Andrew Keshner


Small businesses can now apply for $350 billion in forgivable loans as part of the $2 trillion coronavirus stimulus bill

Small businesses are suddenly hanging on by a thread.

Forty-three percent of small businesses say they will have to permanently close within six months without some sort of quick cash infusion or fast improvement in economic conditions, according to a Friday survey that gives another look into the coronavirus outbreak’s swift and severe economic damage.

Coming the same day as a “devastating” jobs report revealing the loss of 701,000 jobs in March — which some economist said is only a glimpse of the carnage to come — a survey by the U.S. Chamber of Commerce and MetLife MET, 7.65% revealed:

• 24% have already shut down on a temporary basis, and 40% of the small businesses that are still open say they will probably have to close temporarily close within the next two weeks.

• Though 43% of the 500 polled businesses say they can’t survive without some sort of government assistance and/or change in economic conditions, 46% say the economy needs between six months and a year to return to the way it was.

• 54% said the American economy is in “poor” health.

Friday’s poll results are a special edition of an ongoing index that the national business trade association and the insurer MetLife have been using since 2017 to gauge small-business attitudes and economic conditions.

The index reached a record high of 71.7 out of 100 when researchers talked to businesses about their confidence in local economies and other factors in December and January; those same results showed a record 60% of businesses saying they were optimistic about the national economy.

Friday’s survey arrives during a key date in the federal government’s effort to help the country’s approximately 30 million small businesses.

Friday is the first day it will start accepting applications for $350 billion in forgivable small-business loans. The loans are one part of a $2 trillion stimulus package that includes $1,200 direct checks to individuals and an extra $600 per week for unemployment claims.

More than half of the businesses (56%) said direct cash payments are the best way to help, and 30% favor Small Business Administration loans, the survey said.

Cash flow and customer foot traffic are grinding down as consumers stay indoors and states impose shelter-in-place orders that temporarily close “nonessential” business and require restaurants to operate only on a delivery and takeout basis.

Almost 460,000 of the 701,000 vanishing jobs in March were in the hotels, restaurants and the hospitality industry, according to Friday’s nonfarm-payrolls report from the Bureau of Labor Statistics.

Other observers say there’s a limited time to help small businesses because many small businesses only have cash buffers to last them several weeks.

Commercial bankruptcy filings could start increasing as soon as this month, according to a prediction by one bankruptcy expert.

Author: Andrew Keshner

Source: Market Watch: 43% of small businesses say they’ll be forced to close permanently if they don’t get help soon, survey says

The White House and Senate agreed to a $2 trillion deal early Wednesday. Advisers say don’t pay down student-loan debt, at least not yet

The federal government is poised to send millions of adults checks as part of a massive $2 trillion stimulus bill aiming to support an economy reeling from the coronavirus outbreak.

The White House and Senate reached a deal early Wednesday on a bill that would send money to households and earmark $367 billion in loans to small businesses. The stimulus package still needs to pass the House of Representatives, but Speaker of the House Nancy Pelosi, a Democrat, said bill could pass by unanimous consent.

Details of the bill have not been released, but lawmakers had been mulling one-time checks of $1,200 for many adults below certain income levels and $500 to children. Once people get their stimulus money they’ll have a simple, serious question: How should I use this?

Advisers say they’d fill their rainy day funds first, pay down debts and then cautiously invest or donate their money.

The choice may be painfully clear for many who need the money now for necessities because they’ve been laid off from businesses lacking cash flow. Approximately 2.25 million jobless claims could pour in for the week ending on March 21, according to Goldman Sachs GS, +0.99% estimates.

For those who still have jobs, how should they use their money — especially at a time when up to 37 million jobs could be in jeopardy?

More than 20 financial advisers told MarketWatch how they’d use the money and what advice they are giving clients. They said they would first fill their rainy-day funds, pay down debts next and — very cautiously — invest. But what about everyone else?

Here’s a look at what some advisers said others should do with their stimulus checks.

Emergency fund accounts

“I would immediately place this money in my emergency fund account, which is located in a high yield online savings account,” Jovan Johnson, founder and CEO of Piece of Wealth Planning in Atlanta, Ga. Some online savings accounts can offer annual percentage yields up to 1.70%.

A rainy day account should cover three to six months of expenses, Johnson said. That means money for rent, mortgage and utilities. Average rent was $1,468 as of February, according a spokesman at, an online real-estate listings.

As of December, home owners paid $833 in interest and principal a month in a 30-year rate on a median priced home at $225,723, according to CoreLogic. That figure doesn’t include the varying size of property taxes that could be layered on a monthly bill.

The fund should also earmark between $120 to $200 for gas a month, $400 a month in groceries for a family of four and devote $1,000 for tires and car expenses, Johnson said. Lastly, the fund should also have enough to pay for the annual limit on out-of-pocket health care expenses, he said.

“If you feel confident that you won’t be laid off any time soon and you don’t have a contingency fund, you should put it there and start building it with every paycheck going forward,” said Tara Unverzagt of South Bay Financial Partners in Torrance, Calif. “You could be next — be prepared.”

Spend it (on debts)

If someone’s comfortable with the size of their rainy day fund, several advisers advise paying down debts — particularly credit-card debt. Americans owed $930 billion in credit-card debt as of 2019’s fourth quarter, according Federal Reserve Bank of New York.

‘Paying off credit cards would be a great way to get an immediate guaranteed return.’
— Chris Chen of Insight Financial Strategists in Newton, Mass.

“Paying off credit cards would be a great way to get an immediate guaranteed return,” said Chris Chen of Insight Financial Strategists in Newton, Mass.

However, Chen said he wouldn’t put it towards student-loan debt just yet because he would wait to see what further action lawmakers take on student-debt relief.

The federal government, the lender behind the majority of student-loan debt, is waiving collection for interest on loans for the time being and borrowers can put payments on pause for at least two months.

When deciding how to pay down debts, Nick Reilly, founder and lead adviser at One Day in Seattle, Wash., said the top focus should go to credit-card debts, particularly those with interest rates of 8%, and above. That consists mostly credit-card debt, he noted. As of November, the average annual percentage rate for a credit card stood at 14.87%, according to Federal Reserve information.

Invest it (carefully)

If emergency funds are first filled, debts are paid off and you have the stomach and experience, some advisers said there could be good investment opportunities waiting.

“I would definitely invest it in equities as I am a long-term investor. Equities are down about 32% from all-time highs and it’s important to slowly start taking advantage of this,” Silvia Manent, founder and managing partner of Manent Capital in Boston, wrote in an email to MarketWatch. One method would be investing small amounts on a weekly, bi-weekly or monthly basis, she said. “We may have more downside from here (nobody really knows) so it’s important to be careful.”

‘I would be looking for an ETF that provides exposure to as many industries as possible.’
— Eric Powell, founder of The Future Mill in Lakeland, Fla.

In Encino, Calif., Stephen Rischall, a financial adviser at Navalign, said if he received a check he would put it in “in good companies that I think are already benefiting, to some degree, from this pandemic – think of virtual learning and business cloud infrastructure, esports and video games, and grocery stores.”

Others said they wouldn’t stock pick.

“I would be looking for an ETF that provides exposure to as many industries as possible,” said Eric Powell, founder of The Future Mill in Lakeland, Fla. “This provides a growth opportunity for the future, but also offsets the risk of buying into individual companies that may file for bankruptcy.” One good way to spread risk and diversify at a low cost is looking for an ETF tracking an index like the S&P 500 SPX, +1.15%.

Donate it (if you can afford to)

Of course, those who could afford it, said they would donate their stimulus money.

“Lots of hourly workers — retail clerks, restaurant staff, nail technicians, hairdressers — saw their incomes go away practically overnight, but their financial obligations didn’t go away, and stimulus checks won’t bridge the gap very long,” said Melissa Brennan, financial planner at ARS Private Wealth in Plano, Texas.

Food banks and other charities are going to see a rising demand for their services, she noted. “All nonprofits are going to see the demand for their services increase, but their budgets were set before the pandemic started.”

“If you’ve kept your job and have an adequate emergency fund, you might want to consider donating a portion of the stimulus check to help those who aren’t as fortunate as you,” said Doug Garrison, senior wealth adviser at Investec Wealth Strategies in Houston, Texas. “Times such as this call for compassion and solidarity.”

Author: Andrew Keshner

Source: Market Watch: The best way to spend your $1,200 stimulus check, according to financial advisers

Financial advisers discuss the real cost of free stock trades

Are slashed fees ‘a recipe for disaster’ or another way to better improve market access?

There might be no such thing as a free stock trade.

After the news that Charles Schwab Corp. and TD Ameritrade would soon be dropping trade commissions, some financial advisers and market experts say it’s possible mom and pop investors could still end up paying — just in a different way.

Inexperienced investors could overtrade or make risky stock bets, unimpeded by fees to make them stop and think a second, advisers told MarketWatch.

David Bize, an Oklahoma City-based financial planner, said that “do-it-yourself investors have had low-cost trades for years, which provided ample rope to hang themselves.” No costs would encourage even more trades, which, he said, “most people do poorly, rather than a ‘buy-and-hold’ approach, which would be better for them.”

Starting Monday, Schwab is dropping its $4.95 commission per stock trade, ETF and option trade. TD Ameritrade is ending its $6.95 commission on Thursday. Late Wednesday, E-Trade ETFC, +0.28% also said it was ending retail commissions beginning Monday. The commission was $6.95 for the first 29 trades and $4.95 after up to 500 stock or options trades.

The fast-fading fees are another round in an ongoing race to shrink broker fees. But they also come during a time of stiff market headwinds: There’s the ongoing impeachment inquiry into President Trump, the tariff trade war with China and the drumbeat of a recession lurking somewhere around the corner — all things that could rattle retail investors.

“It has the potential to be a disruptive issue,” Kashif Ahmed, the president of American Private Wealth, a Bedford, Mass.-based firm, said of the slashed commissions. “The market is already delicate, so to speak. On top of that, you throw in people’s ability to trade without consequence.” He added, “Acting on no discipline and no cost, it’s a recipe for disaster.”

Others, speaking before the E-Trade announcement, said their big question now was how Schwab SCHW, +1.24% and TD Ameritrade AMTD, +0.78% would make up the revenue after erasing the commissions.

“A commission is the explicit spread or profit a broker dealer charges,” said Tyler Gellasch, the executive director of Healthy Markets, an investor trade group. “When that goes to zero, that naturally means there’s going to have be some other way for them to keep the lights on,” he said.

Without the upfront commission, “it’s hard to assess service and value provided, and harder for market forces to work their ways to benefit investors,” said Micah Hauptman, financial services counsel at the Consumer Federation of America.

Both Charles Schwab and TD Ameritrade emphasized they were lowering investing barriers without sacrificing quality.

“This is our price. Not a promotion. No catches. Period,” Charles Schwab & Co. CEO Walt Bettinger said in a statement. “Price should never be a barrier to investing for anyone, whether an experienced investor or someone just starting on the investing path.”

A Schwab spokeswoman said the assets under management rose to $3.72 trillion from around $2.9 trillion in February 2017, the last time the company lowered commissions.

She pointed to commentary from Peter Crawford, Schwab’s CFO, saying the company has “a business model that doesn’t depend on commission revenue, a long-term orientation and a history of being willing to disrupt ourselves based on client needs and competitive dynamics.”

The scrapped commissions equaled $90 million to $100 million in quarterly revenue, which is about 3% to 4% of total net revenue, Crawford noted.
A TD Ameritrade spokeswoman said, “With $1.3 trillion in client assets, we have scale and a diverse business model with a range of different revenue streams.” She said the company was committed to the “best execution” of trades and “a consistent, quality and liquid trading experience for our clients.”

“We firmly believe that investing is a pathway to a better life and are fully committed to providing more people with the access, education, and help they need to confidently navigate and build a more sustainable financial future for themselves and their families,” she said.

The company has been building up its investor education offerings in the past year, she said, adding, “Relevant information, delivered when our clients could best use it, and in the formats they prefer, increases confidence and empowers rational decision-making.”

Behavioral economics suggests people don’t always make ‘rational’ money choices

While the trading platforms are changing, the people using them stay the same. This could be part of the challenge in avoiding any overtrading and bad bets.

Behavioral economics research says people have an “mental accounting” system where they internally label money for certain activities and won’t replace it with other earmarked money. If someone sets aside $500 a month for stock trading but doesn’t hit the limit, he or she might just keep on trading.

Of course, there’s another behavioral economics theory that could make the case that investors with zero commissions will be cautious. The concept of “loss aversion” means “losses hurt more than gains feel good,” writes Richard Thaler, a professor at the University of Chicago Booth School of Business and giant in the behavioral economics field.

On Wednesday, some financial advisers said the erased commissions wouldn’t unlock the floodgates on ill-advised trades. They noted low-cost trades have been around for years.

“If the investor is scared due to current headline risk, their innate behavioral biases will likely lead to poor trades anyway,” said Risley Sams, founder and president of RHS Financial in San Francisco. “The fact that it won’t cost them any commissions is probably not the primary driver.”

Others welcomed the news on the scrapped commissions.

Mike Alves, the managing director and founder of Vida Private Wealth in Pasadena, Calif., said the news would lure more investors. By investing in the market, winning on some bets and losing on others, more consumers could actually become savvy investors — and better appreciate the services of financial planners like Alves.

“Sometimes our job is helping our clients avoid financial mistakes,” he said. “If I can save you from making a million-dollar mistake, how much is that worth?”

Charles Schwab Corp. shares are down 12% from the start of the year, E-Trade shares are down almost 20% and TD Ameritrade shares are down more than 30%. The S&P 500 SPX, +0.91% is up 15% and the Dow Jones Industrial Average DJIA, +0.90% is up almost 12% over the same period.

Author: Andrew Keshner

Source: Market Watch: The downside to Charles Schwab and TD Ameritrade eliminating trading fees (yes, really)

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