QUARTERLY INVESTMENT - Waterford Advisors, LLC
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First Quarter Newsletter April 2020
QUARTERLY INVESTMENT
commentary
economy (e.g., a geopolitical conflict or First Quarter Market Update
natural disaster).
The first quarter of 2020 has been an
It’s one thing to say it and another to unprecedented period in U.S. financial
Gregory L. Kozerski
CPA, CFP ®, AIFA® actually live it. It’s still another when the market history across numerous
President precipitating event or catalyst for the dimensions:
recessionary bear market is something
none of us have experienced before: • The U.S. stock market fell into a 20%
a global pandemic, which has instigated bear market in the shortest time ever—
an extreme societal response— just 22 days—and continued further,
We are all now living through a period in including the indefinite closure of dropping 30% in a record 30 days.
history none of us will ever forget. The schools and non-essential businesses, The typical historical bear market
impact on our families, communities, shelter-at-home orders, quarantines, peak-to-trough decline has taken
and country has been profound. And lockdowns, and social distancing— around 12 to 18 months.
it continues. There remains great and has potentially overwhelmed • Short-term expectations of stock
uncertainty, worry, and fear about the medical facilities, personnel, and market volatility, as measured by the
coronavirus and its impact: how widely supplies. VIX index often referred to as the
it will spread, how fatal it may be, how market’s “fear index” closed at an
We will get through this crisis period.
long it will last. When will we see signs all-time high in its 30-year history on
Things will improve and recover.
of stabilization in its spread and a March 16. And the market’s actual
This, too, shall pass.
decline in daily new cases? When will realized volatility has only been higher
we “flatten the curve”? In the meantime, events are moving in October 1987 (Black Monday) and
very rapidly, policy responses are in the late 1920s.
We’ve frequently said that recessions
flux, and markets are extremely volatile.
and bear markets are inevitable phases • The 10-year and 30-year Treasury bond
This commentary reflects the facts,
within recurring economic and financial yields fell to all-time lows of 0.54% and
circumstances, and our thinking as of
market cycles; that investors need to 0.99%, respectively, on March 9.
March 26, 2020.
be prepared for them to happen; but (continued on page 2)
that their precise timing is consistently We sincerely hope you and yours
unpredictable. We’ve also said there can remain healthy and manage well
is always the risk of an unexpected through this challenging period. —The Waterford Difference—
“external shock” to the markets and We believe that true wealth lies
within all that you cherish that
money cannot buy and death
cannot take away. That is where
the Waterford difference begins.
• Oil prices had their biggest one-day pundits expected U.S. stocks to gain change we would intend to add this
drop since the 1991 Gulf War, 30% last year, none of them expected second increment to U.S. stocks if the
plunging 25% on March 9, triggered a 30% drop in the first three months of S&P 500 index drops to roughly the 2100
by a price war between Saudi Arabia 2020 and the real possibility of a severe level. So in adding to stocks at that price
and Russia. economic recession. level, we believe the odds are strongly in
Note, all returns in this commentary When you diversify across asset our favor that we’d be well-compensated
are as of the market close on classes and consider a variety of over a reasonable time frame for their
March 26. potential scenarios, there will always be shorter-term downside risk and volatility.
Year to date, larger-cap U.S. stocks leaders and laggards in your portfolio. If we do add back to U.S. stocks at that
have fallen 30%. Growth stocks Some positions work well in strong up point, most of our balanced portfolios
have continued to hugely outperform environments like we experienced last would then be at roughly their neutral or
Value: the Russell 1000 Growth decade, while others benefit portfolios long-term strategic weighting to stocks
Index has fallen 25%, while the during tougher times like the start to overall; our most conservative portfolios
Russell 1000 Value Index has fallen the 2020s. Put together, they build would still be slightly underweight. Our
35%. Smaller-cap U.S. stocks have resiliency and protect a portfolio from decision to add to U.S. stocks at that
done even worse, falling 38%. betting on a single outcome, which can level is driven by our expected-returns
be a disastrous financial result if the analysis relative to the shorter-term risk
Developed international stocks have opposite happens.
fallen 34%, and emerging-market If the virus news gets worse in the United
stocks have dropped 31%. Much of the Our tactical positions can be States (before it gets better), investor
differential between U.S. and foreign bucketed into three main areas: (1) an sentiment could take additional hits with
stock market returns has been due underweight to equities; (2) positions in further market declines. Such declines
to the appreciation of the U.S. dollar, lower-risk and/or alternative strategies, driven by fear, uncertainty, and human
which has risen roughly 4.5% year such as REIT’s and diversified herd behavior can feed on themselves
to date. alternatives; and (3) allocations to resulting in a major overshoot on the
active flexible fixed-income funds and downside compared to the market’s “fair
In the fixed-income markets, core bonds floating-rate loan funds. value” on a longer-term fundamental
have gained 1.1%, once again providing basis.
their key role as portfolio ballast against Current Portfolio Positioning
sharp, shorter-term stock market and Potential Additional Changes Therefore, we are also planning when
declines. As noted above, Treasury In this period of heightened uncertainty we might take a third swing at the plate
bond yields have fallen sharply. They and market volatility, we want to give and begin to overweight stocks overall.
have been extremely volatile as well, an update on our portfolio positioning. Again, nothing is set in stone. Our
shooting up on some days when stocks We’ll also discuss how our allocations analysis incorporates relevant new data
were also sharply selling off. might change should markets decline and information over time and as events
further. As always, we remain focused evolve. But as it currently stands, we’d
Turning to the credit markets, floating- look to overweight stocks around roughly
rate loans and high-yield bonds have on meeting our clients’ longer-term
financial goals and objectives, while a 50% peak-to-trough decline.
taken it on the chin, with both dropping
around 19%. But investment-grade managing and balancing nearer-term We are maintaining our positions in
corporate bonds have been far from risks. European stocks and emerging-market
immune, having lost 10%. In mid-March, after a roughly 25% stocks because their expected returns
decline in the U.S. stock market, have also gotten much more attractive
First Quarter Portfolio on a forward-looking basis after their
Performance & Key Performance we added an increment back to
our U.S. stock exposure. After this recent price declines. And, unlike U.S.
Drivers stocks, they were already at relatively
trade, our balanced portfolios are still
Financial markets in 2019 were a underweighted to stocks overall. attractive valuations and offered
positive surprise for many investors; attractive expected returns prior to the
however, the start of 2020 has been As markets have dropped further, virus-related selloff. As we have from
the exact opposite. Just three months we have analyzed the next point at the beginning, we remain cognizant of
ago, most investors were astonished to which we’d want to add back another and account for their potentially larger
see stocks jump 20% to 30% during the increment to U.S. stocks. As stock downside risk compared to U.S. stocks
eleventh year of a historic bull market. prices or any asset prices drop, the in our overall portfolio construction, risk
Even core bonds clocked in a 9% return expected (forward-looking) return from management, and expected-returns
last year. But things have changed investing in them rises. analysis.
dramatically since year-end. Though As things currently stand and our (continued on page 4)
one thing is constant: Just as no market assessment is certainly subject to
Waterford Advisors, LLC 2
April 2020
TAX
corner
get an extension to October 15, your Permanent Record Retention
three years runs from then. On the other
There are certain items which should be
Daniel Byles-Smith
hand, if you file late and do not have an
kept in a permanent file. This includes
CPA,CFP ® extension, the statute runs three years
Tax Director
any documents pertaining to real estate,
following your actual (late) filing date.
business assets, stocks and bonds, and
Each state has a different statute of
other assets you own for as long as you
limitations on audits. Many states follow
own the asset, and then for another three
the federal time period of three years,
years (or longer, depending on your state)
including New York, while some states
after the asset is sold. These records
From a tax perspective, it is important have longer time periods. The three-year
will be needed for calculating cost basis
to keep tax records and related period is extended to six years if gross
and gain or loss when the asset is sold.
documentation on hand should the income is understated by more than
You should also ensure that you retain
IRS decide to conduct a review of your 25%. If tax fraud is involved, returns may
all taxable gift tax filings for your lifetime.
return. Federal laws specify how long be challenged at any time, and if you
Your most recently filed gift tax return, if
you must retain the documentation to fail to file a tax return, there is no statute
one has been filed, should include a full
support the filing of income tax returns. of limitations.
record of taxable gifts made during your
There are non-tax purposes for retaining Supporting Documentation’ lifetime.
tax records also, such as verifying
income when applying for a bank loan Along with copies of your tax returns, Proper Record Maintenance
or mortgage. These tips will help you keep any documents related to the You can maintain tax returns and their
figure out which records to keep and income, deductions or credits claimed related documents in several ways,
for how long. on the return including: copies of Form including:
W-2, Form 1099, charitable donation
Statute of Limitations • Organize paper files by year, with
acknowledgement letters, receipts for
You should retain tax returns and tax-deductible expenses, invoices, tax returns and related documents in
related documents for at least as long mileage logs, canceled, imaged or the same folder and stored in a safe
as the IRS or a state tax department substitute checks, proofs of payment, location.
is permitted to audit the return. The and any other records to support your • Scan your documents and store on a
overarching federal tax statute of return. Self-employed persons should hard drive, flash drive, or within a cloud
limitations runs three years after you also keep copies of any accounting service. The IRS accepts scanned
file your tax return. If your tax return records (such as profit and loss receipts and records.
is due April 15, but you file early, the statements or a backup of their data
statute runs exactly three years after from accounting software) as well as • Save paper files or flash drives
the due date, not the filing date. If you copies of bank statements. containing tax information in a safe
deposit box.
Proper Record Destruction
Before discarding old tax documents,
make these final checks: Check your
Social Security Statement and compare
your earnings to the information on your
W-2s and tax returns. If you haven’t
received your Social Security Statement,
you can request one from the Social
Security Administration. Every so often,
income from your W-2 or self-employment
income from your tax return doesn’t show
up on your Social Security Statement.
The SSA has procedures in place to
help you correct an error in your record
(continued on page 4)
3 waterfordadv.com • 716-580-3906
INVESTMENT WATERFORD
comentary (continued from pg. 2) happenings
Closing Thoughts: This Crisis may seem like the market could just Here’s the latest from your friends
Will End. This, Too, Shall Pass. keep dropping with no bottom in sight. at Waterford Advisors…
But that is exactly where research,
As investors, it is so important to
analysis, patience, experience, and
maintain our focus on our long-term
having a disciplined investment process
financial goals and objectives. As
come most into play.
hard as it may be, from an investment
perspective we need to try to look Otherwise, if we invest based on our Marybeth Rose
through the current environment of fear feelings and emotions, we are very Planning Associate
and concern—emotions which, given likely to cash out of the market after it
the circumstances, are totally justified has already dropped a lot, locking in
and felt by all of us to the almost certain those losses. Then, waiting to reinvest
outcome of the virus crisis receding and after our discomfort and worry are
economic recovery occurring. gone, the market will already be much
higher. That is not a recipe for long-term We’ve moved!
As a long-term investor, trying to time
investment success, yet it plays out in Greetings from the village of Orchard
market tops and bottoms is a fool’s
each market cycle. Park! Our office has successfully been
errand. The evidence is overwhelming
that most investors diminish their Facing the current medical and relocated to 3858 North Buffalo Road.
long-term returns trying to do economic crisis, the situation is After a long search, we have finally found
so. They are more likely to chase probably likely to get worse before it a property that we feel best represents
the market up and down and get gets better. (We would love to be wrong the “home office” financial planning firm
whipsawed, buying high and selling about that.) But, with some necessary that we have strived to become over the
low. But incrementally adjusting and shared sacrifices from all of us last 20 years. Although the new property
portfolio allocations in a patient and clearly those on the medical front presents our team with greater flexibility
and disciplined fashion in response lines much more than most, it will for future growth, it will not impact our
to changing asset class expected get better. ability to service our existing client base.
returns and risks makes a lot of We are here for you. We understand that while the new
sense for long-term investors. location puts us closer to many of you,
Certain material in this commentary it will extend the commute for some as
The time to be adding to stocks and is proprietary to and copyrighted well. Because client satisfaction is of the
other long-term growth assets is when by Litman Gregory Analytics and is utmost importance to us, we will make
prices are low and markets and most of used by Waterford Advisors, LLC with future accommodations for anyone who
us personally are gripped by fear and permission. Reproduction or distribution may perceive this as an inconvenience.
uncertainty rather than complacency, of this material is prohibited and all We are very excited to finally be settled
optimism, or greed. Investing at such rights are reserved. in to our new place!
times will feel very uncomfortable. It
TAX
corner (continued from pg. 3)
of earnings. Do this before discarding This will prevent anyone from gaining
any documents relating to your earned access to your identifying information.
income, such as Form W-2 or Schedule If you are unsure or need additional
C. Check the date you filed your tax guidance with tax return retention,
return. Make sure it has been at least please feel free to contact us and we
three years after the tax return was filed will be glad to assist you.
before discarding a tax return. Shred
Please consult a member of the
your old tax and financial documents.
Waterford Advisors team if you need (continued on page 8)
assistance in this matter.
Waterford Advisors, LLC 4
April 2020
BORROWING FROM YOUR 401(K):
it can be more costly than you’d expect
greater, but no more than $50,000. For The cost of missed retirement savings
example, if your vested account balance Some plans don’t permit you to
Christina M. Michalczak is $11,000, you can borrow $10,000 of
CFP ®, QPFC contribute to your account when you’re
Principal it, because 50% of your balance would repaying a loan. If it takes five years to
be just $5,500. If you have $30,000 repay your loan, that could mean five
vested in your account, you could years without adding to your 401(k)
borrow half that amount — $15,000. account. Also, loan repayments are
But if your 401(k) has a vested balance not considered contributions, so if the
of $150,000, the maximum you could employer contribution is dependent upon
Borrowing from your 401(k) can help borrow from it would be $50,000, even your participation in the plan, you’ll miss
you pay for large expenses, such as though 50% of your vested account out on those as well if you’re not able
paying off high-interest debt, financing balance is $75,000. to contribute while repaying your loan.
a home remodel, providing cash for a How long do you have to repay a loan And finally, your account will miss out
down payment on a home, or paying for from a 401(k)? on investment returns on the money
medical- or education-related expenses. you’ve borrowed. Although you do earn
A 401(k) loan is not “free money.” Interest Typically, you have up to five years to
repay a 401(k) loan, although the term interest on the loan, in a low-interest-rate
will be due on the loan, and if you end environment you could potentially earn
up leaving your job before repaying the may be longer if you’re using the money
to buy your principal residence. IRS a much better rate of return if the money
loan, the remaining balance could be was invested in your 401(k).
due in full. Here are some things you guidance says that loans should be
should know about repaying repaid in “substantially equal payments Leaving your job
a 401(k) loan. that include principal and interest and When you take a loan from a 401(k), you
that are paid at least quarterly.” Your plan may have no intention of leaving your
What is a 401(k) loan? may also allow you to repay your loan current employer. But if you receive a
If your employer provides a 401(k) plan, through payroll deductions. Your plan better job offer or are laid off or otherwise
they may allow participants to take loans administrator will typically determine the leave, you could be required to pay the
from their 401(k) accounts, although they interest rate due on the loan, based on loan back in full or face some serious tax
are not required to offer this as part of the current prime rate. However, the rate consequences. Mergers and acquisitions
the plan. If you have a vested account and the repayment schedule should be that require a 401(k) plan to be terminated
balance in your 401(k), and if your plan like what you would expect to receive can also lead to participants with
permits loans, you can likely borrow from a bank loan. Also, the interest is not outstanding loans having to pay their
against your account. Just like with any paid to a lender but instead is paid into remaining balances due in full as well.
other loan, you’ll need to repay a loan your own 401(k) account since you’re Employees who leave their jobs with an
from your 401(k) with interest and within borrowing the funds from yourself. outstanding 401(k) loan have until the
a specific period. If loans are allowed
(continued on page 7)
within the plan, participants generally
can borrow funds for any reason;
however, some plans can choose to limit
loans to specific purposes, so be sure to
check what your plan’s rules are to be
sure that your loan would be approved.
How much can you borrow?
Plans can set their own limits for how
much participants can borrow, but the
IRS establishes a maximum allowable
amount. If your plan permits loans, you
can borrow $10,000 or 50% of your
vested account balance, whichever is
5 waterfordadv.com • 716-580-3906
NYS PAID LEAVE
for COVID-19
Medium Employers: 11-99 employees under Paid Family Leave, you are eligible
as of January 1, 2020, or a smaller once you have met the following minimum
Michael D. Harmer employer (1-10 employees) with a requirements.
CFP ®
Principal business net annual income greater • Full-time Employees: If you work a
than $1 million regular schedule of 20 or more hours
• Employees would use their paid sick per week, you are eligible after 26
leave first (the employer is required to consecutive weeks of employment with
provide you with at least five days of your employer.
In response to the outbreak of novel paid sick leave). • Part-time Employees: If you work a
coronavirus (COVID-19) in New York • After that, you can use a combination of regular schedule of less than 20 hours
State, Governor Andrew M. Cuomo has NYS Paid Family Leave and disability per week, you are eligible after working
guaranteed employees job protection and benefits (same benefit amounts as for your employer for 175 days, which do
financial compensation where certain noted above). not need to be consecutive.
situations apply. Large Employers: 100 or more What are Your Rights and Protections?
Many employees will receive employees as of January 1, 2020, • You have job protection, so you are
compensation through a combination as well as all public employees entitled to return to the same job (or a
of benefits during this difficult time. Your employer must provide you with comparable one) when you return from
However, it’s important to note that at least 14 days of paid sick leave for Paid Family Leave.
employees who can work remotely are a COVID-19-related quarantine, which • Your health insurance continues while on
not eligible for the benefits listed below should cover the period of an order of leave on the same terms as if you had
due to their ability to work. mandatory or precautionary quarantine continued working. If you contribute to the
What if you are quarantined? or isolation. You will have job protection cost of your health insurance, you must
If the State of New York, the Department for the duration of the quarantine. continue to pay your portion of
of Health, local board of health, or any What if your child is quarantined? the cost while on leave.
government entity duly authorized to If your minor child is under an order of • Your employer is prohibited from
issue such order due to COVID-19 places mandatory or precautionary quarantine discriminating or retaliating against
you under an order of mandatory or or isolation issued by the State of New you for requesting or taking Paid
precautionary quarantine or isolation, York, the Department of Health, local Family Leave.
the leave benefits available to you board of health, or any government entity What are the Benefits?
depend on the size of your employer duly authorized to issue such order due If you are an eligible employee whose
as of January 1, 2020 and your to COVID-19, you may be eligible to take dependent child is under an order of
employer’s net annual income. Paid Family Leave to care for them. mandatory or precautionary quarantine
Small Employers: 10 or fewer Most employees who work for private or isolation, you may be able to take
employees as of January 1, 2020, and employers in New York State are covered Paid Family Leave for the duration of the
net annual income less than $1 million under Paid Family Leave. If you are a quarantine or isolation. In 2020, the Paid
• Eligible employees can use NYS Paid public employee, your employer may Family Leave wage benefit is 60% of
Family Leave (PFL). This is insurance opt in to provide the benefit. If you are your average weekly wage (AWW), up to
coverage that provides you with up a union-represented public employee, a maximum weekly benefit of $840.70.
to 60% of your pay, up to a maximum you could be covered under Paid Family Your AWW is the average of your pay for
weekly benefit of $840.70. Leave if your union and public employer the last eight weeks in which you worked
have agreed to include it in their collective and received wages prior to starting Paid
• After receiving your full PFL benefit, you Family Leave.
will receive disability benefits to match bargaining agreement.
your full wages up to a maximum weekly If you have a minor dependent child What if you need to take care of a
disability benefit of $2,043.92, for a total under an order of mandatory or loved one?
of $2,884.62 per week. precautionary quarantine or isolation If you have an eligible family member who
• There is no waiting period for either due to COVID-19 and you are covered contracts COVID-19, you may be able
benefit.
Waterford Advisors, LLC 6
April 2020
401(K)
borrowing
(continued from pg. 5)
tax-return-filing due date for that tax
year, including any extensions, to repay
the outstanding balance of the loan or to
roll it over into another eligible retirement
account. That means if you left your job
in January 2020, you would have until
April 15, 2021 (assuming no extensions)
— when your 2020 federal tax return
is due — to roll over or repay the loan
amount. Prior to the Tax Cuts and Jobs
Act of 2017, the deadline was 60 days.
If you can’t repay the loan, your
employer will treat the remaining unpaid
balance as a distribution and issue
to take Family Care under Paid Family or for other reasonable documentation Form 1099-R to the IRS. That amount
Leave to care for them, if it’s considered to demonstrate how you stand in loco is typically considered taxable income
a serious health condition. This includes parentis to the child or how the person and may be subject to a 10% penalty
eligible family members outside of New in need of care stood in loco parentis to on the amount of the distribution for
York State. you when you were a child. early withdrawal if you are younger than
59½ or don’t otherwise qualify for an
Family members include: • Domestic partner refers to a person who exemption.
• spouse is at least 18 years old and is dependent
on the employee for support who is Bottom line
• domestic partner (including same not related by blood to the employee A loan from your 401(k) may be an easy
and different gender couples; legal in a way that would bar marriage in way to get cash when you need it. But
registration not required) NYS. Dependence can be shown by it’s not the only option, and you should
• child/stepchild and anyone for whom a variety of factors; some examples explore all possibilities before deciding
you have legal custody include common ownership of property, what type of loan to pursue. If borrowing
common householding, children in from your 401(k) is your only option for
• parent/stepparent
common, signs of intent to marry, accessing necessary cash, make sure
• parent-in-law shared budgeting, and the length of the you understand all the terms. It’s also
• grandparent personal relationship with the employee. important to have a plan for how you’ll
• The Paid Family Leave definition of repay the loan.
• grandchild
serious health condition may include Waterford Advisors, LLC’s financial
Some important information about Paid mental health conditions. planners are always available to
Family Leave for Family Care: assist with any questions that you
• Your employer’s insurance carrier will
• If you are serving in the role of a parent receive and process requests for Paid may have. Please feel free to contact
for a child (‘in loco parentis’), you may Family Leave and make your benefit our office at any time.
be eligible to take Paid Family Leave payments. Source: https://www.creditkarma.com/
for that child. You are ‘in loco parentis’ personal-loans/i/loan-from-401k/
when you are fully responsible for the Additional information and resources can
child’s day-to-day care and financial
support even if you are not legally or
be found at: https://paidfamilyleave.ny.gov/
COVID-19.
If you want to
biologically related to the child. Similarly,
if someone stood ‘in loco parentis’ to
Waterford Advisors, LLC’s financial
planners are always available to assist feel rich
you when you were a child, you may
be able to take leave to care for them.
with any questions that you may have.
Please feel free to contact our office at
count your
Your insurer may ask for a simple
statement of the parental relationship
any time.
blessings
7 waterfordadv.com • 716-580-3906First Quarter Newsletter April 2020
DOG DOLLAR
drive
Through the end of April, we are collecting new and gently
used dog collars to provide to the SPCA Serving Erie County
in West Seneca. With the help of our staff, family, friends,
and colleagues we will be able to provide the SPCA with
plenty of dog collars for their adoptable pups! We will be
dropping them off to the SPCA as soon as it is safe to do
so. If you are interested in helping the SPCA, we encourage
you to take a look at their Wish List for ways to give:
https://yourspca.org/donate/our-wish-list/.
Certified Financial Planner™
Visit us online at waterfordadv.com
Phone: 716-580-3906
3858 North Buffalo Road, Suite 2
Orchard Park, New York 14127
Inside this issue…
Tax Corner . Happenings
PAGES 3-4 PAGE 4
401(k): NYS Paid Leave
Facts on for COVID-19
borrowing PAGE 6
PAGE 5
Securities offered through Cadaret, Grant & Co., Inc., member FINRA/SIPC.
Advisory services offered through Waterford Advisors LLC, an SEC Registered
Investment Advisor. Waterford Advisors and Cadaret, Grant & Co., Inc. are
separate entities.
All information is believed to be from reliable sources; however, we make no
representation as to its completeness or accuracy.
Articles edited by Ellen Bosco.You can also read
