It wasn’t quite a Blue Wave, but the Democrats will control Washington after all—and the market is giving an early vote of approval.


In a surprising turn of events, Democrats Raphael Warnock and Jon Ossoff defeated their Republican opponents in Georgia’s runoff elections for Senate on Jan. 5. That means the Democrats, with 50 of the Senate’s 100 seats, will effectively control the chamber with Vice President Kamala Harris holding the tiebreaking vote.


After winning the presidency and holding the House of Representatives in November, the Democrats are in full control of the legislative agenda for the first time since 2011. The major stock market indexes are signaling enthusiasm. Six days after the Georgia election, the S&P 500 and the Dow Industrials were both up 2%. The Nasdaq index of technology stocks closed down 0.6% the day after the election on fears of tougher regulation. But five days later, swept up in the euphoria, it was up as well, by a total of 3%.


Investors expect a blue Washington to mean more stimulus spending and higher taxes. And while many on Wall Street had feared the prospect of higher corporate and household taxes, it appears that investors see the trillions of dollars in stimulus money sought by Biden as outweighing the potential tax hikes. They also see Washington taking up stimulus legislation before turning to tax legislation.


While markets have been rising in unison so far, I believe the best approach going forward will be to buy stocks of individual companies based on both their long-term prospects and their ability to weather the turmoil we’re likely to see in coming months. More than 250,000 new Covid-19 cases are now being reported daily, up 37% from two weeks earlier; average daily deaths are up 48% over the same period. 


While the distribution of the highly effective vaccines is good news, the rollout has been disappointing. At the current rate, it will take an estimated three years to achieve so-called herd immunity, depriving the virus of new hosts and effectively shutting it down. Thus, I expect a continuing health crisis, with the possibility of widescale business shutdowns, in the months to come. The market may be highly volatile as events unfold on both the pandemic and legislation fronts. 


Investors who bought up stocks in anticipation of the government spending may “sell the news” once the legislative agenda turns to taxes. In part to pay for support to households, small businesses and local governments, Biden wants to raise income taxes on households earning more than $400,000 a year, to hike capital gains tax rates and to increase corporate tax rates.


You can bet that the markets won’t like that part of the Democrats’ agenda as much as they like the stimulus. The key then will be knowing what to buy and when to buy it. If you’d like to discuss your investments, please don’t hesitate to get in touch.

The most financially successful people know that growing wealth isn't just about what you earn, but also about what you keep. And that means keeping your tax bills to a minimum. With the end of the year approaching, now's the time to pull the levers that enable you to do just that. Here are some tax-planning strategies you should consider implementing.

1. Give stock, don't sell it. Selling a large taxable investment, even if the purpose is to reallocate that money into other investments, triggers capital gains taxes. Rather than selling, consider donating appreciated stock to charity or gifting shares. Both steps can save you a bundle in taxes.
2. Use your tax bracket. Pushing income off until next year may help you move down to a tax bracket where the capital-gains-tax rate is as low as 0%. Be sure to consult a tax professional to ensure you're on solid ground with the IRS.
3. Max out your 401(k). Contributing the legal maximum to your employer's 401(k) plan every year is a no-brainer, because it allows you to take full advantage of both the plans' inherent tax benefits and any employer match. Employers commonly match as much as half of your contributions, up to 6% of your salary. That's free money. The IRS limit this year is $19,500 per person; if you're 50 or older, you can contribute an additional $6,500, bringing the total to $26,000.
4. Max out your IRA. After maxing out your 401(k), do the same with your traditional or Roth IRA, both of which are also tax-advantaged. You can contribute up to $6,000 to an IRA this year, or $7,000 if you're age 50 or above.
5. Convert your IRA to a Roth. Roth IRAs are funded by after-tax dollars—the opposite of a traditional IRA. The upside is that the money grows tax-free, and you (or your heirs) don't pay any taxes when you eventually take withdrawals. Converting your traditional IRA will trigger a tax bill—but the reason to do it now is that tax rates are at historic lows. Many experts believe that rates will rise, if not in 2021, then in the next several years. You can also use deductions from charitable giving to neutralize part or all of your IRA conversion tax.
6. Make a distribution decision. Owners of 401(k) and traditional IRA accounts are required to take minimum annual distributions from those accounts starting in the year they turn 72. Under the CARES Act, signed in the spring, taxpayers may skip their withdrawals in 2020. But there are reasons you might want to take a distribution anyway. For example, if you expect much higher total income next year, taking money now means you might pay a lower rate on it than you would next year. Likewise, certain charitable contributions made directly from an IRA can reduce your gross income and thus your taxes.
7. Donate stock shares. Charitable gifts made in 2020 will trigger bigger tax breaks than usual. In 2019, charitable gift deductions were limited to 60% of adjusted gross income. Thanks to the CARES Act, you can write off up to 100% of AGI. So if you were planning to make a significant gift, this could be the year to do it.
8. Update your beneficiaries. Now is also a good time to review the beneficiary information on all your financial accounts, from banks to insurance to investments. Life situations change all the time—divorces, deaths, new family members—and beneficiary designations often become outdated. This can and does lead to ugly situations such as a current spouse fighting an ex-spouse in court over an inheritance. And any accounts without named beneficiaries will wind up in probate after your death, which adds cost, time and aggravation to estate settlement. From a tax standpoint, up-to-date beneficiary designations can help ensure that your heirs aren't subjected to any more tax than is legally necessary.

Tax planning may not be as fun as earning and investing money. But paying attention to it can make the difference between achieving big goals and settling for less. If you'd like to discuss the intersection of tax planning and your wealth, please give us a call.

The world has gotten some very welcome news lately: Two Covid-19 vaccines, one made by Moderna and another by Pfizer and BioNTech, have proven to be nearly 95% effective in blocking the virus. High-priority groups could start receiving the vaccine by the end of December, according to U.S. health officials.

So while it's likely to be a difficult winter, there's a light at the end of the tunnel for our public health crisis. But what does that news mean for your investments? If you've loaded up on stay-at-home stocks—such as e-commerce, teleconferencing and streaming entertainment companies—it may be time to consider taking some profits and redeploying the capital into stocks that have been hurt by Covid.

Vaccines aside, recent developments are promising for the stock market in general. The election earlier this month is likely to result in divided government, with Democrats controlling the House of Representatives and presidency, and --barring an upset in two elections in Georgia in January—Republicans holding the Senate. This sort of division of power in Washington, in which neither party can easily pass sweeping legislation, has historically been best for stocks.

In addition, Washington still appears likely to pass another round of economic stimulus within the next few months. That would give consumers and businesses a needed boost as the pandemic continues to drag on the economy.

Stay-at-home stocks, from Amazon to Zoom, tanked right after Pfizer's vaccine news broke, and again after the Moderna news. But investors should avoid dumping this category of stocks wholesale. Valuation is key: If they've gotten ahead of themselves, consider lessening your exposure, especially because it's likely that volatility lies ahead. Also take into account the companies' underlying strengths. Players like Facebook, Microsoft and Apple are sitting on hordes of cash that they can deploy anytime. While they may lose momentum in the short-term, they're still good long-term investments.

Meanwhile, it's worth looking carefully at stocks that have been beaten down by Covid, including those in the travel and tourism, leisure, and hotel industries. Once the severity and depth of the pandemic became apparent, investors fled these companies on fears that many would not survive. But the past two weeks' vaccine news signals that life may begin to return to normal within six or nine months. Companies that can hold out until then could be bargains right now based on rebounding future revenues.

The best way to identify promising companies is by looking closely at not only their potential revenue growth, but also other factors like their debt level, their current stock price and their competition in the market. Please don't hesitate to call us if you'd like to schedule a review of your investments.

The news that President Trump tested positive for the coronavirus rippled through Wall Street and the country on Friday, and it left investors wondering how the development would impact their portfolios.

I believe the most important takeaway is this: The news underscores the fact that the pandemic is going strong. If even the president of the United States can be infected, then we are far from being out of the woods. And I believe that has two implications for the stock market.

First, so-called stay-at-home stocks should benefit. The president's positive test underscores that we're dealing with a highly contagious airborne disease, and with the timeline of a vaccine unclear, social distancing will remain a key line of defense. A widely predicted second wave of infections in the fall would only strengthen the case for social distancing, while sending many students and workers home.

What kinds of companies might thrive in this stay-at-home world? The kind that we at Copeland Wealth Management have been gravitating to for most of the year: technology firms, with an emphasis on those that specialize in connectivity, cloud storage and virtual connection. Retailers including the big-box home improvement chains are also well positioned as stuck-at-home consumers look to feather their nests.

The president's diagnosis may also improve the odds that we get a second round of stimulus relief from Congress. Politically, it's suddenly become much harder to ignore the impact of the virus and the need to respond.

On the other side of this coin, I would warn investors about falling into value traps. Stocks in the restaurant and hospitality, airline and cruise industries are really attractive in many cases. But these companies tend to be loaded with debt, and their revenue prospects are dim. With health restrictions such as limited capacity in place, it's hard to see how they can generate the sales that would translate into attractive earnings.

Remember, not only is it unclear when we will have a vaccine, it's also uncertain how effective it will be, how quickly it will be distributed, and what percentage of people will take it. Consumers have been frightened for a long time, and even after airlines, cruise lines, restaurants and stores open at full capacity, there's no telling how long it will take regular people to start patronizing them at pre-pandemic levels.

In September, we saw investors start to sell stay-at-home stocks, which had become expensive, and move toward undervalued stocks. President Trump's diagnosis is likely to reverse that trend. Please don't hesitate to contact us If you'd like to discuss building an investment portfolio for the pandemic era.

The 2020 elections are just about two months away, and if the 2016 contest taught us anything, it's that predictions are a fool's game.

But for now, the polls are showing that a Democratic sweep – where they retake the White House and Senate while keeping control of the House of Representatives — is at least a possibility.

So investors should be aware of what could be in store under a Democratic government. In particular, tax reform is a major part of Democratic presidential nominee Joe Biden's plans. And one of his most ambitious proposals involves raising the long-term capital gains tax rate for households earning capital gains above $1 million per year.

Long-term capital gains — the sale proceeds from stocks, bonds, mutual funds, real estate and other investments that are owned for more than a year — are taxed at a special rate. For married couples with total income above $80,000 and below $496,600, the current rate is 15%. For couples with income above that level, the rate is 20%.

Biden's plan calls for increasing capital gains rates to the same rate as ordinary income for households with income above $1 million. Those households' capital gains rate would rise from 20% to 39.6%.

Remember that Democrats would need a clean sweep in the November elections to implement Biden's plans. Whether that will happen is unknowable. The important thing for investors is to plan for the possibility. Should power change hands in Washington, steps such as selling highly appreciated shares might be appropriate.

It's also quite possible that we will end up with divided government, where neither Democrats nor Republicans control all three branches of government. In that scenario, we'd likely see the status quo prevail, with neither party able to pass new significant tax changes into law.

In addition to increasing capital gains taxes, Biden would target the top 1% of earners, with a higher income-tax rate. Specifically, taxes on ordinary income above $400,000 would return to the Obama-era 39.6% rate, which was lowered to 37% early in Donald Trump's presidency. Biden has also proposed an increase in the payroll tax to income above $400,000, in order to shore up the Social Security system.

President Trump has been more vague about his tax agenda for a second term; he's spoken about keeping more of workers' pay in their pockets, for instance. But he hasn't offered the level of detail that Biden has.

As a financial advisor, it's not my place to tell you who to vote for. But I am advising my clients to be prepared for the different eventualities that could lie ahead, and to be prepared to make money moves to suit your situation. If you'd like to discuss your investments, please don't hesitate to reach out to us.