Be Smart About Your Tax Windfall

Written by Rob Copeland | 13 March 2018

With April approaching, it's time to talk about tax windfalls—and how to use them wisely.

There are really two sources of extra cash that may be coming your way. First, you may be seeing more take-home pay because of withholding adjustments in the wake of the new tax reform law. Second, you may be anticipating a nice fat tax refund from the IRS in a few weeks.

Without a plan for what to do with this extra money, there's a good chance that you'll spend it impulsively. That's why now is the time to review your retirement plan and your investments to make sure you're saving enough.

Here's why doing so is important. The last thing you want in retirement is to realize that you don't have enough income to support the standard of living that you take for granted right now. Reviewing your retirement plan will allow you to confirm that you're saving enough so that you can retire comfortably—or how much of a shortfall you need to fill.

In addition, it's an opportunity to manage the risk in your investment portfolio.
Your investments should seek to balance growth and safety. But even if you've worked with an advisor to strike the right balance, changing markets can destroy that balance.

The past few years have been great for stocks, and less good for bonds. As a result, if you originally had a 50/50 balance of stocks and bonds, those faster-growing stocks might now represent, say, 70% of your portfolio, while bonds' value is now just 30%. That's a far riskier mix of investments than was originally intended.

To restore your original allocation, you'll need to bring the ratio of asset types back into balance. And one way to do that is to use your tax windfall to buy more of the asset type that's under-represented. By the way, if your goals have changed, a retirement review is also the right time to adjust your investments to reflect that.

If your retirement plans are on track, it might be wise to set extra cash aside in an emergency fund. You don't want to find yourself in a situation where you need to turn to credit cards or, much worse, raid a retirement account, to cover unexpected expenses. If you're all set on your emergency fund, it might make sense to invest extra money in taxable investment accounts.

The bottom line: Tax season is a good time to get together with your financial advisor for an annual review of your retirement plan and your investments. If your advisor hasn't reached out to you in a while, pick up the phone and give him or her a call. You're paying the person to look out for your money, after all. If you don't have an advisor who can do that for you, please give me a call.

How to React to the Market’s Ups and Downs

Written by Rob Copeland | 13 February 2018

February has been a tough month for the stock market: Declines exceeding 10% have erased the year's gains, despite a partial recovery in recent days.

After a 2017 in which the market didn't have any major setbacks, it may feel like a long, ugly selloff lies ahead. But the truth is that market volatility—those violent swings up and down—is completely normal.

Over the past 40 years, U.S. stocks have averaged a more-than-10% decline each year during bull markets. By that measure, last year was the anomaly, not this year. But the question remains: Are your investments safe?

Copeland Wealth Management's investment portfolios are built with the expectation that markets will have normal corrections. We even expect there to be periodic longer bear markets. But historically, markets always end up higher after a few years. In other words, the stock market usually takes two steps forward, one step back, and so on. The key is to remain patient and stay the course.

Nor does the recent correction (a correction is a drop of 10% or more from a previous market high) does not appear to be signaling a recession. Corporate earnings, which drive the stock market, are healthy. And economic growth is on the upswing around the world.

With a recession usually comes a longer period of weakness in the stock market. But without the usual signs of a recession, stocks appear to be poised for modest (but not great) growth over the next several months if not longer. And it's likely that there will be more volatility over the course of 2018. The key to success will be to remain calm in the face of those price swings.

One thing that's not helpful is to pay attention to the talking heads on cable television shouting: "buy buy buy!" or "sell sell sell!." Remember that a lot of commentators out there stand to make money for their firms and themselves if they can convince their viewers to trade stocks based on short-term emotion. Don't fall for it.

With that being said, market pullbacks can present selected buying opportunities. This doesn't mean buying on impulse. Investors should maintain a "wish list" of companies that they want to buy, and a price level at which they're worth buying.

Recently, Apple and Sysco, a food services company, were two stocks on my buy list that fell into my price range because of the market selloff. Again, selective buying, not nilly-willy trading, is vital. You should always work with a qualified, experienced advisor who can analyze the market and specific stocks. Don't hesitate to contact us if you'd like to discuss how to invest in 2018.

Seeking Diamonds in the Rough for 2018

Written by Rob Copeland | 13 January 2018

What do you do with your stocks after a great year in the market? Shrewd investors often take some profits and look for stocks that were left out of the rally—and thus may have more remaining upside than the winners.

It's part of what's known as rebalancing, and the start of the year is a good time to do it. A popular way to find quality stocks with potential is through the Dogs of the Dow strategy.

The Dogs of the Dow are the 10 highest yielding Dow Jones Industrial stocks as of the end of the year. Since yield equals dividend relative to price, the Dogs not only pay a high amount of income, but they're cheap, which means they might appreciate significantly.

Last year, a handful of Dow names like Boeing, Caterpillar and Apple did the heavy lifting as the index rose nearly 26%. Expect lesser performing companies to drive returns this year.

Just buying a group of stocks based on two simple criteria—being in the Dow index and having the highest yields in that index—isn't enough to ensure that you'll beat the market, of course. But the Dogs of the Dow has a pretty good track record.

In 2017, the Dogs fell short, returning 19%. But before that, they had beaten the Dow in six of the seven previous years. By being more selective, investors might increase their odds of success. For instance, the cheapest five stocks in the Dogs of the Dow have tended to do better over time than the group as a whole.

An experienced advisor can cherry-pick the best opportunities based not just on price and dividend yield, but on underlying data about a company's strengths and weaknesses, their leadership, their market opportunities and more.

Exxon Mobil is an example of a promising company that had a forgettable 2017. There are a couple of factors that could give this stock a real bounce, first, natural gas development has been coming back after years of stagnation. Exxon also plans to merge its refining and marketing businesses, potentially leading to a significant cost cut.

While it's largely dependent on what fuel prices do this year, Exxon's stock could see a real snapback. And that could add a little extra return to an investment portfolio that takes into account your personalized goals and risk tolerance.

Remember that no investment is guaranteed to make money, and any investment can lose money. We encourage you to contact your investment advisor to identify the investments that are best for you.

Why Bitcoin is for Suckers

Written by Rob Copeland | 13 December 2017

If you're thinking about investing in bitcoin, I've got some simple advice for you: Don't.

Bitcoin is a digital, online "currency," like dollars, except that you can't actually spend them anywhere. Try buying a grill from Home Depot with bitcoin and you'll see what I mean. Who is using bitcoin? It seems many of its users are people trading drugs and other contraband, anonymously, on the so-called dark web.

And yet bitcoin has soared in value from less than $1,000 at the beginning of the year to more than $17,000. In other words, one bitcoin costs close to the down payment on a house. This is what investors call a speculative bubble, folks.

Remember the dot-com bubble? The real estate bubble? There have been bubbles for as long as humans have traded things. By 1637, Dutch traders were paying more than 10 times their annual salary for tulip bulbs. You can guess how that ended.

What all these speculative bubbles have in common is that the people who can least afford to lose money get absolutely crushed. When bitcoin crashes, and it will, mom and pop investors—including those who are mortgaging their homes to buy bitcoin—will be left with nothing, while more sophisticated investors will have made a killing.

The bitcoin crash will likely occur for one of two reasons. U.S. and other governments will begin regulating the currency—removing its anonymity in order to track possible evidence of crimes—or big sophisticated investors, sensing that the top is near, will sell out and start a domino effect.

Right now, those big investors are counting on the hoopla about bitcoin to attract more and more investing novices who will buy the currency and pump prices even higher.

By the time bitcoin crashes, these more savvy investors will be long gone. You'll be the one left holding the bag. As the gambling saying goes, the sucker is the person at the table who doesn't know he's the sucker.

And none of this takes into account the security risks associated with bitcoin. Hackers have fraudsters have stolen millions and millions of dollars of bitcoin so far. And once it's gone, there's no getting it back. There's no FDIC insurance. There's nobody to sue. Remember, it's all anonymous.

Last week, the Chicago Board of Exchange, a financial exchange, started letting investors trade bitcoin futures. Essentially, it's letting people make bets on how much bitcoin will rise or fall. There's no clearer sign that owning or trading bitcoin trading is nothing more than straight-up gambling.

A lot of investing is common sense. Would you buy a dollar bill from me for thousands and thousands of dollars? If not, then you shouldn't be buying bitcoin.