Build Your Moat

Build Your Moat

Understand and mitigate potential risks

“May you live in interesting times” is a modern English translation of an ancient oriental curse, and boy do we understand the curse part now more than ever before. From a global pandemic to economic upheaval to social unrest to political clamor…2020 has been “interesting” to say the least. While the markets have rallied significantly – recovering much of the year’s losses – the rest of our world still seems to be flashing bright red warning lights. We can’t say with any degree of confidence how the next few months will go, but it’s likely fair to say they won’t be boring.

As we all grapple with such dramatic uncertainty, we believe it is prudent to challenge the families we serve to understand potential risks they may face given this altered reality in which now live, and take the necessary steps to help mitigate the impact to their future financial independence.

Let’s “build your moat” together to help protect your family, and try to keep some of the “crazy” out. Here are the Top 10 considerations we think you should evaluate.  


10 Ways to "Build Your Moat"

Assess job security and income stability (yours and your potential dependents)

Be honest with yourself…how secure is your employment? What are the odds the business will not survive in this strange new world? Could you be furloughed? How stable will your income be? Should you expect a salary reduction? How likely is that annual bonus this year? Now ask the same questions about your kids or other potential dependents…will they go back on your payroll if they lose their jobs? What does that mean for your cashflow? 

Understand your cash needs for the next 2 years

In our ongoing Dashboard conversations with clients, we have been encouraging families to understand potential cash needs for the next 1-2 years so that we can create and earmark necessary funds now. The terminology we use when discussing this, is having clarity around your Spend Rate. Furthermore, if you know you will have a large expense in excess of your typical spending (new car, basement renovation, education costs, etc.), we should consider taking advantage of the market rally to create needed cash – such expenditures are truly short-term in nature and have no business being invested in the equity markets. 

Evaluate effectiveness of outstanding liabilities

Interest rates are super low right now. Take a look at your debt obligations, and let’s see if you can refinance at a lower rate to save you money in the long run. 

Increase access to credit

Take advantage of low interest rates to secure a new line of credit for potential liquidity needs. A Home Equity Line of Credit (HELOC) or a Securities-Based Loan (SBL) may be good options to evaluate based on your personal circumstances. But remember, these credit lines should be used as potential sources for liquidity if “something weird happens”…not so you can go on a spending spree (as fun as that would be).

Portfolio Construction

Given the recent market rally and the uncertain financial environment, this may be an opportune time to strategically reallocate your investment portfolio. Consider reducing the overall risk profile by pulling funds from equities to add to fixed income. Also, evaluate your exposure to various segments of the economy that may perform better or worse in this altered reality, and adjust accordingly.

Maximize Roth Conversions

Federal Income tax rates are historically very low, and are currently set to expire in 2025. However, with this global pandemic, the government is injecting trillions of dollars of stimulus into the economy to prop it up through this extraordinary global event; the US Treasury is literally printing money, almost non-stop. As they say "the bill will come due", and how has every government in the world throughout history created more cash? That's right – it raised taxes. If the Democratic Party sweeps in the upcoming election and gains control of the Executive branch and Congress, we think it is possible the current low Federal Income tax rates could be on the chopping block and may be repealed early. As such, we should challenge ourselves to convert Traditional IRA dollars into a Roth while we know we have the window of opportunity to pay a lower tax rate – discuss your personal circumstances with your CPA or tax advisor.

Education Considerations

With anticipated e-learning starting up again this Fall, does that impact your decision about where your kids are going to school? Are you considering another institution – possibly private – that may manage virtual classrooms differently or still continue in-person lessons with fewer students, which could offer a better learning environment for your child’s personality? Are you thinking about hiring a private tutor? Were your kids planning to head off to college, but now those plans are getting derailed? How might these changes impact your cashflow needs?

Tax Gain Harvesting

Lots of people talk about Tax Loss Harvesting to offset tax burdens; we like to expand our thinking and consider harvesting gains as well. The Long-Term Capital Gains tax is still historically low. After the recent market rally, it may make sense to realize those investment gains and pay the tax now while we still have the lower rate. Similar to what we discussed in #6 above, if the Democratic Party sweeps the election in November, it’s certainly possible the Capital Gains tax rate gets increased and then this window of opportunity would be closed.

State of Awareness

A number of states (including Illinois) are scheduled to vote on changes and/or increases to State Income Tax rates. Given many states and municipalities have experienced both a sizable revenue decrease and spending increases directly related to the COVID-19 response, it seems likely that local taxation will go up at some point to pay for it all. If you currently live in a “tax-onerous” state or anticipate a significant increase in taxation, it may be time to consider the merits of moving and declaring residency in various other states based on a combination of nicer weather and a more efficient and desirous tax structure. We discuss this topic in greater detail HERE.

Deductions for Charitable Donations

The rules around itemized deduction limitations on cash donations to qualified charitable organizations has been temporarily suspended for 2020. Previously, taxpayers were only allowed to deduct cash donations up to 60% of Adjusted Gross Income (AGI) on their Schedule A. For 2020 returns only, this limit has been increased to 100% of AGI. If you itemize your returns, this may be a great opportunity to significantly reduce your tax burden.

Once you’ve “built your moat”, go enjoy your life knowing that you’ve taken the appropriate and necessary steps to mitigate potential risks that could derail your plans to attaining financial independence. 


Investments mentioned may not be suitable for all investors. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Past performance is not a guarantee of future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected.  Raymond James Financial Services, Inc. does not provide advice on mortgages. Lending services and Securities Based Line of Credit provided by Raymond James Bank, N.A. Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. are affiliated with Raymond James Bank, N.A., a federally chartered national bank. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.