Where should you invest your money? Right now, that's a far from a simple question.

If you have new cash to put to work, or if you're ready to take some profits on existing investments and reallocate the proceeds, there's no obvious place to reinvest that money.

High-quality bonds are unappealing because of their low yields--10-year Treasuries are yielding just 1.3%. And the possibility of rising interest rates makes them potentially dangerous. When interest rates rise, bond prices fall. Then there's the threat of prolonged inflation, which eats into the value of bonds' interest payments. Inflation is running at a 5.4% annual rate, although it could cool down as supply chain bottlenecks related to reopening subside.

Junk bonds, issued by lower-quality companies, usually compensate for their riskiness by paying higher yields. But right now, junk bond yields are close to their pandemic lows. In other words, we're not being paid enough to take on their additional risk. That risk, of course is magnified by the potential for rising interest rates. The Federal Reserve is currently debating when to roll back its ultra-low interest rate policy.

In the past, we've successfully invested in mortgage-backed securities. But despite generating good cash flows, MBS are very expensive right now. At this time last year, MBS funds could actually be bought at a 20% discount to their intrinsic value; now they're trading at a 5% premium.

Meanwhile, stocks are expensive. Those in the S&P 500 index are trading at about 35 times their earnings, compared with their historical average of around 16. Growth stocks are even more expensive: Invesco's large-cap growth-stock ETF QQQ is trading at around 41 times earnings. It's not clear when stocks' earnings will catch up to their valuations. Until they do, stocks are at risk of being more volatile.

In other words, picking investments is unusually tricky right now. Against this backdrop, I see dividend-paying stocks as one of the best places to be. They're not especially expensive compared with the broad market (Vanguard's Dividend Appreciation Fund currently trades at 31 times earnings), so they have room to rise. Even if they don't appreciate much in the coming months, dividend stocks pay you to wait.

In looking for sectors that I consider most likely to see price appreciation, oil companies stand out, as do banks. Rising oil prices--oil has jumped from $40 a barrel last year to $64 recently--could give earning and consequently stock prices, a lift. And banks have traditionally made a lot more money when interest rates rise.

It's also important to be mindful right now of the percentage of cash within your overall portfolio. Inflation will eat away at its value, and if the market rises quickly you won't capture as much of the gains. Please don't hesitate to contact us if you'd like to talk about your investments.

New tax legislation is taking shape in Washington, and business owners, farmers and wealthy investors have been paying close attention to reports that the long-term capital gains tax rate could be essentially doubled.

Such a tax hike is part of President Biden's plan to raise trillions of dollars of revenue to fund multi-trillion-dollar infrastructure and social programs. The proposed capital gains increase has garnered lots of headlines and caused a fair amount of angst among those who might be affected. But I suspect there is not very much to fear.

Biden reportedly wants to raise the top individual income tax rate and the corporate tax rate, in addition to the rate paid on capital gains. He has said on multiple occasions that his increases on individuals would only affect Americans earning more than $400,000 per year.

In terms of the income tax, Biden wants to raise the top rate from 37%, where it stands now, to 39.6%. He also wants to lower the floor of the top income bracket. Under his plan, a married couple filing jointly would pay the top rate on income over $509,300; currently the threshold is $628,300.

The rate on earned income matters to investors because Biden wants to start taxing capital gains at the same. His plan calls for raising the current 20% rate on capital gains to 39.6%--but only for households with income exceeding $1 million in a given year. The 3.8% Medicare surtax on investment earnings would continue to apply, pushing the top rate to 43.4%.

Here's why I don't think this scenario will become reality. First of all, Democratic and Republican lawmakers alike have wealthy constituents and political donors, and are loathe to bite the hand that feeds. Furthermore, capital gains taxes apply to farms and family businesses as well as to investment gains—and it doesn't look good for politicians to soak farmers and family businesses.

Biden, who spent 36 years in the Senate before spending eight more as Vice President, is the definition of a savvy politician. I believe he sees the capital gains proposal as negotiating leverage, and that he will trade it away in order to secure concessions from Republicans and conservative Democrats on the scope and price tag of his infrastructure legislation. Even if the capital-gains hike does survive the legislative sausage making, it's likely that it would be significantly watered down.

Right now lots of investors are contemplating selling their appreciated stock earlier than planned in order to lock in the current 20% capital gains rate. But my advice is to avoid making major changes based on something that might not happen. As always, please don't hesitate to get in touch with us if you'd like to discuss your investments.

Remember when the stock market seemed like it would go up forever?

Between March 20 of last year and May 7 of this year, the S&P 500 index gained 84%, driven by factors like government stimulus spending, the rise of work-from-home companies like Zoom and Amazon, and more recently, the distribution of highly effective vaccines. But since early May, the market's momentum has stalled out: After hitting a record high of 4,233, the S&P index has bounced around, mostly lower, for more than a month.

The market won't stagnate forever—over the past 20 years, its annual return has averaged 11.6%. Every substantial rise in stocks has been created by a catalyst, from falling interest rates to technological advances to stock prices declining to cheap levels. Right now most stocks, especially technology stocks, aren't cheap, and interest rates are more likely to rise than fall. So what could spark the next leg up for stock prices? I see a few possibilities:

Falling unemployment. Businesses are opening back up, but they're struggling to find workers. The Labor Department reported a record 9.3 million job openings in April, a million more than in March. And nearly 4 million people quit their jobs in April, twice as many as in the same month a year earlier.

Employers' efforts to fill jobs are being hampered by people retiring early, being unable to work because they lack childcare, being fearful to return to work because of the virus, and not needing to rush back to work because of unemployment benefits. Economists say unemployment could start to drop in the fall. And the added manpower could make companies more productive and profitable, which could drive stock prices up.

Infrastructure spending. President Biden wants to spend $2.3 trillion on infrastructure, from roads and bridges to broadband to elder care. His administration is negotiating with Republicans, who want to spend less, but one way or the other, Biden wants to sign a bill this summer. Trillions of dollars coursing through the economy would obviously drive profits and lift stocks. A combination of rising employment and infrastructure spending could create an even stronger tailwind for stocks.

A leg down. Stocks could fall significantly before rising again. Inflation, the spread of a Covid-19 variant, or any number of factors could cause a big reversal, lowering stock prices and creating good bargains for investors with cash to put to work.

I do expect stocks to remain volatile over the summer, and probably not rise significantly. But within three to six months, we could see the next catalyst or catalysts to spark the market's next leg higher. Until then, resist the urge to put cash to work if there's nothing promising to buy. Generally speaking, stocks aren't known for making significant gains during the summer months; if anything, they are more likely to fall.

There will be more good opportunities down the road, but for now, patience is a virtue. Don't hesitate to get in touch with us if you'd like to discuss your investments.

After years of ultra-low inflation, costs are rising at their fastest rate since 2008. The poster child this time around is lumber, where prices have risen more than 85% this year and 280% in the past 12 months. 
So you might not want to rush into building that new home, or even that deck you’ve been planning. But what does consumer price inflation mean for you as an investor? 
First of all, inflation helps to explain why tech and other high-flying “growth” stocks have had a rough year. Rising inflation is seen as a headwind for stocks generally because it increases companies’ costs—everything from wages to materials to borrowing costs. That puts pressure on earnings growth—and fast earnings growth is a core attraction of companies like Netflix, Amazon and Facebook.
Companies like these are heavily represented in market indexes like the S&P 500 and the Nasdaq, and their recent performance has dragged these indexes down. At the same time, “value” stocks, like utilities, consumer staples and banks, have mounted a big comeback this year as investors have dumped growth stocks. Value stocks tend to trade at lower prices relative to their earnings, sales and other fundamentals. They also tend to carry low debt and pay dividends, and they’re known to withstand inflation better than growth stocks. 
I believe that inflation is likely to persist throughout 2021 and maybe longer, in large part because of the $7 trillion in pandemic stimulus money the federal government has pumped into the economy. Likewise, I think the rotation from growth stocks to value stocks has legs. I wouldn’t be surprised to see some tech stocks pull back 10% from their highs in coming weeks, while some value stocks soar. So for many investors, it’s time to rebalance away from high-flying growth stocks and toward value investments. 
That doesn’t mean you should get out of the market altogether; doing so is almost always a mistake because no one can predict when markets will rise and fall. Nor should you dump all your growth stocks and back the truck up for value stocks. Selling appreciated stocks triggers taxes, for one thing. For another, many growth stocks are worth holding on to—particularly those that have the potential to be transformative over time. A little over 20 years ago, Amazon.com was just an online book seller; it went on to disrupt the way consumers buy just about every kind of good, and today it’s a behemoth. 
No one can identify the next Amazon with any certainty, of course. But investing in a number of less-mature companies with promising stories increases your odds of owning a stock that can really impact your investment portfolio if you’re patient. This is where a seasoned investment advisor who really knows how to analyze companies can make a difference. 
While investors are rotating to value stocks, and selectively holding on to growth stocks, one area to be extremely cautious about is long-term bonds. Inflation can decimate the value of fixed-rate bonds because it erodes the buying power of the income stream the bonds provide. 
Instead, look to short-duration bonds of five years or less. Fixed-income investments with variable interest rates are also inflation resistant because their payments can adjust upward. 
As with stocks, a really skilled investment advisor can identify durable sources of fixed income in different market environments. And he or she can help you stay calm and rational when markets are volatile, stress increases, and your fear and greed instincts rear their heads. But you need to be smart about choosing which advisor to work with. As I wrote a few years ago, most advisors are actually brokers, who are legally permitted to place their financial interests ahead of yours. Registered Investment Advisors like Copeland Wealth Management have chosen to operate under a legal framework that requires us to put your interests first. 
Please don’t hesitate to contact us if you’d like to discuss inflation and your investments.

If you follow the news, you know that inflation is rising, and so are long-term interest rates.

It's been so long since both of those things happened, in a significant, long-term way, that
many people unsure what to do with the information. Here's my take on why we're seeing inflation and interest rates rising, and what you should do in response.

The economic recovery is accelerating, both because the Covid-19 vaccines are helping consumers return to their normal behavior, and because of the continuing, multi-trillion-dollar stimulus from the federal government. As consumer demand picks up, it's spurring price inflation. In March, consumer prices rose .6%, their biggest gain since 2012.

Accelerating inflation, meanwhile, is pushing long-term bond rates higher. Essentially, the bond market is predicting that higher future prices of goods and services will make bonds' fixed income payments less valuable. Accordingly, bonds are trading at lower prices. Bonds' yields move in the opposite direction of their price, which is why yields have been rising. The benchmark 10-year Treasury is now yielding about 1.6%, up from half a percentage point in August of 2020.

Rising Treasury yields rise are mortgage lenders' cue to charge higher interest on their loans. That means taking out a new mortgage loan or refinancing an existing one could soon get more expensive. The rate increases generally don't apply to short-term consumer loans such as home equity lines of credit. That's because these loans are pegged to short-term interest rates controlled by the Federal Reserve, and the Fed has vowed to keep short-term rates low indefinitely.

The bottom line: You should make real estate decisions sooner rather than later. You might be able to manage the $1,185 monthly payment on a $300,000, 30-year loan at 2.5%, but not a $1,520 monthly payment, at 4.5%, for example. And over 30 years, that higher-rate loan would add in excess of $100,000 to your total payments.

Rising Treasury yields also have implications for the stock market, which makes this a good time to review your investment portfolio. As Treasurys' yields rise, so does their attractiveness as a safe alternative to stocks. That can create volatility in the stock market.

Which stocks are most vulnerable to this volatility? Generally speaking, I believe it's those that have been the past year's highest fliers. Big gainers are always the most prone to sharp pullbacks, possibly as much as 10% to 20%. If you own some of the hotter stocks from the past year or so, their price appreciation means they now likely account for a larger percentage of your portfolio than they originally did. And that means your portfolio is much more risky than it should be.

Investors should review their holdings, potentially take some money off the table and redeploy it into undervalued companies, especially those that might pay a dividend. Think insurance companies, banks energy companies, for example.

If you need to do selling within taxable accounts, do not delay doing it because you're afraid of the tax bill. A big pullback could wipe out much more than you'd likely owe in taxes. And as you review your investments, you might even find that you're closer than you anticipated to being able to retire. You won't know until you take a close look and run all the calculations. That's where we can come in. Don't hesitate to call if you'd like to review your investments and your financial plan.