gotten Your Tax Refund Yet? Sit tight. The IRS has announced that it has 10 million pieces of unopened mail. Due to the pandemic, half of their 81,000 employees have been working from home — and thus didn’t have access to the mailroom. So, if you haven’t gotten your tax refund yet, don’t fret. Eventually, the IRS will get caught up.

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The Other Side of Money S.U.M.M.E.R.

Summer is here, and it will be different from other summers.

For me, summer always had its own feel. The smell of fresh cut grass, the feel of warm dirt from being in the garden. The taste of a scoop of ice cream. Grilling in the backyard. And of course, the family vacation — to the beach, to see relatives, to see new and different places.

This year, the summer vacation will be replaced by a staycation. We canceled trips we planned months ago, before the virus. But we’re not unhappy.

We can enjoy our hometown and all that it provides. Local parks are open. We can walk and hike. Grill as much as we want. We can play flashlight tag and Frisbee golf, and make s’mores. Grab a box of colored chalk and let the driveway be our canvas. Let’s cool off with water balloon and water hose fights! Design a miniature golf course on the lawn. Buy a cheap projector and speakers, hang a sheet outside and create our own outdoor movie night. We can build a tent and camp in the yard. Making our own bread has become popular. Let’s now start churning out homemade ice cream!

The virus has given us lemons — let’s make lemonade!

Summer is fun. And this summer can be as much fun as ever. Even better, because we can skip long lines at the airport and avoid crowded beaches.

Life is different now because of the virus. And it’s an opportunity to create new traditions and find joy in life in new ways. And even the virus can’t stop summer from coming!

S.U.M.M.E.R.

S Social Distancing

U Unusual — It will be a very different season, so let’s get creative.

M Magical — Take time to look at the stars at night.

M Movement — The warmer weather lets us get outside and move around.

E Earth — We are all in this together.

R Reinvention — This is an opportunity to start anew. All things are possible!

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You Be the Judge A 45-year-old diabetic left his job and withdrew money from the retirement account he had with his former employer. Shortly thereafter, he went into a diabetic coma that he said left him unable to perform basic tasks. Based on his disability, he claimed exemption on his federal tax return from the 10 percent penalty for taking a retirement plan withdrawal before age 59 ½. The IRS denied the claim, and he appealed to the U.S. Tax Court. What did the court decide?

The Verdict

Although the law says disabled people can tap retirement accounts before age 59 ½ without penalty, those with diabetes don’t automatically qualify. In this case, the court ordered the taxpayer to pay the penalty because he couldn’t prove that his illness prevented him from engaging in gainful activity on the date he received the withdrawal.

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1 Rankings for 2009, 2010 and 2012. Barron’s ranking has three major components: assets managed, revenue produced and quality of the advisor’s practice; it does not assess investment returns. Quality-of-practice component includes advisor regulatory record. Ranking is based on universe of applications submitted through self-nomination to Barron’s. 2 The 2019 Top 50 Independent Advisory Firm Ranking issued by Barron’s is qualitative and quantitative, including assets managed, the size and experience of teams, and the regulatory records of the advisors and firms. Firms elect to participate but do not pay to be included in the ranking. Investor experience and returns are not considered. The 2018 ranking refers to Edelman Financial Services, LLC, which combined its advisory business in its entirety with Financial Engines Advisors L.L.C. (FEA) in November 2018. For the same survey, FEA received a precombination ranking of 12th. Barron’s Hall of Fame advisers have been ranked for 10 or more years on the Barron’s Top 100 Financial Advisors list. Barron’s listings are based on data compiled by many of the nation’s most productive advisers, which has been submitted to and judged by Barron‘s. Key factors and criteria for each award include assets under management, revenue produced for the firm, regulatory and compliance record, and years of professional experience. This award is not indicative of this advisor‘s future performance. All information provided through Inside Personal Finance is for educational purposes only and does not constitute investment, legal or tax advice, an offer to buy or sell any security or insurance product; or an endorsement of any third party or such third party’s views. Whenever there are hyperlinks to third-party content, this information is intended to provide additional perspective and should not be construed as an endorsement of any services, products, guidance, individuals or points of view outside Edelman Financial Engines. All examples are hypothetical and for illustrative purposes only. Please contact us for more complete information based on your personal circumstances and to obtain personal individual investment advice. Videos presented on this website are for educational purposes only and do not constitute investment advice or an offer to buy or sell any security or insurance product. © 2020 Edelman Financial Engines, LLC. Edelman Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor and wholly owned subsidiary of Edelman Financial Engines, LLC. Results are not guaranteed. AM1228719.