On-Demand: The Election and Other Market Implications for Nonprofits
October 23, 2020
Our panelists provided nonprofits with an overview of market implications associated with the upcoming election.
Evan Linhardt:Thanks, everybody and good morning. Hope you and your families are doing well and managing okay through this crazy year, about to probably get crazier over the next few months, and we'll talk a little bit about that. I'm a vice president and advisor at Bernstein Private Wealth. I work out of the Philadelphia office but I'm coming to you from my daughter's playroom, an attic in Collingswood, New Jersey. Hope all of your home offices or hybrids, are doing well.
I work with nonprofits, foundations, families and sustainable businesses to really align their mission and values to their investment strategy. I come from the nonprofit side I was a fundraiser and in public government for years, before joining Bernstein. I joined Bernstein to bring their tool set to the nonprofit and foundation community so that we can maximize, protect and sustain the mission driven work that they're doing. So excited to be here today, excited to talk about the election in our perspective, and what's upcoming. And I know Jimmy and I have talked about doing something after the election as well, once we have some results, hopefully not too long after November 3rd.
Jimmy Mo:Yeah, thank you, Evan. So yeah, as Evan mentioned, so we are doing this virtually. So I behind these five kids, soon to be starting remote schooling as well. So personally, for me, I am here at my home in Delaware until all of them go back to school, which is going to be sometime in 2021 unfortunately. So the purpose of our webcast today, I call it a teaser, as Evan mentioned, we're going to spend the next 45 minutes or so talking about just implications that we felt are important to just consider and just be aware of, as the election comes forward. And someone corrected me yesterday, I was like, "It's about a month away," but now looking, it's actually only about two weeks away.
And then I am actually going to just focus on a little bit of other considerations targeted at not-for-profits for the 12/31 year ends as they're getting ready for year end, and then for the 6/30s just thinking about some of the considerations as they're going into their fiscal year '21. As Evan mentioned, and as Lexi mentioned, this webcast does not qualify for CPE. However, the plan is that once everything gets settled, hopefully it is in December timeframe, I think we're targeting, we're going to come back with a two-hour CPE presentation, so this webcast that will qualify for CPE.
So next two slides are just a little bit brief overview of just our firms and just for those of you that are new, have not been involved with EisnerAmper before, we are a full service advisory firm that currently has about 200 partners in the firm within the not-for-profits, especially here in Philadelphia. We service over 100 not-for-profits in a variety of areas, audit, tax and consulting related as well. And then Evan, I will turn the slides over to you, to start.
Evan Linhardt:Great. Oops, went too far. Yeah, so for those who don't know Bernstein, welcome. This is just provides a little bit of an overview. We're a global firm, we have analysts across the world, we manage just over $600 billion globally. From a nonprofit perspective, we manage about nine billion. That's split about 50-50 between private foundations and 501(c)(3)s or (c)(6)s. And we work with nonprofits across the spectrum from faith-based to health care, to governmental. And so our work, this is a main pillar of our work is how do we support mission driven organizations to make sure they're maximizing their impact and aligning their impact through their investment plan?
So today, I'm going to take you through some of the market implications we see of the upcoming election in a couple of weeks, as Jimmy mentioned. We'll take a look a little bit at the history of what's happened previously, why this is different and maybe not so different from what we've seen before. And where we think we're going moving forward. And I'll try to couch this all in, obviously, how do we look at investments, now short-term, and then long-term? One disclaimer, nothing here that we're presenting is our personal view of who should or should not win the election. This is just, given the facts that we see from proposals for both Biden and Trump, if one were to win, they have certain implications based on the policy that they've talked about. So this is not a Bernstein view of who we'd like to win, or an Evan Linhardt view of who I would like to win. But just a statement on the facts and where we think those implications will drive.
So what will the impact be? The main impact is really on and determined by the fiscal policy. We are in a healthcare crisis, of course the health care needs to be solved for in order for the economic situation to be solved for. The Fed has come out, early on eased policy. And also, of course, we had a $3 trillion stimulus. That built a bridge for businesses, for individuals to make it through the worst of the pandemic and we were hopeful and actually quite confident this summer that another large stimulus bill was going to be passed. We now know that there is not going to be one before the election, I guess there potentially could be, but it looks like that is dead from what Mitch McConnell has been saying recently.
And so the fiscal policy is really going to drive the economy over the next six, eight, even 12 months, and a multi-year policy will have to be provided at some point, in order for the economy to still be buoyed by that fiscal policy and those trillions of dollars that have gone out. So we're really riding on that as a big piece of the implication of the market going forward.
Let's take a step back and think about how has a Republican or Democratic president's economy actually been during their time in office? I'm sure you're having a lot of conversations with friends and family about the upcoming election and I'm sure one or two or 10 of your friends have said, "Oh, well, when there's a Democratic president, the economy is so much better." Or, "Republicans are fiscally superior. And so when there's a Republican president, the markets do much better, and the economy is much better." Obviously, you're looking at this slide, and you can see not much different. A 10th of a percent, I would say that's obviously a wash. And so really, no matter which president's party is in power, really not too much different in the growth of the markets, it's actually quite similar.
The difference though, is, and a little bit of a significance is when there's a divided, which you can see on the bottom left, or a unified government, which you can see on the bottom right. Now markets usually like a divided government. Why? Because there's not as much volatility. With a Democratic president and a Republican Senate or a Republican president and a Democratic Senate, there's not going to be as high swings, as much regulation passed and therefore there's much more predictability. Markets like predictability. And so when there's a divided government markets actually do better because there's a little bit more stagnation in what occurs over those administrations.
In a unified government. Again, you could think about environmental regulation or tech regulation as being examples. If you're having a Republican president and a Republican Senate, in most cases, you can pass these laws and regulations much more easily, and therefore things can swing, be rolled back. And we've seen that recently in this presidency.
So usually, we like a divided government. This is one of the big differences, the market would actually prefer a unified government. And that was just because of the stimulus we were just talking about. We're really riding on that stimulus right now, for most of the market. And so if we had a unified government, a blue wave comes in, or a Republican president and Republican Senate that agrees more often than it seems this administration has, we could really push another stimulus through that would again, buoy us for a little bit longer.
So here's what we do know, we know the balance of the power right now. We know what the current polls are saying, although polls in 2016 were saying very similar things. So you'll see on the right side, we don't know how much they'll match. And we also know that we shouldn't let personal political views cloud our investment judgment. And this is always in Investment 101, we should not let our emotions get in the way of our fundamental investment decisions. And around election time, or big issues, we see a lot more emotion coming into our clients' decision making and wanting to make moves around these issues, because they're feeling a certain way. And what we try to help counsel is to look long-term, this is a long-term allocation, this is for your retirement, or your next business or etc., etc. And you really got to think long-term through these issues, and what's the implications of them?
What don't we know? Of course, we don't know what the polls will actually happen on November 3rd, we don't know the actual proposals that will be implemented. When you're campaigning, you're talking sometimes really broad strokes, and some end of the spectrum policies. When you actually get into office, that's where the negotiation happens and rarely do what is said on campaign trails actually are totally implemented to fidelity. And so there's going to be some back and forth, there's going to be some compromise. So that's a big we don't know yet.
And then, of course, how different will the election results be, or the policy be? As I just mentioned. So on balance, we're recommending that you're not making too many tactical asset allocations right now. Within your portfolios, your investment advisors, I'm sure are making decisions about certain companies. But from an asset allocation or risk profile, you shouldn't be making big changes or really changes potentially at all, because of this upcoming election. Because there are so many unknowns and so much volatility, you're on a plan for a long-term. And I'm talking in long-term strokes here.
So what do we see that could really drive things in one way or another? Well, here, on the far left, you can see what investors are really expecting. We're still expecting a multi-year fiscal stimulus. And remember, you're thinking short-term election, you're thinking long-term allocation. So we're still believing that there will be a multi-year fiscal stimulus that will come potentially after the election, or if there's a new administration, or if Trump remains, him and the Republican Senate will certainly pass something. It might be smaller than what the Democrats have proposed, but it certainly will be something. There will continue to be easy monetary policy, that's why the interest rates are so low. That's why people are refinancing their mortgages. That's why credit is being provided much easier because there's a low interest rate and more people are doing that. And that is very helpful in the short-term, again, to buoy the economy as we get through this really tough time.
There's obviously four different scenarios that can happen. Again, not a personal or a Bernstein view, but just stating the facts here of what we believe will happen if you have top left square, another Republican House and Senate and bottom right, a Democratic House and White House and Democratic Senate. I think that the biggest change would be that we see in a blue wave, would be that it would be a much larger potential stimulus that could be helpful. But also, you're going to see a rise eventually, of potential corporate tax hikes and tax on the wealthy, given what Biden and the Democratic Party have said during this election season. So less gridlock, if one or the other House is in total control, a little bit more gridlock if they're divided.
So here's the short-term look, and the issue with potentially this upcoming election that might be different. Will the presidency be decided on the third? Probably only if there's a large gap between the winner and the loser will it be decided on November 3rd. The mail-in ballot situation, obviously, some rhetoric from the Trump campaign around the accepting of that. Because of the mail-in ballots, and potentially the counting, we already know that almost 15 million mail-in ballots have been received. And so that might extend the decision past November 3rd. You can see on the right side, the performance following the famous hanging Chad in Florida, with Bush-Gore, when we did not know the decision of the election directly after November 3rd.
And so you can see we didn't know until December 12th, actually, who the winner of the election was. So you can see the volatility and actually how the market did not like this because there was a lot of uncertainty of all the major indexes of the market, the S&P at the top, which is when we say the market's doing well or not doing well, we usually are talking about those 500 in the S&P. And you can see that at one point it was down 8.1% and ending in December 12th, when the decision was made, 4.1%. So you can see that investors do not like the uncertainty of a decision, and so you could potentially expect that, if we don't have a decision on November 3rd and this becomes a lengthy decision making process.
On the left side, you can see an implied volatility, this is what we think could potentially happen on a day-to-day, the swings of the market. You can see the big blue bar all the way on the left, that's what is already implied. That's what investors are already believing is going to be happening because the market's forward looking and we're believing that in November, there can be some potentially large swings in the market as we get closer and then directly after the election. You can see obviously, the other years, much less volatility, so much less short-term change. And this again, if you're making tactical decisions, or trying to time the market, which we recommend is a fool's errand trying to do that, you just never know, when you're looking at short-term, there's going to be even more volatility, even more ups and downs than are usually in an election season. And so market timing will be, if not impossible, very difficult. And so we recommend not trying to do that in the short-term and again, thinking about your long-term purpose of the funds that you have for your organization or yourself individually.
This just shows over time, what the market has done based on the Republican or Democratic Party. Basically, what this is trying to show is, if you stay invested full time, over time you're going to go up with the stock market. If you believe that a Republican president or a Democratic president truly does well, and we saw that in the first slide, actually it's not, they each do about the same, you're going to lose out on a lot of the market growth over time. And it's really to say, will you stay fully invested? Will you allow your emotions to come out of your decision making and make decisions based on the fundamentals of the market, of fundamentals of the companies that you're doing and the research that can be provided to understand those companies really, really well. And so this is showing that.
So what happens for the election, if one of those four scenarios happen? All the way on the left, you can see a blue wave, all the way on the right, you can see a red wave, essentially staying the same. And you can see what we think will happen to US publicly traded stocks and US bonds. In a blue wave, you'll see that US stocks will remain neutral. We believe that because we believe that Wall Street actually would appreciate a unified Democratic presidency because again of the predictability that potentially could come with that. Though, as I mentioned before, there's going to be higher corporate taxes based on at least the platform that has been put out by the Biden campaign and the Democratic Party.
You can see some issues with US stocks if Biden wins and has a GOP Senate, mostly because of how we think the Republican Senate and Biden will work together. And we think that this gridlock could really hurt the stimulus spending. Again, that is one of the biggest factors in determining how the economy does over the next six, eight or 12 months. And then you can look across the rest. And this slide and this presentation will be available to you after to look through so I don't want to read it, I want to move forward a little bit to give Jimmy time to talk about some really important information. But this is our perspective on what will happen in each of them. So if you're thinking tactically, or you're thinking a little bit short-term after the election, into next year, this can be a helpful guide to think about the reasons and policies that will affect both stocks and bonds in the US after the election.
So here's our perspective. And this is where we really think that you should be thinking about as you're planning long-term. The equity markets, public stock market, we feel a lot of times for our clients can feel disconnected from again, their emotion. We are in the middle of a pandemic, we all have stressors, like we have not had before, we see the large headlines, we see businesses closing up on our main streets, how possibly could the market be back to where it was at the start of the year? It just seems crazy. It just seems absolutely crazy.
But in reality, the market is a forward looking animal. It's always looking a year, 18 months ahead. And it's based on again, the fundamentals of these large companies or companies that are publicly traded. And so it's looking forward. And right now, as I mentioned, we're buoyed by some of the policies that was put into place very quickly after the pandemic started. So if you take emotion out, and you're looking at the market, as a long-term leading indicator, you're going to see that they're believing that there's gradual improvement happening. The vaccine information that we're getting is more positive every day. And we're seeing across the world, although the headlines aren't showing it every day, that curves are flattening and there's much more predictability in that. Our healthcare system is dealing with it much better. It's awful, but what the market is looking at, is how we're looking in 2021 and beyond.
Look, that said, we know that there's a few stocks, mainly the large tech stocks that are driving the market higher. So if you take one peel of that onion off, you can see that there are many sectors that are still struggling. Energy being one. But what I think we don't talk about a lot, is that the retail and entertainment part of the market, which has then taken the hardest hit, is really only 10% of the overall GDP. So it's a small part of the economy that's deeply affected. And so the markets as a whole are not affected by some of those deep places. So there's some risk in the concentration of the large tech stocks. But when you peel that onion, you got to look at which sectors are really being affected and how, and that's where the research and fundamentals come in. Obviously, the election we've talked about, is going to have some short-term, and then potentially policy long-term implications depending on who's in the presidency, and how the other levels of the House and Senate turnout.
But looking beyond, we have some clarity, but still a lot of uncertainty of what's coming up. And so what we've always said and what we believe even more now, is diversification is key here. Diversification not just US and Europe and the developing world, but diversification in sector, diversification in geography, as I just mentioned, and diversification in size. And so you're always able to grasp a sector of the market that is doing well as others are not, and making sure you're capturing the broad breadth of available investments that are out there. And that will help you guide through crises that we don't see, the unforeseen, and even those that come up that we can see moving forward. And that should really determine and help you get through some of the tougher times. But again, it always is unique to your risk and return profile. And that's where the customization will always come in for your organization, your goals, the purpose of your funds, that's always going to determine in the end the asset allocation. But diversification is key.
So what's moving forward? Well, we just had 10 years of the greatest markets in history, after the Great Financial Crisis, we were saying at Bernstein, even before the pandemic, that returns were going to be muted just because of this long 10-year run. Now, of course, we're digging out of a major economic crisis, that right now is buoyed by the fiscal policy. That fiscal policy comes out and we come out of this healthcare crisis, returns are going to be less, they're going to be muted. And so you can see from this chart, the dotted red line is what the last 10 years were producing for these asset allocations. When you're looking at growth, you're looking at 80-20, you're looking at moderate 60-40 portfolio, 60 stock, 40 bond. And you can see all the way on the left the blue bar, 100% bonds.
I think this is important for a lot of organizations that are on the call today, nonprofits, and foundations are usually allocating more conservatively, because they want to make sure that they have the funds to achieve their mission. And that makes a lot of sense. But what we're expecting and what we're having a lot of conversations about is if you're in a conservative allocation, how are you able to meet your spend goals or your required spend goals when your usual allocation to bonds or in a conservative allocation are not going to produce the 5% or 8% that you were hoping to give out or retain for operating costs each year?
So this is the conversation we're having a lot. And we're talking about the risk return profiles that you have, walking you through that and thinking about what are the alternatives in order for you to get the right growth, for the risk so that you can achieve your mission. And these are some of the implications that are going to happen for the next 10 years, no matter the presidency that happens on note on November 3rd, these are what we're looking at over the next 10 years. And they're going to be muted, and they're going to be challenged. And so the advice and research is going to be really important for making the decisions moving forward. I hope that some people have some questions for me at the end, around this. I'm going to turn it over to Jimmy to talk about some details upcoming as well, that can be really helpful for your organization. So Jimmy, I'll turn it back over to you. Thanks, everybody.
Jimmy Mo:Well, thank you, Evan. That was very, very enlightening. Yeah, as a reminder, if anyone has any questions, please feel free to begin chatting and typing them. And yeah, if there's any specific questions, we actually can begin addressing them and responding while I'm speaking, Evan can start addressing those. But yeah, we also are going to try to devote 10 or 15 minutes as well at the very end in regards to answering any additional questions that may be applicable to all the participants here.
So I'm going to talk about, again, a lot of other implications and considerations as we are heading into the end of 2020 and then going into 2021. So what's unique about not-for-profits is that there are a diverse of year ends. So some of them have already started their next fiscal year related to the June 30th and then we have some that are August and September, August 31st and September 30th. And some of them are getting close to wrapping up their year-end. These are the calendar year ends.
So the first thing is, I've been involved in board meetings a lot through the last couple of months, trying to finalize the 6/30 year end audits. And the hot topic over the last five months has always been my three favorite letters that I will be very happy to never see them again sequentially, after everything, after this pandemic passes through, which is PPP, the Paycheck Protection Plan Loan.
So this program has been ever evolving and ever changing. What's interesting is when this program first came out, there was within a week, three different interest rates that was involved with the loan. So yeah, this thing is ever evolving, and it continues to evolve. As of October 8th, there was another change that the SBA has pronounced basically involving recent guidance for loans that are 50,000 or under and basically simplifying the process for the forgiveness in the submission of the application and then the lender reviews for.
So there will continue to be additional guidance related to this. As of Monday, the Senate tried to pass a bill, a $500,000 stimulus bill, that, sorry, 500 million stimulus bill that was more focused on the PPP and trying to extend the program. So as of now, no new applications can come in, the funding had technically expired as of August. So part of the future is to determine if these loans will be allowed for new applications.
With that said, the forgiveness process has already started, it did start at the beginning of this month. Most of the blanks that my clients are involved in, have opened up their forgiveness portal. So we do see clients that have started, even though that the 24 week covered period has not ended, the SBA has flat out said that once you have felt like you've used up all the funds with qualified expenses for the PPP, you can go and start submitting an application. So we do have clients that have already done that. Today, I know of one client that has gotten approval for 100% approval from both the bank and the SBA, the process for then turn around and total was 16 days. I will caution you in that, that loan amount was under 75,000. It was above 50,000, but under 75,000. So it was a very small amount. And the bank was a local bank.
I just heard of, yesterday actually, I was speaking to a colleague of mine, who was in private, and their loan was for about 650,000. And they have already submitted for forgiveness, and their bank has approved their forgiveness at 100% and they are now waiting for SBA approval. So under the rules currently written, once you submit an application, a bank has 60 days to review it and then they have to then pass it off to the SBA to get their clarification on the forgiveness, their review as well. And that can take up to 90 days. So in theory right now, you're talking about looking at five months, sorry, I have to do that math in my head, five months to ultimately possibly get final forgiveness. So there is some time and right now I know that applications are starting to trickle in, but there will be a point when a mass bunch of them will start coming and the time will take longer as well.
So the FASB, the Financial Accounting Standards Board has currently not provided any direct guidance in terms of how not-for-profits or any other organization should be recognizing these PPP loans on your financial statement. So the way that it works is companies sign a note, they sign a loan with a bank and then once it's ultimately forgiven, the loan will be converted into a governmental grant. And for not-for-profits under a new standard that has just been implemented, that governmental grant will be recognized as a contribution. So the revenue recognition for a contribution has not changed under any standards. And you recognize contributions when they're unconditionally promised. That word unconditional is key.
So because the FASB has not implemented any new direct guidance in how to account for the treatment of the PPP loans, we have to look at what is existing in our current literature. And the AICPA has provided a few interpretations of this, but at the end of the day, there are two treatments. One I call conservative and one I call more aggressive, but there are two treatments as to what is being out there for not-for-profits. What is available and to consider for not-for-profits. And the theory of this rests on the unconditional revenue recognition triggers I've mentioned.
So organizations right now are interpreting what is a true condition. So the conservative approach is that as a not-for-profit, you signed a note and the only one that can forgive the note is a bank and the SBA. So that can be deemed as a condition. In order to forgive the note the condition is that the bank and the SBA, the financial institution, and the SBA has to forgive it. When those situation, those organizations are recording the PPP loan as a loan or a liability as of their reporting period, and then when they get the official forgiveness, then they are then removing the loan. So they're reducing the loan on their balance sheet and then they're recording it as a governmental grant revenue in that period.
That is, right now, let's say for the majority of the 6/30s, given that at that time and even as of now, they may not have submitted their application, that the forgiveness amount, although everyone expects and intends to be 100% forgiven, that's not always the case. So a lot of most of my clients as a 6/30 has conservatively recorded it as a loan on the books at year end. That does create a few challenges, though, one of which is going back to my previous comment, as the terms are constantly evolving. As an auditor, when we see a lot of debt on the books or a loan on the books, we typically as a standard audit procedure, we try to confirm with the debt holder, what the current balance is and what the current terms are.
So when I instructed my teens to do that as well, none of the banks today have agreed to confirm what they believe are the, quote, current terms of the loan. Everyone has said to just go and refer to the original note. So because organizations have documented a loan on their books as of year-end, there are certain footnotes that needs to be required, including a minimum future payment schedule. And the way that the current notes are signed, and most of them signed before June, the way that those notes are written is that it's a two-year note, first six months are deferred, and then the seventh month you start paying. So if you entered into a PPP loan note in April, that means that in most situations, you're expected to start paying in November.
However, since then, since subsequent guidance from the SBA, there's a very small minimum likelihood that any holder of a PPP loan will start paying at their seventh month. And that's because any loans entered in after June 5th, the terms have been modified to you have to start paying 90 days after the bank has determined, made forgiveness decision, and to determine what the actual loan amount is. And at that time after the 60 day period, the bank is supposed to provide you with a payment schedule if there's any additional loan amount.
So I would recommend everyone to follow up with their banks, and just to confirm if you're getting around that seventh month, if you need to actually start paying on the note itself. But again, I've not heard, and I've spoken to many banks about this, that they're going to start calling on this note in the seventh month. So that's the first way and you can see there are some challenges there. The second way is that some organizations view that the forgiveness is more of an administrative monitor, it's a rubber stamp of some sort. And in that case, under the new accounting standards, if the forgiveness is administrative in nature, then it is not a true condition as determined by the recent accounting standard implementation.
So in those situations, then those individuals view that the true condition is that the PPP is being recorded, based on when qualifying expenses are incurred. So in those situations, especially for the 12/31s coming up, that's something more to think about, is that if you, let's just say you know as of January you got approval from the bank and you believe that that approval, while that provides a little bit more shorty, it determines an amount that is more administrative, then most organizations would consider recognizing revenue to the expense expenses are incurred. Therefore breaking even at certain periods and taught as of year-end. In that situation, though, that then becomes a conditional contribution and there are some disclosures related to that, including disclosing, the remaining amount that's left, which is since the cash is received, the difference would be recorded as deferred revenue. So again, two different accounting treatments, two different considerations to think about.
There are other non-accounting related considerations I wanted to highlight as well. Number one is this concept of double dipping. In a memo that was issued over the summer, the Office of Management Budget, the OMB has flat out said as part of their preparations for the uniform guidance audit that says that it's almost a reverse relationship. If you recorded an amount, then you're asking for forgiveness for related to the PPP, those amounts should not be submitted back under your federal grants for reimbursement. So what that basically means is you should not double dip, you should not recognize and ask for forgiveness for the PPP applications, in addition bill the government, your governmental agencies, for reimbursement.
So there is a direct and there has been other organizations that have flat out said the same thing. For Pennsylvania, there is some state grant money that's coming through, there has been discussions on that. So there is really a double dipping risk that you really want to consider when you are applying for forgiveness or reporting these amounts back to your governmental guarantors.
The impacts that's on that stimulus bill, you never know what's going to happen. Things have been floated out there since the House proposed the stimulus bill in May in terms of extending or allowing for more applications for the PPP. There was a bill submitted for automatic forgiveness of 150 or under. So you never know what's going to happen with that. You never know if there's going to be additional changes to the timing of the forgiveness.
And then lastly, will not-for-profits and organizations depending on certain criteria be allowed to apply for a second PPP lump? So one I think the initial Senate bill floated around in July, allowed for, and there's other requirements, but basically organizations with less than 300 employees to apply for another PPP loan, a second one. So again, nothing is concrete right now, because these bills are not moving through Congress at this time. But there are other considerations to think about, related to the next stimulus. The SBA in addition, has flat out said that any loans over two million will be automatically subject to audit. And then they also made it also in subsequent language have flat out said that any loans under two million, the SBA can come in and audit any loans at any time. So there are some risks.
What is unknown right now is that the SBA said, "Hey, we're going to look at everything over two million." However, they haven't really provided any additional information on what they're doing. In my personal opinion, I don't think that they have the bandwidth to go ahead and do this. So there are, depending on what it is, there is a chance that they may incorporate this into subsequent uniform guidance on if they there is a means for others to help audit federal grants, which is through the uniform guidance. As of now, especially for the 12/31s, the OMB has flat out said that the PPP loans are not subject to uniform guidance. So rest assured, as of now, they will not pop up in the uniform guidance audit those, the old term is A-133s audits.
So other stimulus bill potential impacts, there are other potential funding opportunities that will go there, either pass either directly from the federal government or pass down through city or state or city funding. Some of which may impact the opportunity to provide more unemployment benefits to your employees, especially if a unfortunate layoff is required. So just like right now, it's just a wait and see to see what happens. And this is why we wanted to have a part two, once the dust settles on the election, and what could possibly happen, we wanted to make sure we have a more detailed discussion in the future on what actually will happen, now that everything has hopefully been resolved sooner than later. In addition, there may be other tax deferrals or tax credits to think of. In the first stimulus they talked about deferring, not paying but deferring the payroll taxes and etc. So there's other things to consider in the future as well to focus on.
Other revenue considerations, when we are finalizing the 6/30s a lot of the P&Ls for that they've actually been in pretty good shape. What we are finding out is that, especially for the ones that had the fundraising events, that unfortunately had to be moved from in-person to virtual, that those fundraising events actually garnered more donations, some of which actually have record donations. And the reason why, is instead of limiting it to a certain number of people in in-person, now these virtual fundraising events allow for a possible infinite population, depending on how far the communication is. So for example, if I was a generous donor for a not-for-profit, but I was unable to not to go to an event, and for those of you involved, knows that when I attend events, I love participating in those auctions. So sometimes I drive my wife a little bit crazy about that, but yeah, I love being involved in the auction. Fortunately a lot of those are live, so if I'm living in California, and I'm not able to get here, I may not be involved.
So with the impact of the virtual options, you have a lot more possible donors to bid on those auctions that donate. In addition, at the early onset of the virus, I'm talking about, March to May time, a lot of more donors were a little bit more generous, because of everyone didn't think that this was still going to last into November and possibly going into 2020 or going into 2021. But however, recognizing that in the future, that this cannot maintain. Donors like anyone else only has a, eventually consistent pot of money. So eventually that money can't go everywhere. And as much as a donor wants to be as generous as possible, that's a trend that can't continue at an above average pace.
So with that said, and then also take into the fact that with government spending, and with the eventual need to have a balanced budget, and just cut any potential budget deficiencies, there has to be a given a take. So if there is giving right now because of helping out additional individuals and organizations, eventually there's got to be a take. So will there be a concern for future budget cuts to offset and try to get back any of these deficiencies that this spending is currently causing?
So while the FY for the June 30, the fiscal year 2020 maybe good, unfortunately, the bigger concern is going to be fiscal '21, and then fiscal '22. So just to be mindful of that, and make sure that as you're budgeting to look out for that and to make sure that you take that into account that you may need to cut your budget or reduce your contributions and not to be on the conservative side. Also, focusing on the additional new revenue sources, as I mentioned, there may be additional grants that are available, if you are heavily grant funded, try fundraising and see if that can garner any additional donations. Sorry, any additional revenue.
One interesting thing is, so, I had a client that in March was going to consider selling a good, say about a quarter of their portfolio and to use that money to invest in a new capital project. But because of the dip in the market, and because that they made a decision the fact that they are selling investments at really the low time in the market, and a very long time, they decided to keep their investments and instead use those investments as collateral and to obtain financing. So they in addition, got some debt as Evan mentioned, low interest rates are really low at this time.
So there are some cash flow considerations right now, the market is high, sorry, higher than in the past, say two or three months ago. So just cash flow considerations is weighing the decision upon what is selling versus selling your investments and recouping those initial gains or losses, or going out and getting financing based on the interest rates. So those are business decisions, that needs to be considered.
And then the last thing that I wanted to also touch on was in regards to the security risks related to IT. When board ask me at this point, what is some business for us to consider? I think IT is definitely one. And it's not necessarily that companies in the past had control issues related to IT, but it's now that the dynamics have shifted again. As I mentioned, previously, personally, I will be working remotely until at least the end of January 2021. So with that, my firm's information is reliant partly on my IT controls, the safety of my personal firewall. And I am not 100, I guess I shouldn't admit this to the individuals that are in there, but I'm not the most tech savvy. So those are things that when I'm looking at, I rely on Verizon and other organizations to say what I should be having.
But definitely IT issues. Now that if companies are remotely working, and that they in the past, they had a desktop in their office, but now they have a laptop that is in their homes, there are security issues related to that. There are financial reporting issues. So in the past, when everyone was in one location, the controls could be easily established, but now that people are remotely, how are your controls changed? Has it been impacted by segregation of duties issues that may result in short-term control deficiencies that needs to be resolved, and to ensure that the control structure is continuously in place?
So with that said, I did want to leave, and I am seeing questions flow in, so I did want to make sure that I leave enough time for that. So we have about eight minutes. But just to look out again, for future webcasts, webinar or webcast, part two, that will speak a lot more, we'll have a lot more information related to most on what I've been discussing, what Evan has been discussing as well. So with that said, I wanted to, Evan, if it's possible, I think a lot of these questions I'm seeing are related to you. So-
Jimmy Mo:I'll turn it over to you. And I'll keep monitoring the questions as well.
Evan Linhardt:Great. Thanks. Thanks, Jimmy for all that information. Super helpful and thanks for having me here today to discuss some of this. So I'm going to just go through the questions as I'm seeing them come through. The first question talks about the 60-40 portfolio. I'm sure some of you if you're reading The Wall Street Journal or other investment pages, you're seeing the 60-40 is dead. I would say it depends. It depends on what your goals are. Obviously, from the chart that I showed on the last and I can potentially bring that back up was that bonds are going to be challenged to produce the income and produce the return in yield that they had before.
So if you're relying on that income from your bond portfolio, you're 40%, then you potentially will not be able to achieve your goals. And so then we have to talk about alternatives, do we raise the risk profile? And are you comfortable with that by moving more into the equity markets? Do we go to certain alternatives, let's say like a hedge fund or some others that can get more yield, but without the volatility? So there's strategies that we certainly can take on. And again, it goes back to the diversification. You can be diversified and lower your volatility and risk, but still get the same return. And that's the customizing of your portfolio and the asset allocation that we worked individually with our clients for.
So is it dead as a general rule? I don't know if it should have been a general rule in the first place. Because again, what benchmark are you going towards? You're going towards your own benchmark. And so your allocation should be built based on your purpose and your goal. So I can't say yes, it's dead, or no, it's not because it really depends. But I think it's certainly challenged given what we see in the next 10 years. And happy to talk more about that with whoever asked that question. Unfortunately, my chat is not working cleanly, so I can't see who did but I can follow up after.
The second question talks about if a potential Biden win occurs, and there's increased taxes on the wealthy, how will that affect charitable donations? And two, where do we see individual contributions potentially being down? I'd say two things on that. Maybe three things or maybe five. We'll see how long we have. But the first is, let's take a step back, this year in particular, let's focus on between now and the end of the year, the CARES Act provided at 100% deduction, on individual contributions to 501(c)(3)s in charitable organizations. So if you're a nonprofit, you should be making sure your donors know that between now and the end of the year, they're going to get a bigger deduction, than they will potentially in 2021 because we have no idea if that's going to be extended. And that's a huge opportunity. That's a 25% larger deduction than in normal years. And so that's a big potential win for them, as they think about their year-end giving, is that there can be a larger deduction.
Look, everyone's going to be challenged moving into 2021 and beyond. It really depends on the individual and where they're coming. We've seen so far, that giving has been increased on an overall, as foundations and individuals have come to the call or the urgency that's occurring. Long-term, if they're taxed at a higher rate, and they have less disposable income, that's a potential. But again, you got to think about the source. Is the source the individual themselves? Is it their Donor-Advised Fund, which is not going to be affected by some of those issues? Is it capital? Is it appreciated stock which they can give and can avoid some of those capital gains and tax issues? The foundation, with a required spend?
So it really does depend on I think the source. If it's a regular individual like myself, yeah, on a lower end side, yeah, those taxes are going to hit me harder than they are for large. But when we do charitable planning, part of what we do is think about the tax implications and how we can work to get the most money to charitable organizations and what vehicles do that and provide the most opportunity?
So I don't see, necessarily a big drop. But it really again, depends on your sector of where you're looking for your revenue. Is it coming from mail out in emails for the smaller side donations? Those I see could potentially be challenging. Or is it on the upper end, where you're looking at foundations and grants and the like where they might be able to, I don't want to say avoid, but have other vehicles of opportunity?
Jimmy Mo:And Evan, if I can add as well.
Jimmy Mo:Last week, I was in a board meeting with the Biden tax plan that was discussed, they're actually expecting more donations from high income earners if Biden were to be elected. So whatever data that they're showing, they're actually expecting a larger increase in donations from those higher end earners if there's a higher tax rate.
Evan Linhardt:That's right. And is that between now and the end of the year? Or are they talking long-term?
Jimmy Mo:Both. All of the above. I mean, if you think about it, they're focused on Biden's tax plan, so in theory, this would be going into-
Jimmy Mo:2021, yeah.
Evan Linhardt:Yeah, great. The third question, you showed trends over extended period of time, even with the scenarios of politics. If you have the luxury of a significant cash position for the short-term, would you stay on the sidelines for the next 30 to 60 days? Or would you use it to continue to drive your current investment plan? Really good question. A lot of our clients are dealing with this, they've had cash on the sidelines, either from the beginning of the pandemic or just in general.
Again, it depends on their situation. We're so close to the election. I'm not sure what you benefit from going in right now, two weeks before an election, where we know there's going to be a lot of volatility. So I would probably suggest, and again, this is in a vacuum, I don't know your current situation or your organizations, I would wait. There's no reason, unless there's something, between the next three months, the gains you could possibly get versus the risk of the volatility, I would say, probably not prudent to go in right now. Again, it depends on your time horizon. If you're looking at 30 years, you could take your cash right now and the first week of every month, you divide it equally over the next three or six months. And you dollar, it's called dollar cost averaging, you put it in every month.
And so you're smoothing that volatility. Sometimes you'll hit at the top and you'll buy high, sometimes you'll buy low. That's a way to potentially smooth some of the volatility over the next month and we've seen clients who have done that across the pandemic because of the volatility. And so that's a way that you could potentially smooth some of that out over time. Again, it depends, but I think my overall recommendation would be, we're so close. I'm not sure it's necessary in the next 30 or 60 days, but again, depends on your long-term.
I know we're coming up on time, we have two more questions. Jimmy, I have time after 10:00, if you want to extend five minutes or so here. Up to you.
Jimmy Mo:Lexi, I don't know, is that allowed, or?
Lexi D'Esposito:Yep, that's fine.
Evan Linhardt:Okay, great.
Jimmy Mo:Perfect. Yeah. If anyone would be happy to stay on for the remaining questions. If not, for those of you jumping off again, before you answer. I just want to thank everyone for their time today. And again, stay tuned for part two of this, which will qualify for CPE.
Evan Linhard:Yep. Thanks, Jimmy for having me. And thanks for having Bernstein and EisnerAmper is a great partner. So we appreciate you having us as part of this. Great. Well, we have two more I see in the chat. With a potential increase in the cap gain rate of ordinary income, is there a tax play with regards to donating appreciated property to nonprofits and foundations? Jimmy, I don't know if that's something you could put more clarity on? I'm just happy to answer as well.
Jimmy Mo:Unfortunately, I don't know the answer to this. I know the individual, I can see who will speak to this, so we can talk about this further, and then we can follow up.
Evan Linhardt:Yep. And obviously, there's benefits to donating appreciated stock. And so certainly, again, depending on how the election goes, people are going to be very busy, especially trust in the state attorneys and those foundations, excuse me, those individuals who are looking to potentially gain something before the end of the year. So definitely a good question and we can both get back with some answers on that. The last question I see, And Jimmy, again, I'm having a little trouble with the question and answer. So tell me if there's more. But the last one I see is one of your slides shows the growth appreciation of stocks over the past years. But what about value in investing? So this is talking about companies that potentially are undervalued from the investment community's view. When will come back in vogue or when, looking at equity exposure, should not-for-profits be totally focused on large cap growth?
I talked about this a little bit in my presentation. It's all for us about diversification. There's never a time more where diversification has shown to provide the risk mitigating that's needed and the growth that's needed. Because you're not putting all of your eggs in one basket. You're doing a diversified portfolio that's weighted based on the research that we're bringing in from across the world of the companies that we're sitting at board meetings on and making those. So we actually started as a value shop, Bernstein, about 50 years ago. And we certainly have a lot of large cap stocks depending on our portfolios. But how we look at it is you really want to be diversified about 80 or so percent in large and mid-cap and about 20 or 15% in a small cap. And that's talking about market cap there.
And that's changing, obviously, as things change, and you want to be tactical in those decisions. So I wouldn't say it is what's in vogue or out of vogue, I would say you want to be diversified throughout your allocation so that you're capturing the market. Again, trying not to market time, but trying to build something that can be an all weather for the long-term. And that's where you can really manage your risk and return goals over the long period of time, instead of trying to market time where you have the asset potential to gain growth, but also a huge risk in losing. And you really got to be understanding of what your risk profile is if you're going to be putting all your eggs in a more concentrated basket.
Jimmy Mo:And Evan, I think that's all the questions for now. So we'll definitely follow up on the one. Again, thank you everyone and Lexi, I will turn it back to you.