How Should I Adjust My Financial Plan in a Biden Presidency?

Now that Joe Biden has been declared the winner of the 2020 Presidential election, you may be thinking about what changes you need to make in your financial plan to prepare for a Biden presidency.

Here’s what you need to do:

Not. A. Darn. Thing.

If you had a plan on Monday before the election, then your plan is still good and valid now that Biden has been declared the winner.

It’s that simple.

Keep to your existing plan.

Very little will actually change in the daily finances of the average U.S. citizen.

For everything else that may or may not change, your daily finances won’t.

Trying to read any other tea leaves is a fruitless exercise. Nobody knows what will happen, and your crystal ball isn’t better than anyone else’s.

So, keep to your plan, just like you always have.

An Anti-Masker’s Argument for Universal Masking During the COVID-19 Pandemic

Just because something doesn’t confirm your existing beliefs does not mean it’s a hoax.

–Stephanie Ruhle

This is an argument for enacting a strict mask compliance ordinance for the COVID truthers who believe this is all a hoax.

Let’s assume that masks are utterly ineffective and that COVID is just a hoax generated by some worldwide cabal that is determined to take your rights away.

Regardless of whether or not masks work and COVID is real, there are a lot of people who believe it is real.

About a month ago, 64% of Americans believed the CDC, who is stating that COVID-19 is a pandemic that we have to deal with.

This translates into low percentages of Americans who are willing to participate in activities that were designed to “open up the economy,” such as going to bars (27%), going to gyms (28%), going to movie theaters (27%), staying in a hotel (51%), and eating at a restaurant (54%).

We started opening the economy back up in late April. But, as any business can tell you, just because you open your doors doesn’t mean you’re getting customers. We can see what while OpenTable reservations went from a dead stop during the lockdown to some improvement, roughly 60% of the people who reserved last year are staying home.

Why is this?

It’s because people who believe that COVID is real generally don’t want to get exposed to it, regardless of whether or not governments have “opened up the economy.”

75% of Americans favor requiring masks in public.

It is unfathomable to believe that there exists a large number of people who do not believe in COVID but do believe in public mask mandates. That number is so small as to be effectively zero.

While there are probably some people who will stay home regardless of a strict mask mandate until there is a vaccine or a New Zealand-esque reduction in the number of cases, it is also reasonable to believe that the people who believe that COVID is real and have stayed at home do so because they do not feel safe, and will feel safer in an environment where EVERYONE is wearing masks.

As of a couple of weeks ago, 28 states, DC, and Puerto Rico had issued mask mandates.

Yet, you don’t see those results in the OpenTable data above.

Why?

As an example, Texas, the state in which I live, has a very lax mask mandate.

It has limited teeth.

The punishment for failure to not wearing a mask is a warning the first time and a $250 fine each time thereafter.

Over 80 counties won’t even enforce it.

Thus, I see people at the local Costco walking around the aisles with masks around their necks, apparently protecting their Adam’s apples from COVID, which gives me less confidence in being around them, because I do believe in COVID.

This is because the state still relies on businesses to enforce the mandate.

Compare to seat belt laws in Texas, which also carry a fine of $25 to $250 regardless of whether or not they are first time offenders

The difference is that, aside from knowing that seat belts save lives, even if I do not believe in the efficacy of seat belts, I do believe that if I drive by a police officer and I am not wearing a seat belt, I will receive a ticket.

If I do not believe in COVID and I refuse to wear a mask, I harbor no such concern of punishment. I may or may not be kicked out of a store once I get in, so I would wear my mask to get in, and then take it off, as many people do, because there is no concern of punishment.

Thus, in order to get true compliance, we either need a much better education campaign, which has not succeeded to date (see: condom compliance), or much stricter enforcement and punishment of failure to wear masks.

Yes, to the COVID truthers out there, this may be anathema, but, I argue, most of them want to return life to status quo ante with an open economy.

Until everyone else believes that they can safely go to businesses and not catch COVID, regardless of whether or not you, personally, believe that they will, businesses will teeter on the precipice of life and death.

So, there are two reasons for a person who believes COVID is a hoax to support a stringent mask mandate:

  1. If everyone else believes they are safe, they will come out and support businesses and truly open up the economy.
  2. If masks are effective against COVID, as the global cabal would have us believe, then, if there is global compliance, COVID should disappear over time, like it did in New Zealand.

That would get us back to the way life was before the global cabal created COVID to take your rights away if you believe COVID is a hoax.

By the way, if you believe that COVID is real, like I do, then you want the EXACT SAME outcome that the people who don’t believe COVID is real do – get life back to the way it was before COVID as quickly as possible.

It does appear that countries with high mask compliance then have successes at driving COVID down.

(source)

In Germany, you can see the correlation between mask adoption and the rapid decline of COVID cases.

(source)

And, look at the OpenTable reservation data for Germany, which I cited the source previously.

Mask wearing works. If you believe COVID is real, then you can see the results in the data. If you believe COVID is a hoax, then you can see how the global cabal has controlled the information flow such that, when people wear masks, the economy returns.

In either case, whether or not you believe that masks impede your freedom, the world has changed to the point that, in order to have a return to life before COVID, you’re going to need masks unless you are willing to wait for a vaccine.

If you’re looking for a mask that makes a statement, check out our online store.

Growing the Economy Will Not Solve Systemic Racism

We want to see a world where black lives matter in order for us to get to a world where all of our humanity is respected.
–Alicia Garza

On June 5, 2020, the jobs report came in better than expected. Unemployment was only 13.3%, compared to expectations of 20% unemployment. Accordingly, the S&P 500 went up 2.62%.

But black unemployment actually increased during the same time period.

All of this happened during a backdrop of Black Lives Matter protests across the country, and President Trump saying that the key to solving systemic racism is to have a strong economy.

Arguably, before the arrival of coronavirus on the world, the United States had a strong economy. The unemployment rate was at 3.5% in February, 2020. The S&P 500 hit 3,380.45 on February 20, 2020. Economically, the U.S. had it really good, though black unemployment was 6% compared to a 3% unemployment rate for whites.

So, why doesn’t a hopefully recovering economy help everyone across the board?

The answer is quite simple.

Most people do not get to the point where their saved assets earn more than their wages until later in life.

Yet, it’s capital itself, rather than wages, that is the generator of wealth. Either you inherit capital, you create capital, or you save from your wages to convert those wages into capital, and that capital is invested, hopefully intelligently, into something that grows over time.

But, to convert wages into capital, you have to have excess wages. Your wages have to be high enough to where you’re spending less than you make and you can save some of your wages.

And here is where we see the failure of the overly simplistic “make the economy great to eliminate racism” notion failing.

Median income – where 50% of a group makes more and 50% of a population makes less – is DRASTICALLY different between whites and blacks.

In 2018, median income for whites households was $70,642.

In 2018, median income for black households was $41,511.

Put another way, the median income of black households is 58.8% of the median income of white households.

While I’m sure the Bureau of Labor Statistics provides median spending somewhere on their website, it’s not easily accessible. So, I had to improvise.

Median household spending in 2014 was $36,800.

Median household income in the U.S. in 2014 was $53,657.

Median household income in the U.S. in 2018 was $63,179. That’s a 17.7% increase.

It’s reasonable to assume that household spending went up approximately the same, so that would make median household spending in 2018 roughly $43,331 (note: if someone has more accurate data, I’m happy to put it in here, but this is close enough to prove a point).

So, median household income for black households is less than median household spending. A 50th percentile black household can’t even afford the median lifestyle of a U.S. household.

Meanwhile, the median white household should have $27,311 in excess earnings to convert into investments and capital.

Let’s assume that inflation is 3%, so the amount contributed increases by inflation annually and the target – median household spending – also increases by 3%.

Let’s further assume that the investments earn an average of 9% (yeah, coronavirus, stocks go up and down, etc. I get it. This is a thought exercise).

How long will that household have to work until they have enough saved up to, using a 4% safe withdrawal rate, not have to work?

22 years. At that point, the median white household should have about $2.16 million saved up, which will generate $86,348.21.

For a median black household to save $27,311 per year, they would have to only spend $14,200.

To put that into context, the federal poverty level for a family of 2 in 2018 was $16,460.

A median black household would have to live a below the poverty line lifestyle to match the savings that a median white household gets by having median household spending.

The progenitor of the extreme retirement extreme lifestyle, Jacob Lund Fisker, claimed to have a radical extreme lifestyle and spent $7,000 per year. That was for a single person. Get married, and you’re at the amount that a median black household could spend in order to have enough saved up to match a median white household’s savings and to retire in 22 years to a median household’s lifestyle.

The middle of the road black household starts off way, way, way behind the middle of the road white household. Dirt road with potholes versus freshly paved four lane highway.

Thus, it is no wonder that for every 10 white households who have taxable investment accounts, only 6.1 black households do.

So, when the economy rises and the stock market rises, white households will benefit disproportionately to black households. It’s because the median black household can’t even afford to invest in the stock market, much less benefit from it.

I readily admit, I don’t know the answers. But I know what’s not the answer: assume that the economy will grow away disparities. It will only exacerbate them. If we can raise the other median incomes up, which is a whole set of reforms away, then we can truly level the playing field so that everyone gets equal economic opportunity. Perhaps then, the simple solution may be a lot closer to being the right one.

Until then, the numbers don’t justify this answer, and there have to be other ways to help address systemic racism.

Is Owning a Home a Necessary Part of a Retirement Plan?

Dallas, Texas based Certified Financial Planner Jason Hull of Hull Financial Planning firmly believes that owning a home is not a necessary part of a retirement plan.

A study by Walter D’Lima of Old Dominion University and Paul Schultz of Notre Dame showed that >real estate investors outperform general market indices, but only when they:

  • Live near the investment property
  • Buy without a mortgage
  • And have experience in real estate investing

Furthermore, those investors earn less when the live in the house.

Typically, the average person will buy a property with a mortgage and with no experience in investing in real estate. Additionally, emotions become completely entangled in trying to “invest” in the house that you own, and oftentimes, such emotions and behavioral biases, such as the endowment effect, are completely separated from what will generate money as an investment.

Moreover, further studies of residential real estate show that >almost all profits from residential real estate investment come from rental income rather than from price appreciation. Unless you’re planning on renting out rooms in your home sweet home, you’re not going to get rental income from the house that you live in.

In other words, based on historical evidence, you’re going to be at breakeven on your house if you buy it without a mortgage. Once you include a mortgage, even if you qualify for specific deductions above and beyond the standard deduction because of your mortgage – put another way, you’d have itemized deductions even if you rented, you’re probably going to have a negative inflation-adjusted return on the money that you will spend on a house.

Yes, you’re going to have to pay to live somewhere regardless. If you can buy a house with all cash, then you are probably as well off or slightly better off with a house than with rent, but if you’re going to have to rent, generally speaking you’ll be pretty close to financially equivalent. Real estate is local, so it does depend on where you live; the New York Times has a >decent rent versus buy calculator.

That said, renting also provides much more flexibility. Many gains in people’s incomes are based on their ability to move to where jobs are. Owning a home means that you do not have that flexibility, or, if you have to sell quickly, not only are you paying a Realtor’s 6% commission, but you’re probably going to have to drop the price enough to find a buyer who can close quickly. With renting, you can usually break the lease for 1 or 2 months’ worth of rent to move.

Mr. Hull and his wife retired early. He was 46 and she was 45 when they FIREd. They have lived in apartments for the past 7 years, and plan to do so for the foreseeable future.

Prepare Your Money for a Recession

While the coronavirus induced recession is forcing all of us to reevaluate our financial behaviors with a close eye for detail, these are habits that will serve us well whenever life has returned to normalcy, which, hopefully, is sooner rather than later!
  1. Cut living expenses. In times when we are not worried about negative financial outcomes, we tend to spend more extravagantly. Often, the things that we spend money on are things that don’t actually provide us with a lot of psychic value, or that we perceive as too onerous to cut out rather than just ripping the Band-Aid off and doing it. I recommend people look at the 12 months BEFORE lockdown and go through their bank and credit card statements. For each item that they spent money on, they should ask if they REALLY need that. Imagine a movie with a 70 year old you as the main character. That will help you plan for your future and keep that future you in mind rather than just living for the day, giving you more accountability when you go through the exercise. If you find that you’re spending on something that you don’t NEED to spend on, try cutting it out for two months. While you may think that it’s going to be hard to live without that item, in reality, we adjust very quickly, and you will probably find that for most of the items you cut, you never really needed them in the first place. If, in two months, you’re miserable without something, then bring it back into your life. Also, with your new, sleek, streamlined spending, don’t fill the vacuum with other spending! Instead…
  2. Build your emergency fund. Emergency funds are meant to be the padding in a highly downside event – a job loss, a major medical expense, a massive repair to your home or car, etc. Research shows that for the 2008 Great Recession, the 90th percentile of unemployment caused by the recession was 16 months. That’s why I recommend having 16 months of expenses in an emergency fund. Yes, that seems like a lot, and you may not get there overnight, but this is like insurance. Your goal is to never need to make a claim on your insurance, but if you wind up having to make a claim, you’ll be extremely glad you had it.
  3. Reevaluate career and financial goals. Given the skyrocketing unemployment claims because of the coronavirus pandemic, no job is truly safe. That’s why it’s a good time to evaluate your career goals. What will you do if you get laid off? Are your LinkedIn profile and resume up to date? How strong is your network? What do you want to be when you grow up? Is the brass rung something you still want to strive for, or is the juice not worth the squeeze? I wouldn’t advocate going out right now and trying to start a new career if you already have a job, but when the pandemic is over, hopefully, you’ve already gone through the thought exercises of how you want to define meaningful work. This also applies for your financial goals. Think about what success in life looks like. What do you want to look back on in your final days and be happy that you did? Write down those goals, set times to them, and then sign that goal sheet at the top of the page, and post it somewhere visible. That will become your contract to yourself for achieving those goals.
  4. Continue to invest. Once you’ve set your financial goals, you may want to work with an advisor (I recommend an hourly Certified Financial Planner) to figure out how you’re going to achieve those goals. Then, after you’ve set enough aside in your emergency fund, automatically invest on a regular basis into the accounts that you and your advisor decide are best for you (e.g. 401k, IRAs, taxable accounts, 529s, etc.). Also, aim for low cost funds and ETFs, such as Vanguard.
  5. Revisit your investment strategy. This one can be pretty simply described as “don’t overthink it.” If you have a strategy of periodically and automatically investing in low cost investment choices, then, unless something changes in your life or your goals, stay the course. A lot of individual investors are great at selling low and buying high, and committing to and executing an automatic investing plan is the best way to ensure that you don’t fall prey to that trap.
Jason Hull is a Dallas, Texas based Certified Financial Planner with Hull Financial Planning.