Financial Opportunities for Wealthy Families During the Coronavirus Crisis

The headlines over the past weeks have been riddled with two serious threats to the health and well-being of people across the U.S. The first and obvious threat is the novel coronavirus (COVID-19) outbreak. The other obvious danger is the stock market, which entered bear market territory for the first time in 11 years.

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In the world of competitive car racing, they say that races are won and lost in the curves. Similarly, in the world of investing, success is driven (or stalled) in times like these through your actions and inactions. There is a tremendous challenge in financial decisions, however, when panic strikes the world like it has recently. Panic — caused by this sudden “curve” in the market — naturally creates added stress and fear for everyone, inhibiting the ability to make sound and opportunistic financial decisions.

But there are wise decisions to be made in the midst of this bear market. As Warren Buffet says, “You should be fearful when others are greedy and greedy when others are fearful.” If you sell now, you are selling at a low point. Now should be the time to hold the course and stick to a well-defined financial and investment plan that is tailored to your particular situation.

Turn a negative into a positive

The current financial climate actually offers some opportunities that can help you grow wealth for generations to come. A few examples:

Roth Conversions

This can be a great time for Roth IRA conversions, especially for intragenerational family wealth transfer strategies. Traditional or rollover IRAs have likely declined in value if they were broadly invested in the equity markets. In this case, it may make sense to discuss converting some or all of your IRA into a Roth IRA. Those who make this change would recognize income tax on the amount converted, which is lower due to recent declines. Plus, any recovery in the value of the account is now tax free in a Roth IRA.

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Roth IRAs are not subject to future required minimum distributions (RMDs) and may be passed down to the future generations for additional tax-free growth. It’s important to note that under the SECURE Act, non-spouse IRA beneficiaries are no longer able to “stretch” RMDs from an inherited account over their lifetime. Instead, all funds from an inherited IRA generally must be distributed to non-spouse beneficiaries within 10 years of the IRA owner's death.

Refinancing Debt

The low interest rate environment has created a great opportunity to refinance existing long-term debt or intra-family loans and potentially increase principal amount of an intra-family loan for a greater family generational wealth transfer opportunity at these suppressed values. Lowering the cost of borrowing frees up cash flow for spending or other saving/investing purposes. Additionally, lowering the cost of intra-family loans allows more money to get to the family members borrowing the money, thus getting more money into their hands vs. yours.

Execute Stock Options

Executives with non-qualified stock options should strongly consider executing those options today to reduce future tax bills. Executing the options at a lower price for people intending to hold their shares lowers the amount of tax upfront, then future growth will be at capital gains rates vs. ordinary income rates. This is ideal for employees who intend to hold their company’s stock over a longer period of time after they exercise their options. Clearly, holding too much of one stock carries its own risk, but certain companies require their employees to own a certain percentage of the stock.

For wealthy investors, there are a multitude of other opportunities that, based upon your own situation, could be relevant in building wealth. With a well-constructed plan that is tailored to your unique circumstances, you can turn negative market events like the ones seen today into positive opportunities.

Finally, tune out the noise

One of the biggest hurdles to both sound and opportunistic financial decisions is, frankly, the financial media “show business.” In our minds, the proliferation of financial news that constantly barrages the public with the latest shocking development has actually been a contributor to the speed at which bear markets like the current one accelerate. Mere months ago, we were perched upon all-time high markets, with strong earnings and a healthy financial system. Since then, we have experienced the fastest decline ever into bear market territory.

The relative speed of these markets, fueled, in part, by panic spread over the airwaves and in social media feeds, makes it even more challenging to make sound financial decisions and pull the trigger on the opportunistic ones.

Ultimately, in times like these, we all must focus on what we can control to mitigate the threats posed to both our health and our wealth. While knowledge of the coronavirus evolves, we will learn more about how to manage that threat. But we already have the knowledge and tools at our disposal to mitigate any impact that a bear market might have to our and our families’ well-being.

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Matt Helfrich is President of Waldron Private Wealth, a boutique wealth management firm located just outside Pittsburgh, Pa. He leads Waldron's strategic vision, brand and value proposition and overall culture of the firm. Since 2002, Helfrich has served in a number of roles including: Chief Investment Strategist and Chief Investment Officer, where he was instrumental in creating and refining Waldron's investment discipline.

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