Terence S. Phillips,
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The Coronavirus and the Global Economy2/29/2020 At the end of February 2020, there were more than 84,000 confirmed cases of COVID-19 — the official name of the coronavirus first reported in Wuhan, China — including over 2,800 deaths. Most were in China, primarily in Wuhan and the surrounding Hubei province. But about 5,200 cases, including 86 deaths, had been reported in nearly 60 other countries. While the pace of new cases slowed in China, a surge in South Korea, Italy, and Iran caused concern that the virus may be difficult to contain.1 Cities Under Lockdown
By mid-February, at least 150 million people in China were under restrictions affecting when they could leave their homes, and more than 760 million — about 10% of the world’s population — lived in communities under some form of travel restriction.2 Most global airlines cancelled service to and from China, disrupting tourism and business travel.3 The Chinese government enacted restrictions around the time of the Lunar New Year celebration, during which many businesses were closed, lessening the immediate impact. However, as factories and other businesses remained closed after the holiday, the loss of Chinese production and consumer spending began to take a toll on global businesses.4 Lost Supply and Demand Many U.S. technology companies have manufacturing operations in China while also selling to Chinese businesses and/or consumers. Companies with substantial exposure to the slowdown in China include big tech brands such as Apple, Dell, Hewlett Packard, Intel, and Qualcomm, as well as many smaller tech businesses.5–6 Vehicle manufacturers throughout the world rely on Chinese-made parts, and many have plants in China. General Motors (which sells more cars in China than in the United States), Ford, Toyota, BMW, Honda, Nissan, Tesla, and Volkswagen all suspended operations in China, while Hyundai and Renault closed plants in South Korea, and Fiat Chrysler closed a plant in Serbia, all due to parts issues.7–9 Global retailers including Apple, Ikea, Levi Strauss, McDonald’s, KFC, and Starbucks temporarily closed stores in China.10–11 In addition to disruptions in the global supply chain and Chinese consumer market, the tourism industry in the United States, Europe, and other Asian countries may be hard hit by the absence of Chinese tourists. One estimate suggests a loss of almost $6 billion in U.S. airfares and tourist spending.12 Although it is too early to measure the full effect on global business, a private report released on February 21 indicated that U.S. business activity had slowed in February to the lowest level in six years, with the biggest hit to the service sector, where travel and tourism are major components. The report also indicated a sharp drop in Japanese business due to lost tourism and export orders. Exports were down in Germany, but the initial impact on the eurozone was minimal.13 Oil Pressure China is the world’s largest importer of crude oil, and Wuhan is a key center of its oil and gas industry. The prospect of lower demand drove oil prices into bear-market territory — defined as a drop of 20% from a recent high — in early February. Prices rose later in the month but dropped again with news that the virus may be spreading. Natural gas prices have also been hit by the prospect of lower growth in Asia. While lower prices may be good for U.S. consumers, oil-exporting nations, including the United States, will face lower revenues, and energy companies that are already on rocky ground may struggle.14–17 Market Reaction In late January, the Dow Jones Industrial Average lost 3.7%, due in large part to concerns about the virus.18 The market bounced back quickly, setting new records in mid-February, but weak business news and a rash of cases outside China sent the Dow into correction territory (a decline of 10% from a recent high) on February 27.19 This suggests that the market may be volatile for some time, and future direction might depend on the progress of disease control and emerging information on the impact of the virus on U.S. and global businesses. Global Growth Outlook Anything that affects China, the world’s second-largest economy, can have a powerful ripple effect around the globe. An early February report by Moody’s Analytics estimated that every 1 percentage point reduction in China’s real gross domestic product (GDP) will reduce global GDP outside China by 0.4%. The report projected that disruption caused by the virus would cut more than 2 percentage points off China’s GDP growth in the first quarter of 2020 and result in a loss of 0.8% growth for the year. This in turn would cause a loss of about 0.3% in annual global GDP growth outside China and about 0.15% in the United States. Moody’s lowered its projection for 2020 global growth from around 2.8% to 2.5%.20 In a February 16 forum, Kristalina Georgieva, managing director of the International Monetary Fund, was more optimistic, suggesting that the virus might shave only 0.1% to 0.2% off the IMF’s 2020 global growth projection of 3.3%. Georgieva cautioned that there was still a “great deal of uncertainty” and emphasized that the extent of the economic damage depends on the length of the disruption. If the disease “is contained rapidly,” she said, “there can be a sharp drop and a very rapid rebound.”21 Although it’s natural to be concerned about the virus — on a human level as well as its potential effect on the global economy -- it is important not to overreact to short-term market swings. A well-balanced portfolio appropriate for your long-term goals and risk tolerance could help you weather the current volatility. All investments are subject to market volatility and loss of principal. Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost. 1) South China Morning Post, February 29, 2020 2) The New York Times, February 18, 2020 3–4, 20) Moody’s Analytics, February 2020 5) The Wall Street Journal, February 18, 2020 6, 10) Los Angeles Times, February 4, 2020 7) Forbes, February 12, 2020 8) Car and Driver, February 4, 2020 9) The Wall Street Journal, February 14, 2020 11–12, 14–15, 18) The Wall Street Journal, February 3, 2020 13) The Wall Street Journal, February 21, 2020 16) Bloomberg, February 27, 2020 17) The Wall Street Journal, February 7, 2020 19) The Wall Street Journal, February 27, 2020 21) Bangkok Post, February 17, 2020 This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2020 Broadridge Investor Communication Solutions, Inc.
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The taboos vary by class, job, and circumstance. Americans love to talk about how Americans hate to talk about money. Indeed, recent surveys from financial and market-research firms have found that in 34 percent of cohabiting couples (married or not), one or both partners couldn’t correctly identify how much money the other makes; that only 17 percent of parents with an income above $100,000 a year had told (or planned to tell) their children how much they earn or their net worth; and that people are “more comfortable” talking with friends about marital discord, mental health, addiction, race, sex, and politics than money. These results seem to point to a society-wide gag rule that discourages the discussion of financial details. But there are caveats. The companies that tend to publish findings like these stand to gain from persuading people to talk more about their money, if not with their loved ones, then with a professional financial adviser. They’re also, therefore, more likely to be interested in the psychological drama of people who make $100,000 a year than in that of people who make less. Many Americans do have trouble talking about money—but not all of them, not in all situations, and not for the same reasons. In this sense, the “money taboo” is not one taboo but several, each tailored to a different social context. Money taboos are absent, or much weaker, in many countries and cultures outside the U.S., but when the conditions present in those societies exist in certain pockets of America, silence can give way to relative openness. Americans, in other words, are hesitant to talk about money—except for all the times when they aren’t. When I asked Rachel Sherman, a sociologist at the New School, why Americans are reluctant to talk about income and wealth with their friends and families, she responded with her own questions: “What does it mean to ‘talk about money?’ Does it mean saying amounts of money, like [how much you earned last year in] numbers? Because I think that is taboo. But I also think we are kind of constantly talking about money.” She pointed out that everyday conversation is filled with questions about what people buy, what they do for a living, where they went to school, and other subjects that serve as proxies for class position. In fact, money taboos vary a lot based on class. Sherman told me that “people often just feel bad about how much money they have,” so “not talking about it makes that feeling of badness go away.” In interviews with wealthy New Yorkers for her book Uneasy Street: The Anxieties of Affluence, she heard people say that they kept financial details private to spare their friends or children from feeling bad. She suspects that although this rationale is genuine, it’s also “a justification for silence” that prevents people from having to confront the unpleasant fact of their own wealth in an unequal society—that is, they’re ultimately sparing themselves. [Read: Rich people rarely tell their kids how much money they make] Among middle-class Americans, the ban on talking about money is instead often brought on by financial precarity. Caitlin Zaloom, an anthropologist at New York University, interviewed dozens of middle-class families for her recent book Indebted: How Families Make College Work at Any Cost. She told me that to the families she spoke with, being middle class meant not being financially reliant on family, friends, or the government. “Under the conditions of [economic] fragility, protecting a middle-class identity meant silence about money,” she said. “Silence protects the idea that a middle-class family is independent and will be into the future, even if that’s not the case.” In working-class communities, meanwhile, the money taboo can be weaker. Jennifer Silva, a sociologist at Indiana University who has researched the coal-producing region of Pennsylvania, told me that the working-class families she’s interviewed didn’t hesitate to disclose specifics about their income, rent, or expenditures. “People would say, ‘I’m an open book,’ and be straightforward, open, not ashamed,” she said. They freely discussed “the challenges or even impossibilities of supporting a family on minimum-wage work” and “how they would make their budget stretch, such as buying ground meat in bulk and freezing portions to make it last.” “There is a racial difference in how people talk about money,” Frederick Wherry, a sociologist at Princeton University, told me in an email. “By the numbers, the racial wealth gap between African Americans and whites is [roughly] one to 10, so it is hard to have a taboo around something that hardly exists for you.” Some financial struggles may be inescapable, Wherry noted, but certain black communities have developed practices to talk about them with optimism. He cited the “uplifting [tone of] gospel and sermons: ‘Manna from heaven in a time of need,’ ‘the widow’s jar of flour that does not run out.’” Even if no single taboo around money exists across every segment of American culture, it’s possible to take a wider view of the function that financial silences serve. Societies with significant wealth disparities are “inherently unstable,” Jeffrey Winters, a political-science professor at Northwestern University, told me. The idea is that the have-nots fight to claim some resources for themselves while the haves fight to defend what they own, whether violently or more subtly. Thus, taboos around money—among haves and have-nots alike—exert a sort of stabilizing force, blurring how much people actually have and giving them one fewer reason to be upset with their place in society. “The bubbles of denial that people operate within are sustained by taboos on talking about money, which in turn helps sustain the unequal society itself,” Winters said. One common explanation for the particular sway money taboos hold over Americans is, as Zaloom put it, the widely held belief that “your value as a human being is somehow made material in your pay and in your accounts.” If people were to publicly reveal their income, Zaloom said, they’d be “exposing how they’re valued by their employer and how their contribution is valued even more broadly, by the community.” [Read: Who actually feels satisfied about money?] Other researchers I consulted had different, but no less compelling, theories as to why direct discussions of money can produce social tension in any society. “Money gets tied up in all sorts of moral problems and provokes taboos because its special task is to translate qualities into quantities,” Gustav Peebles, an anthropology professor at the New School, told me. “Anything that is for sale has a host of qualities—even a jug of milk—that necessarily must be reduced to a singular price.” He noted that pricing a gallon of milk might not itself pose a moral dilemma, but this conversion of the subjective to the ostensibly objective is more fraught when it involves human labor and value. Jeremy Jones, an anthropologist at the College of the Holy Cross who has studied cultures of money in Zimbabwe, hypothesizes that people’s openness about a particular expenditure or investment might have to do with the time horizon associated with it. To take one example, debt can be such a sensitive subject because “the ramifications of [it] can extend far beyond the here and now,” he told me. Meanwhile, inquiring about the cost of a friend’s lunch yesterday—a transaction with likely limited connections to the past and future—generally isn’t off-limits. But if the time horizon of that small purchase were extended—if that friend were trying to save aggressively to buy a house in five years, and wanted to avoid expensive lunches—the money spent would become more loaded with meaning, and possibly shame. The time-related taboos that Jones described have likely been around for a while, but the particular taboos around talking about money in present-day America are probably about a century and a half old, according to Eli Cook, a history professor at the University of Haifa and the author of The Pricing of Progress: Economic Indicators and the Capitalization of American Life. “In the late 19th century and early 20th century, I think many Americans internalized the lessons of mainstream neoclassical economics, which suggested, through [the economist] John Bates Clark’s theory of marginal productivity, that everyone earns what they in fact produced,” Cook told me. Before this period of industrialization, Cook said, workers had less of an expectation that their pay would reflect their talents and abilities, because they were well aware of the leverage their employers had in setting wages; but in the 20th century, as those economic ideas took hold, wages became something that workers might deduce their own worth from. Similarly, Zaloom traces the link between financial value and personal value to the German sociologist Max Weber’s work The Protestant Ethic and the Spirit of Capitalism, which was published at the beginning of the 20th century. James Suzman, an anthropologist who has studied and written about the Ju/’hoansi, a group in southern Africa that lived as hunter-gatherers well into the 20th century, has seen money taboos develop firsthand. When different groups of Ju/’hoansi first encountered money at various times in the past half century, Suzman told me in an email, they didn’t have any qualms about discussing it. But after the introduction of money and wage labor, Suzman said, “people who earned money soon become circumspect about talking about it among those who didn’t, largely because if they talked about it, others would demand a share, often putting strain on relationships.” But even though wage labor is common throughout the rest of the world, it does not necessarily produce taboos like the ones in the U.S. Cook told me that in Israel, some people openly discuss salary information. He attributes this to a range of potential factors, including a lower cultural premium on privacy, higher levels of unionization (“Once it’s collective bargaining, it’s not as personal”), a sense of society-wide solidarity (“There is a notion that ‘Together we can make sure the boss isn’t screwing us’”), and a desire to seem savvy (“People like to show off that they are good hagglers and will brag how they got the best deal. They do this with everything—why not salaries?”). [Read: Ask your (male) colleagues what they earn] Other societies provide examples of how financial value need not be equated with personal value. Kimberly Chong, an anthropology lecturer at University College London, told me that when she studied the office of an American consulting firm in China, the mostly Chinese consultants “freely shared information about how much they earned with each other and also felt emboldened to ask senior executives how much they earned.” To the frustration of management, this made it difficult to sustain the pay differentials that are common at American companies. In America, “asking someone what they earn is considered taboo because you are indirectly questioning their personal worth,” Chong writes in her book Best Practice: Management Consulting and the Ethics of Financialization in China. “By contrast, in China personal worth is not primarily indexed to financial worth, but rather one’s ‘quality’ (suzhi), the moral and ethical values that cannot be reduced to economic value.” When conditions like those in Israel and China are introduced into certain segments of American society, money taboos can dissolve. Zaloom noted two contexts in which American workers’ pay is less connected to their perceived worth: unions and government jobs. “In unions, everybody knows how much everybody else gets paid, because it’s a part of contract negotiations,” she said—the feeling of being valued in a certain way by the larger economy might still be present, but so is the sense that one’s pay is simply the product of the union’s negotiating power. The outcome is similar for public workers, whose pay is often standardized, and determined by clearly defined criteria. “There’s a bureaucratic rationality to the pay that disconnects it from a sense of moral responsibility,” Zaloom said. Money also becomes more openly discussed under particular household circumstances, as Viviana Zelizer, a sociologist at Princeton, pointed out to me. “We know taboos are broken during various times of crisis,” she said, noting the examples of divorce or a family illness. In many countries, the taboos around talking about money are weaker not because of collective bargaining or standardized pay, but because people’s livelihood often depends on a full and accurate accounting of each household member’s earnings, expenditures, and deals. “In some societies, the money taboo is instead constant chatter—how much things cost, how much jobs pay, how much the currency is worth—as a way of making sense of one’s place in the world,” Allison Truitt, an anthropology professor at Tulane University, told me. She cited Vietnam as an example of one such society where people tend to talk more directly about money. In part, that’s the case because earnings are relatively low and arrive at irregular intervals, which sparks speculation in everyday conversation. It also has to do with the fact that some people depend on remittances from relatives abroad, so discussions of financial specifics naturally feature in family life. [Read: How money became the measure of everything] Similar forms of this “constant chatter” are found elsewhere as well. In a 2018 article for Vice, the writer Paulette Perhach noted that in Paraguay, “people openly ask how much you make, how much your phone costs, and even, one time when I handed someone a present, how much I paid for it. When I told the birthday girl how much her gift was, she chided me that I’d overpaid, and told me I should have gone to another store for a better price.” These Paraguayan and Vietnamese examples don’t map cleanly onto American communication habits, but their matter-of-fact approach to money is reminiscent of the “open-book” mentality that Jennifer Silva noticed in American working-class households where money was tight. Even if America’s money taboos are not exceptional, their strength derives from conditions particular to the U.S. “I think it has something to do with the incompatibility of the idea that we have a democracy in which all citizens are equal and the fact that we have a class system that produces a lot of inequality,” said Rachel Sherman, the sociologist. Other countries might have high levels of inequality too, she noted, but perhaps weaker democratic ideals and less faith in meritocracy. But worldwide, a sensitivity to money, and to the significance of having a lot of it, is on some level inescapable—monitoring and modulating the financial signals one sends seem to be nearly universal impulses. Parfait Eloundou-Enyegue, a development-sociology professor at Cornell University, told me that when income or wealth is invoked as a status symbol, it can spark a competition with others that will be unpleasant for all involved. “For that reason,” he said, “people will refrain from the most blatant forms of self-puffery unless they are absolutely necessary or effective.” “If you must display your money, you strategically select occasions that draw sympathy and avert the retaliatory arms race,” Eloundou-Enyegue said. “In Ghana, for instance, families may spend large fortunes on elaborate funerals, to display wealth under the veil of grieving.” As a society or group becomes more affluent, he said, overt status displays become more frowned upon—hence wealthy Americans’ (only slightly) subtler references to certain zip codes, vacation destinations, or private schools. Sherman raised the point that, for the purposes of sizing up a peer, those proxies for class position might even be more useful than knowing someone’s precise income. That is to say, in some cases, Americans might not talk about money in precise terms simply because they don’t need to. When clues like where you live, where you went to school, and where you travel are mentioned in conversation, Sherman said, “the number almost becomes unnecessary.” -Joe Pinsker
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Stay-at-Home Spouse? Consider a Spousal IRA12/13/2019 An ongoing study of IRA accounts has consistently found that women, on average, have lower retirement savings balances than men (see chart). Though there may be multiple reasons for this disparity, the most fundamental are the wage gap between men and women and the fact that women are more likely than men to take time off to care for children and other family members.1 The wage gap is narrowing for younger women, and more men are stay-at-home dads. But the imbalance remains.2 Obviously, earning less makes it more difficult to save for retirement. And a mother — or father — who stays at home to take care of the children may not be contributing to a retirement account at all. The same situation could arise later in life if one spouse works while the other takes time off or retires. Additional Savings Opportunity
A spousal IRA — funded for a spouse who earns little or no income — offers an opportunity to help keep the retirement savings of both spouses on track. It also offers a larger potential tax deduction than a single IRA. A spousal IRA is not necessarily a separate account — it could be the same IRA that the spouse contributed to while working. Rather, the term refers to IRS rules that allow a married couple to fund separate IRA accounts for each spouse based on the couple’s joint income. For tax years 2019 and 2020, an individual with earned income from wages or self-employment can contribute up to $6,000 annually to his or her own IRA and up to $6,000 more to a spouse’s IRA — regardless of whether the spouse works or not — as long as the couple’s combined earned income exceeds both contributions and they file a joint tax return. An additional $1,000 catch-up contribution can be made for each spouse who is 50 or older. Contributions for 2019 can be made up to the April 15, 2020, tax filing deadline. All other IRA eligibility rules must be met. If a spousal contribution to a traditional IRA for 2019 is made for a nonworking spouse, she or he must be under age 70½; the age of the working spouse does not matter for purposes of the spousal IRA. For contributions made in 2020 and later years, the age 70½ restriction has been eliminated by the SECURE Act. Traditional IRA Deductibility If neither spouse actively participates in an employer-sponsored retirement plan such as a 401(k), contributions to a traditional IRA are fully tax deductible. However, if one or both spouses are active participants, federal income limits may affect the deductibility of contributions. For 2019, the ability to deduct contributions to the IRA of an active participant is phased out at a joint modified adjusted gross income (MAGI) between $103,000 and $123,000, but contributions to the IRA of a nonparticipating spouse are phased out at a MAGI between $193,000 and $203,000. For 2020, phaseout ranges increase to $104,000–$124,000 and $196,000–$206,000, respectively. Thus, some participants in workplace plans who earn too much to deduct an IRA contribution for themselves may be able to make a deductible IRA contribution for a nonparticipating spouse. Withdrawals from traditional IRAs are taxed as ordinary income and may be subject to a 10% federal income tax penalty if withdrawn prior to age 59½, with certain exceptions as outlined by the IRS. 1–2) Pew Research Center, 2019 This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2020 Broadridge Investor Communication Solutions, Inc.
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What Medicare Won’t Cover11/14/2019 Original Medicare — Part A hospital insurance and Part B medical insurance — offers broad coverage at a relatively low cost, but there are many potentially expensive health-care services that are not covered. Some may be fully or partially covered by a Part C Medicare Advantage Plan, which replaces Original Medicare, or a Medigap policy, which supplements Original Medicare. Both are offered by Medicare-approved private insurers. (You cannot have both a Medicare Advantage Plan and a Medigap policy.) Whether you are looking forward to Medicare in the future or are already covered, you should consider these potential expenses in your strategy for paying health-care expenses in retirement. Deductibles, copays, and coinsurance. These costs can add up if you have a serious health condition, and — unlike most private insurance — there is no annual out-of-pocket maximum. Medicare Advantage and Medigap plans may pay all or a percentage of these costs and may include an out-of-pocket maximum.
Prescription drugs. For coverage, you will need to enroll in a Part D prescription drug plan or a Medicare Advantage plan that includes drug coverage. Dental and vision care. Original Medicare does not cover routine dental or vision care. Some Medicare Advantage and Medigap plans may offer coverage for either or both of these needs. You might also consider private dental and/or vision insurance. Hearing care and hearing aids. Some Medicare Advantage plans may cover hearing aids and exams. Medical care outside the United States. Original Medicare does not offer coverage outside the United States. Some Medicare Advantage and Medigap plans offer coverage for emergency care abroad. You can also purchase a private travel insurance policy. Long-term care. Medicare does not cover “custodial care” in a nursing home or home health care. Part A hospital insurance does cover medically necessary stays in a certified skilled nursing facility for the first 100 days after a qualifying hospital stay of three or more days, with no out-of-pocket cost for the first 20 days, $170.50 per-day coinsurance for days 21–100 (in 2019), and no coverage beyond 100 days. You may be able to purchase long-term care (LTC) insurance from private insurers. A complete statement of coverage, including exclusions, exceptions, and limitations, is found only in the LTC insurance policy. It should be noted that LTC insurance carriers have the discretion to raise their rates and remove their products from the marketplace. This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2019 Broadridge Investor Communication Solutions, Inc.
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If you are engaged to be married, or expect to be soon, it’s important to consider how this change in the relationship (and legal status) will affect your finances. Discussing the following topics well in advance may keep surprises and disagreements from disrupting your newlywed bliss. Share debt stories. Many Americans bring college debt into their marriages, and some individuals have had severe credit challenges. Taking a close look at both credit reports may help resolve debt and credit issues before they spiral out of control. Discuss banking and bill paying. Working together to prepare a preliminary household budget may help you start off on the right foot. If you decide not to pool all your income and assets, make sure you clearly define what belongs to each of you separately and what responsibilities you will share. Some married couples use a joint account for living expenses and separate accounts for personal spending. Look closely at company health plans. You may need to coordinate two sets of workplace benefits, so keep in mind that many companies apply a surcharge to encourage a worker’s spouse to use other available coverage. Compare the costs and benefits of having both of you on the same plan versus keeping your individual coverage with each employer.
Anticipate joint income taxes. Most married couples pay more total tax when they file separately than when they file jointly. But there are rare occasions when filing separate returns could result in a lower combined tax liability or provide another benefit. For example, if you or your fiancé have federal student loans, filing separately might help you qualify for a lower monthly payment under an income-based repayment plan. Combining your incomes could land you in a higher (or lower) tax bracket, so you may want to check and adjust your employer withholding to avoid owing money at tax time. If you expect a larger refund, you might reduce your withholding and put that money to better use (such as paying off debt or boosting savings). Consider a prenuptial agreement. A prenup is a written contract that states how assets will be owned during the marriage and divided in the event of divorce. A prenup may be unnecessary if the engaged couple are both young and have comparable wealth levels. But if either partner owns (or expects to inherit) substantial assets — or has significant debts — crafting a premarital agreement may be worthwhile. Prenups are commonly used to help protect the financial interests of children from a previous marriage or to account for other special circumstances. If a couple intends to pay off one partner’s student loans together early in the marriage, an agreement might credit the other spouse for that help in the event of a divorce. Similarly, if one partner expects to support a spouse through professional school (law or medical), an agreement may stipulate how he or she will share fairly in the professional’s future income. This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2019 Broadridge Investor Communication Solutions, Inc.
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“There’s not a lot of ‘fun’ in funding.”Raising equity funding for your startup is a long, difficult, and often demoralizing process. However, if you’re successful, you walk away with money that will help your startup grow and become everything you hope it could become. One of the major challenges that founders run across is that raising a round often takes more time than they expected. While a founder might know that your startup is excellent, convincing other people to invest thousands — and potentially millions — of dollars into their company is not a simple task. “I’ve always heard that the rule of thumb is three to four months to do a fund raise — or that you should at least allow for that,” Jenny Lefcourt, a founder and advisor who has raised over $100 million, says. “I think there are plenty of people, depending on the size of the round that they are raising, how successful they’ve been in the past, how far along they are, what their metrics are, where that could be much shorter.” However, it could also be much longer, particularly if they’re trying to raise during the summer months, when the fast-moving venture capital world moves at a slower pace. And during that time, many startups find that the stress of potentially running out of money — or, in some cases, the stress of actually running out of money — to be extremely high. Founders also find it difficult to do what is essentially two full-time jobs simultaneously: running a company and raising money for that company. Another challenge that arises with equity funding is that there are more people involved in running the company. While most founders start with a small, intimate team, each round of funding brings on new investors. Those investors usually expect not only a financial portion of the startup, but also a say in how things are done. In extreme cases, they may even choose to oust a founder, as famously happened with Uber founder Travis Kalanick. “Pursuing an equity fundraise means that, in exchange for the money they invest now, investors will receive a stake in your company and its performance moving forward,” Schroter says. “Equity is one of the most sought-after forms of capital for entrepreneurs, although certainly the least available. Simply put, there are very few equity investors who have a check to write and there are 1000x more Founders with ideas to fund. It’s a supply problem.” But despite these challenges, thousands of startups raise funding every year, implying that the potential rewards outweigh the guaranteed strife and risk. Here’s an outline of what a startup founder can expect at each stage of raising equity funding. Pre-Seed Funding Pre-seed funding is the earliest stage of funding, so early that many people don’t include it in the cycle of equity funding. At this stage, founders are working with a very small team (or even by themselves) and are developing a prototype or proof-of-concept. The money to fund a pre-seed stage typically comes from the founders themselves, their families, friends and family, and maybe an angel investor or an incubator. Pre-seed funding is a relatively new part of the startup lifecycle, so it’s difficult to say how much money a founder can expect to raise during the pre-seed period. Seed Funding What is seed funding? The very first money that many enterprises raise — whether they go on to raise a Series A or not — is seed funding. (Some startups may raise pre-seed funding in order to get them to the point where they can raise a traditional seed round, but not every company does that.) The name is pretty self explanatory: This is the seed that will (hopefully) grow the company. Seed funding is used to take a startup from idea to the first steps, such as product development or market research. Seed funding may be raised from family and friends, angel investors, incubators, and venture capital firms that focus on early-stage startups. Angel investors are perhaps the most common type of investor at this stage. This is also the end point for many startups. If they can’t gain traction before the money runs out (also known as running out of runway), then they’ll fold. On the other hand, some startups decide that they’re not interested in raising more money — that the level they reach with seed money is good enough or that they’re able to grow more without more investment — and choose to stop raising funding rounds at this point. How much money is involved in seed funding?Seed funding is usually between $500,000 and $2 million, but it may be more or less, depending on the company. The typical valuation for a company raising a seed round is between $3 million and $6 million. SHOW ME THE MONEY! Series A FUNDING What is Series A funding round? Once a startup makes it through the seed stage and they have some kind of traction — whether it’s number of users, revenue, views, or whatever other key performance indicator (KPI) they’ve set themselves — and they’re ready to raise a Series A round to help lift them to the next level. In a Series A round, startups are expected to have a plan for developing a business model, even if they haven’t proven it yet. They’re also expected to use the money raised to increase revenue. How much money is involved in a Series A funding round?Because the investment is higher than the seed round— usually $2 million to $15 million — investors are going to want more substance than they required for the seed funding, before they commit. It’s no longer acceptable to have a great idea — the founder has to be able to prove that the great idea will make a great company. The typical valuation for a company raising a seed round is $10 million to $15 million. Series A rounds (and all subsequent rounds) are usually led by one investor, who anchors the round. Getting that first investor is essential, as founders will often find that other investors fall into line once the first one has committed. However, losing that first investor before the round is closed can also be devastating, as other investors may also drop out. Series A funding usually comes from venture capital firms, although angel investors may also be involved. Additionally, more companies are using equity crowdfunding for their Series A. Series A is a point where many startups fail. In a phenomenon known as “Series A crunch,” even startups that are successful with their seed round often have trouble securing a Series A round. According to the firm CB Insights, only 46 percent of seed funded companies will raise another round. That means that this is the end point for the majority of early stage startups. Series B FUNDING What is Series B funding round? A startup that reaches the point where they’re ready to raise a Series B round has already found their product/market fit and needs help expanding. The big question here is: Can you make this company that you’ve created work at scale? Can you go from 100 users to a 1,000? How about 1 million? The expansion that occurs after a Series B round is raised includes not only gaining more customers, but also growing the team so that the company can serve that growing customer base. In order to be competitive, any startup needs to hire excellent people in a range of roles. It’s no longer possible for the founder to “wear all the hats,” so raising enough money for competitive salaries is essential. How much money is involved in a Series B funding round? A Series B round is usually between $7 million and $10 million. Companies can expect a valuation between $30 million and $60 million. Series B funding usually comes from venture capital firms, often the same investors who led the previous round. Because each round comes with a new valuation for the startup, previous investors often choose to reinvest in order to insure that their piece of the pie is still significant. Companies at this stage may also attract the interest of venture capital firms that invest in late-stage startups. Series C FUNDING What is Series C funding round? Companies that make it to the Series C stage of funding are doing very well and are ready to expand to new markets, acquire other businesses, or develop new products. Commonly, Series C companies are looking to take their product out of their home country and reach an international market. They may also be looking to increase their valuation before going for an Initial Public Offering (IPO) or an acquisition. “Once a company has built a product that’s become a darling in the market, that’s when the Private Equity and Investment Bankers show up,” Schroter says. “These folks aren’t looking for a lot of risk – they let the angel investors and venture capital firms deal with that. They are looking to put massive sums of money into companies that are already winning to allow them to secure their leadership position.” Series C is often the last round that a company raises, although some do go on to raise Series D and even Series E round — or beyond. However, it’s more common that a Series C round is the final push to prepare a company for its IPO or an acquisition. How much money is involved in a Series C funding round?For their Series C, startups typically raise an average of $26 million. Valuation of Series C companies often falls between $100 million and $120 million, although it’s possible for companies to be worth much more, especially with the recent explosion of “unicorn” startups. Valuation at this stage is based not on hopes and expectations, but hard data points. How many customers does the company have? What’s it’s revenue? What’s it’s current and expected growth? Series C funding typically comes from venture capital firms that invest in late-stage startups, private equity firms, banks, and even hedge funds. This is the point in the startup lifecycle where major financial institutions may choose to get involved, as the company and product are proven. Previous investors may also choose to invest more money at the Series C point, although it is by no means required. Series D FUNDING What is Series D funding round? A series D round of funding is a little more complicated than the previous rounds. As mentioned, many companies finish raising money with their Series C. However, there are a few reasons a company may choose to raise a Series D. The first is positive: They’ve discovered a new opportunity for expansion before going for an IPO, but just need another boost to get there. More companies are raising Series D rounds (or even beyond) to increase their value before going public. Alternatively, some companies want to stay private for longer than used to be common. Each of these are positive reasons to raise a Series D. The second is negative: The company hasn’t hit the expectations laid out after raising their Series C round. This is called a “down round,” and it’s when a company raises money a lower valuation than they raised in their previous round. A down round may help a company push through a tricky time, but it also devalues the stock of the company. After raising a down round, many startups find it difficult to raise again, as trust in their ability to deliver on their promises has eroded. Down rounds also dilute founder stock and can demoralize employees, making it difficult to get back ahead. How much money is involved in a Series D funding round?Series D rounds are typically funded by venture capital firms. The amount raised and valuations vary widely, especially because so few startups reach this stage. Series E FUNDING If few companies make it to Series D, even fewer make it to a Series E. Companies that reach this point may be raising for many of the reasons listed in the Series D round: They’ve failed to meet expectations; they want to stay private longer; or they need a little more help before going public. Other types of startup funding While equity funding is a popular option for startups, particularly tech startups, it’s not the only option for fundraising. In fact, there are number of ways a founder can raise funds for their startup — and some experts believe it’s best to use a combination of methods including: Venture Capital & Series Seed Funding: A, B, C, D, E
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One of the worst parts of fundraising is a lack of positive feedback from potential investors. If you add in the silent treatment, things couldn't get much worse. Here is how to deal with it.
One of the worst parts of fundraising is a lack of feedback from potential investors. Fundraising is hard, and as I've said before, closing your raise is even harder. If you add in the silent treatment, things couldn't get much worse. Potential investors drag their feet. They hate saying "no" so they try to say "no" gently. Or they say nothing. And entrepreneurs hate that.
Here is how to deal with it. When You Get a "No" Investors who say "no" should actually be rewarded. That may not feel natural initially, but try to recognize that they're trying to help you. They're being honest and direct in a hard situation and haven't left you and your company in limbo. A "no" allows you to move on. You should thank them. In Airbnb's earliest stages, it sold boxes of "Obama O's," generic Cheerios with an illustration of Obama on them, during conventions for $40 per box to fund its business. Today an "Obama O's" box sits in the office of Union Square Ventures, a top venture capital firm, as a subtle reminder of what they missed. If Airbnb's story tell us anything, it's that even the best get turned down. In the event of a "no," be polite, thank the investor for their time and direct response, then inquire if they're open to providing feedback on why they declined or what they'd need to see to change their mind. If they seem open to staying in touch, this will help you narrow your search in future rounds and help you convert investors that are the right fit. Getting constructive feedback can also help you decide whether the terms you presented are fair and possibly guide you toward improved terms. When You Get No Response The unfortunate truth is that the vast majority of investors don't respond to pitches. But when there is no response, that should tell savvy entrepreneurs something. Maybe you don't want to admit it to yourself, but if investors aren't responding, they're probably not interested. Don't chase them. Instead, here's what you should do:
Keep in mind, the odds are stacked against almost all young companies. When I talk to future capital seekers, I remind them that: "For every 100 investors you talk to at the early stage, you can expect to hear 'no' or nothing at all from 95-98. It's what the entrepreneur does with the 'no' or silence that often determines the outcome." Like Airbnb, the overwhelming majority of VCs passed on Uber in its seed round. There was so little interest initially that Uber was giving "VIP Service" for life to investors willing to put in more than $10,000. The lesson? "No" and silence are just part of the fundraising process. But they are not reasons to give up. Instead, these responses--or lack of responses--should remind you to stay focused and realistic. You have work to do.
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Early-stage investors often receive more than 100 pitches per month, which means they need to say "no" to over 99%. Alicia Syrett, CEO of Pantegrion Capital, frequent on-air personality on MSNBC and CNBC, shares the most common blunders that get startups rejected. Founder/CEO of Pantegrion Capital and The Point 25 Initiative. CNBC Power Pitch and MSNBC Your Business Regular. Contributor for Inc. Instructor at Columbia University. Board of the NY Tech Alliance.
Why VCs and Angel Investors Say "No" to entrepreneurs | Alicia Syrett | TEDxFultonStreet
Ms. Syrett was named as one of the “25 Angel Investors in New York You Need to Know” by AlleyWatch, one of Wharton’s “40 Under 40” young alumni by Wharton Magazine, and one of Virgin’s “Five Next Generation Leaders Emerging from Tech.” She has been featured in Forbes, TechCrunch, Inc., The Huffington Post, Mashable, Entrepreneur, NPR’s Marketplace, and USA Today. She has also appeared on CNBC’s Make Me a Millionaire Inventor and Cash Crowd, Nightly Business Report (NBR) on PBS, and Fox Business’s Risk & Reward.
She founded The Point 25 Initiative and also wrote a Guide for Entrepreneurs for #MentHERnyc, an event she co-founded. This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at https://www.ted.com/tedx
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