Roth vs. Traditional IRA: Which is best for you?

Contributed by: Kali Hassinger, CFP®

If you’re planning to use an IRA to save for retirement, but aren’t sure whether Roth or Traditional is best for you, we can help sort it out. Before we break down the pros and cons of each, however, we need to make sure that you are eligible to make contributions.

For 2019 Roth IRA contribution rules/limits:

• For single filers, the modified adjusted gross income (MAGI) limit is phased out between $122,000 and $137,000. (Unsure what MAGI is? Click here.)

• For married filing jointly, the MAGI limit is phased out between $193,000 and $203,000

• Please keep in mind that it makes no difference whether you are covered by a qualified plan at work (such as a 401k or 403b). You simply have to be under the income thresholds.

• The maximum contribution amount is $6,000 if you’re under age 50. Those who are 50 and older (and have earned income for the year) can contribute an additional $1,000 each year.

For 2019 Traditional IRA contributions:

• For single filers who are covered by a company retirement plan (401k, 403b, etc.), in 2019 the deduction for your IRA contribution is phased out between $64,000 and $74,000 of modified adjusted gross income (MAGI).

• For married filers covered by a company retirement plan, the deduction is phased out between $103,000 and $123,000 of MAGI.

• For married filers not covered by a company plan, but who have a spouse who is covered, the deduction is phased out between $193,000 and $203,000 of MAGI.

• Maximum contribution amount is $6,000 if you’re under age 50. Those who are 50 and older (and have earned income for the year) can contribute an additional $1,000 each year.

If you are eligible, you may be wondering which makes more sense for you. Well, as with many financial questions…it depends! 

Roth IRA Advantage

The benefit of a Roth IRA is that the money grows tax-deferred. When you are over age 59 ½, you can take the money out tax free. However, in exchange, you don’t get an upfront tax deduction when investing in the Roth. You are paying your tax bill today, rather than in the future. 

Traditional IRA Advantage

With a Traditional IRA, you get a tax deduction for the year you contribute money to the IRA. For example, a married couple filing jointly with a MAGI of $190,000 (just below the phase-out threshold when one spouse has access to a qualified plan) would likely be in a 24% marginal tax bracket. If they made a full $6,000 Traditional IRA contribution, they would save $1,440 in taxes. To make that same $6,000 contribution to a ROTH, they would need to earn $7,895, pay 24% in taxes, and then make the $6,000 contribution. The drawback of the traditional IRA is that you will be taxed on it when you begin making withdrawals in retirement.

Pay Now or Pay Later?

It’s challenging to decide which account is right for you, because nobody has any idea what tax rates will be in the future. If you choose to pay your tax bill now (Roth IRA), and in retirement you find yourself in a lower tax bracket, you may have been better off going the Traditional IRA route. However, if you decide to make a Traditional IRA contribution for the tax break now, and in retirement find yourself in a higher tax bracket, then you may have been better off going with a Roth. 

How Do You Decide?

A lot depends on your situation, such as the career path you’ve chosen and your desired income in retirement. However, we typically recommend that those just starting their careers (who will most likely see their incomes increase over the years) make Roth contributions. If your income is stable, and you’re in a higher tax bracket, a Traditional IRA and immediate tax break may make more sense now.

Before making any final decisions, it’s always a good idea to work with a qualified financial professional to help you understand what works best for you.

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

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UPDATED from original post on June 19, 2014 by Matt Trujillo, CFP®

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Kali Hassinger, CFP®, CDFA®, and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. You should discuss any tax matters with the appropriate professional.

Webinar in Review: Part 3: Divorce & Finance 101 for Michigan Women

Contributed by: Jacki Roessler, CDFA®

REPOST

I’ve been working with divorcing clients and their attorneys for well over 20 years now. Although every single case I’ve worked on has had its own unique issues and challenges, most initial appointments follow a similar trajectory. First and foremost, I always want to hear what the person in front of me is most concerned about.  In fact, I want to hear ALL of their financial concerns and questions relative to the divorce.

Once their concerns are on the table (and in my notepad), I find that most clients need education on the basics.  In fact, it’s been a rare first meeting that doesn’t end with me stepping up to a white board to present what I call “Divorce Finance 101”. If my client doesn’t understand the key issues that surround child support, alimony and property division, we can’t even begin to address concerns about handling a family-owned business, paying for college costs, substantiating the need for alimony or what may or may not be considered separate property.

The webinar that follows is a compilation of my favorite topics from “Divorce Finance 101”. A few words of warning. This information is fluid. It changes over time as State, Federal and tax law changes occur.  There are always exceptions to all the “basic rules” too, of course. Most importantly, I am not a lawyer and therefore cannot provide legal advice. I can only give information based on my professional experience. My most important piece of advice to any client is how critical it is to hire a qualified, experienced family law attorney that practices often in your county court system.

As always, please feel free to contact me at jacki.roessler@centerfinplan.com for any questions that are specific to your case or if you have any future webinar topics you’d like to suggest.

Jacki Roessler, CDFA®, is a Divorce Planner at Center for Financial Planning, Inc.® and Branch Associate, Raymond James Financial Services. With more than 25 years of experience in the field, she is a recognized leader in the area of Divorce Financial Planning.

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Any opinions are those of Jacki Roessler and not necessarily those of Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Qualified Charitable Distributions: Giving Money While Saving Money

Contributed by: Josh Bitel, CFP®

The Qualified Charitable Distribution (QCD) can be a powerful and tax-efficient way to achieve one’s philanthropic goals. This strategy has become much more popular under the new tax laws.

QCD Refresher

The QCD, which applies only if you’re at least 70 ½ years old, essentially allows you to directly donate your entire Required Minimum Distribution (RMD) to a charity. Normally, any distribution from an IRA is considered ordinary income from a tax perspective; however, when the dollars go directly to a charity or 501(c)3 organization, the distribution from the IRA is considered not taxable.

Let’s Look at an Example

Sandy turned 70 ½ in June 2019, and this is the first year she has to take a Required Minimum Distribution (RMD) from her IRA, which happens to be $25,000. A charitably inclined person, Sandy gifts, on average, nearly $30,000 each year to her church. Because she does not really need the proceeds from her RMD, she can have the $25,000 directly transferred to her church, either by check or electronic deposit. She would then avoid paying tax on the distribution. Since Sandy is in the 24% tax bracket, she saves approximately $6,000 in federal taxes!

Rules to Consider

The QCD and similar strategies have rules and nuances you should keep in mind to ensure proper execution:

• Only distributions from IRAs are permitted for the QCD. Simple and SEP IRAs must be “inactive.”

  • Employer plans such as a 401k, 403b, 457 do not allow for the QCD.

  • The QCD is permitted within a Roth IRA but would not make sense from a tax perspective, because Roth IRA withdrawals are tax-free by age 70 ½.*

• You must be 70 ½ at the time the QCD is processed.

• Funds from the QCD must go directly to the charity and cannot go to you first and then out to the charity.

• You can give, at most, $100,000 to charity through the QCD in any year, even if this figure exceeds the actual amount of your RMD.

The amount of money saved from being intentional with how you gift funds to charity can potentially keep more money in your pocket, which ultimately means there’s more to give to the organizations you passionately support.

Josh Bitel, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

Can you roll your 401k to an IRA without leaving your job?

Contributed by: Nick Defenthaler, CFP®

Typically, when you hear “rollover,” you think retirement or changing jobs. For the vast majority of clients, these two situations will be the only time they complete a 401k rollover. However, another option for moving funds from your company retirement plan to your IRA — the “in-service” rollover — is an often overlooked planning opportunity. 

Rollover Refresher

A rollover is simply the process of moving your employer retirement account (401k, 403b, 457, etc.) to an IRA over which you have complete control, separate from your ex-employer. If completed properly, rolling over funds from your company retirement plan to your IRA is a tax- and penalty-free transaction, because the tax characteristics of a 401k and an IRA generally are the same.  

What is an “in-service” rollover?

Unlike the “traditional” rollover, an “in-service” rollover is probably something unfamiliar to you, and for good reason. First, not all company retirement plans allow for it, and second, even when it’s available, the details may confuse employees. The bottom line: An in-service rollover allows an employee (often at a specified age, such as 59 ½) to roll a 401k to an IRA while employed with the company. The employee may still contribute to the plan, even after the completed rollover. Most plans allow this type of rollover once per year, but depending on the plan, you potentially could complete the rollover more often for different contribution types at an earlier age (sometimes as early as 55).

Why complete an “in-service” rollover?

While unusual, this rollover option offers some benefits:

More investment options: Any company retirement plan limits your investment options. You can invest IRA funds in almost any mutual fund, ETF, stock, bond, etc. Having options and investing in a way that aligns with your objectives and risk tolerance may improve investment performance, reduce volatility, and make your overall portfolio allocation more efficient.

Coordination with your other assets: Your financial planner can coordinate an IRA with your overall plan with much greater efficiency. How many times has your planner recommended changes in your 401k that simply don’t get completed? When your planner makes those adjustments, they won’t fall off your personal “to do” list.

Additional flexibility: IRAs allow penalty-free withdrawals for certain medical expenses, higher education expenses, first time homebuyer allowance, etc. that aren’t available with a 401k or other company retirement plan. Although this should be a last resort, it’s nice to have the flexibility.

Exploring “in-service” rollovers

So what now? First, always keep your financial planner in the loop when you retire or switch jobs to see whether a rollover makes sense for your situation. Second, let’s work together to see whether your current company retirement plan allows for an in-service rollover. That typically involves a 5-10 minute phone call with us and your company’s Human Resources department.

With your busy life, an in-service rollover may fall close to the bottom of your priority list. That’s why you have us on your financial team. We bring these opportunities to your attention and work with you to see whether they’ll improve your financial position! 

Nick Defenthaler, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He contributed to a PBS documentary on the importance of saving for retirement and has been a trusted source for national media outlets, including CNBC, MSN Money, Financial Planning Magazine, and OnWallStreet.com.

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Rolling over your retirement assets to an IRA can be an excellent solution. It is a non-taxable event when done properly - and gives you access to a wide range of investments and the convenience of having consolidated your savings in a single location. In addition, flexible beneficiary designations may allow for the continued tax-deferred investing of inherited IRA assets. In addition to rolling over your 401(k) to an IRA, there are other options. Here is a brief look at all your options. For additional information and what is suitable for your particular situation, please consult us. 1. Leave money in your former employer's plan, if permitted Pro: May like the investments offered in the plan and may not have a fee for leaving it in the plan. Not a taxable event. 2. Roll over the assets to your new employer's plan, if one is available and it is permitted. Pro: Keeping it all together and larger sum of money working for you, not a taxable event Con: Not all employer plans accept rollovers. 3. Rollover to an IRA Pro: Likely more investment options, not a taxable event, consolidating accounts and locations Con: usually fee involved, potential termination fees 4. Cash out the account Con: A taxable event, loss of investing potential. Costly for young individuals under 59 ½; there is a penalty of 10% in addition to income taxes. Be sure to consider all of your available options and the applicable fees and features of each option before moving your retirement assets. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to re tax or legal matters with the appropriate professional. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth 401(k) plans are long-term retirement savings vehicles. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 70.5.

Efficient Tax Planning is Year-Round Work

Contributed by: Josh Bitel

While many of us focus this time of year on getting our tax returns done, year-round tax planning excites us number geeks! We really can’t control taxes, right? Well, not exactly. 

Of course, we can’t change the tax rates set by our government, but we can work collaboratively on financial decisions throughout the year that help ensure the greatest possible level of tax efficiency. Let’s look at a few examples:

EXAMPLE #1: FORD STOCK

Say you have a stock position in Ford purchased at $3 a share when “the sky was falling”. Because its worth has greatly increased, your unrealized gain amounts to $20,000. The stock has done so well, you might not want to part with it. You also don’t want to pay tax on that nice $20,000 gain. 

So consider this: If your taxable income falls within the 12% marginal tax bracket, chances are you would pay very little or possibly ZERO tax on the $20,000 gain. You could lock in that nice profit and potentially improve the overall allocation of your portfolio. 

This is a hypothetical example for illustration purpose only and does not represent an actual investment.

EXAMPLE #2: ROTH CONVERSION

Let’s take a look at another real-life example we often see. What if your income this year takes a significant drop, through a job loss, retirement, job change, or other move? Be sure to keep us in the loop, so that we can help you make pro-active tax planning decisions.

In this situation, a Roth IRA conversion could make a lot of sense if your income will fall into a lower tax bracket that you most likely will not see again. You would pay tax at a much lower rate, and moving Traditional IRA dollars into a Roth IRA for potential future, tax-free growth could create a monumental planning opportunity.   

SHARING YOUR TAX RETURNS

These are just two examples of the many factors we examine in your financial plan to make sure your dollars are efficiently taxed. You can help us do this work. Sharing your tax return early gives us a much better chance throughout the year to uncover strategies that may make sense for you and your family. 

Many of our clients have now signed a disclosure form allowing us to directly contact their CPA or tax professional to obtain copies of returns and to discuss tax-planning ideas. This saves you, as the client, the hassle of making copies or e-mailing your return – and we are all about making your life easier! 

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

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While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Restricted Stock Units vs. Employee Stock Options

Contributed by: Kali Hassinger, CFP®

Some of you may be familiar with the blanket term "stock options." In the past, this term most likely referred to Employee Stock Options (ESOs), which were frequently offered as an employee benefit and form of compensation. But over time, employers have adapted stock options to better benefit both their employees and themselves.

ESOs provided the employee the right to buy a certain number of company shares at a predetermined price, for a specific period of time. These options, however, would lose their value if the stock price dropped below the predetermined price, making them essentially worthless to the employee.

Shares promised

As an alternative, many employers now use another type of stock option, known as Restricted Stock Units (RSUs). Referred to as a "full value stock grant,” RSUs are worth the "full value" of the stock shares when the grant vests. So unlike ESOs, the RSU will always have value to the employee upon vesting (assuming the stock price doesn't reach $0). In this sense, the RSU is a greater advantage to the employee than the ESO.

As opposed to some other types of stock options, the employer does not transfer stock ownership or allocate any outstanding stock to the employee until the predetermined RSU vesting date. The shares granted with RSUs essentially become a promise between the employer and employee, but the employee receives no shares until vesting.

RSU tax implications

Since there is no "constructive receipt" (IRS term!) of the shares, the benefit is not taxed until vesting.

For example, if an employer grants 5,000 shares of company stock to an employee as an RSU, the employee won't be sure of how much the grant is worth until vesting. If this stock value is $25 upon vesting, the employee would have $125,000 of income (reported on their W-2) that year.

As you can imagine, vesting dates may cause a large jump in taxable income, so the employee may have to select how to withhold taxes. Usual options include paying cash, selling or holding back shares within the grant to cover taxes, or selling all shares and withholding cash from the proceeds.

In some RSU plan structures, the employee may defer receipt of the shares after vesting, in order to avoid income taxes during high earning years. In most cases, however, the employee will still have to pay Social Security and Medicare taxes in the year the grant vests.

Although there are a few differences between the old-school stock options and more recent Restricted Stock Unit benefit, both can provide the same incentive for employees. If you have any questions about your own stock options, we’re always here to help!

Repurposed from this 2016 blog: Restricted Stock Units vs Employee Stock Options

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kali Hassinger, CFP® and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. This is a hypothetical example for illustration purpose only and does not represent an actual investment.

Important Information for Tax Season 2018

Contributed by: Center for Financial Planning, Inc.®

As we prepare for tax season, we want to keep you apprised of when you can expect to receive your tax documentation from Raymond James.

Form 1099 mailing schedule 

• January 31 – Mailing of Form 1099-Q and Retirement Tax Packages

• February 15 – Mailing of original Form 1099s

• February 28 – Begin mailing delayed and amended Form 1099s

• March 15 – Final mailing of any remaining delayed original Form 1099s

Additional important information

Delayed Form 1099s

In an effort to capture delayed data on original Form 1099s, the IRS allows us to extend the mailing date until March 15, 2019, for clients who hold particular investments or who have had specific taxable events occur. Examples of delayed information include:

• Income reallocation related to mutual funds, real estate investment, unit investment, grantor and royalty trusts; as well as holding company depositary receipts

• Processing of Original Issue Discount and Mortgage Backed bonds

• Expected cost basis adjustments including, but not limited to, accounts holding certain types of fixed income securities and options.

Amended Form 1099s

Even after delaying your Form 1099, please be aware that adjustments to your Form 1099 are still possible. Raymond James is required by the IRS to produce an amended Form 1099 if notice of such an adjustment is received after the original Form 1099 has been produced. There is no cutoff or deadline for amended Form 1099 statements. The following are some examples of reasons for amended Form 1099s: 

• Income reallocation

• Adjustments to cost basis (due to the Economic Stabilization Act of 2008)

• Changes made by mutual fund companies related to foreign withholding

• Tax-exempt payments subject to alternative minimum tax

• Any portion of distributions derived from U.S. Treasury obligations

What can you do?

You should consider talking to your tax professional about whether it makes sense to file an extension with the IRS to give you additional time to file your tax return, particularly if you held any of the aforementioned securities during 2018.

If you receive an amended Form 1099 after you have already filed your tax return, you should consult with your tax professional about the requirements to re-file based on your individual tax circumstances.

You can find additional information at https://raymondjames.com/wealth-management/why-a-raymond-james-advisor/client-resources/tax-reporting.

As you complete your taxes for this year, a copy of your tax return is one of the most powerful financial planning information tools we have. Whenever possible, we request that you send a copy of your return to your financial planner, associate financial planner, or client service manager upon filing. Thank you for your assistance in providing this information, which enhances our services to you.

We hope you find this additional information helpful. Please call us if you have any questions or concerns about the upcoming tax season.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

Webinar in Review: Charitable Giving Strategies

Contributed by: Center for Financial Planning, Inc.®

The New Year is a great time to get your charitable giving plan in place for the New Year. With the fairly recent tax law changes, you may be finding that it is more challenging than ever to give to the way you want while still reaping the tax benefits for doing so. Feel free to watch the recorded webinar with Sandy Adams, CFP® and Jana McNair from the Wayne State University Development Department as they discuss strategies for charitable giving that can help you get a more pro-active and tax-efficient plan in place to start the year off right.

Check out the time stamps below to listen to the topics you’re most interested in:

(02:00): Intro & Agenda

(09:30): Taxes & Charitable Giving 101

(13:30): Make Charitable Contributions and Still Get a Tax Benefit

(16:45): Tip #1: Donating Appreciated Securities

(21:00): Tip #2: Donor Advised Fund

(26:30): Tip #3: Qualified Charitable Distribution (QCD)

(34:00): Planned Giving Ideas for Impactful Giving

(41:00): Takeaways for Charitable Giving

High-deductible medical insurance plan? Try an HSA!

Contributed by: Josh Bitel

With the first year of the new Tax Cuts and Job Act behind us, tax-efficient saving seems to be top of mind for many Americans. In a world of uncertainty, why not utilize a savings vehicle you can control to help with medical costs?

USING AN HSA

A Health Savings Account, or HSA, is available to anyone enrolled in a high-deductible health care plan. Many confuse an HSA with a Flex Spending Account or FSA – don’t make that mistake! A Health Savings Account is typically much more flexible and allows you to roll any unused funds over year to year, while a Flex Spending Account is a “use it or lose it” plan. 

WHAT AN HSA CAN COVER

Many employers who offer high-deductible plans will often contribute a certain amount to the employee’s HSA each year as an added benefit, somewhat like a 401k match. Dollars contributed to the account are pre-tax, and tax-deferred earnings accumulate. Funds withdrawn, if used for qualified medical expenses (including earnings), are tax-free.

The list of qualified medical expenses can be found at irs.gov; however, just to give you an idea, they include expenses to cover your deductible (not premiums), co-payments, prescription drugs, and various dental and vision care expenses.

As always, consult with your financial advisor, tax advisor, and health savings account institution to verify what expenses qualify. If you make a“non-qualified” withdrawal, you will pay taxes and a 20% penalty on the withdrawal amount. 

HERE ARE THE DETAILS FOR 2019:

Individuals

• Must have a plan with a minimum deductible of $1,350

• $3,500 contribution limit ($1,000 catch-up contribution for those 55 or older)

• Maximum out-of-pocket expenses cannot exceed $6,750

Family

• Must have a plan with a minimum deductible of $2,700

• $7,000 contribution limit ($1,000 catch-up contribution for those 55 or older)

• Maximum out-of-pocket expenses cannot exceed $13,500

WITHDRAWING FROM AN HSA

Once you reach age 65 and enroll in Medicare, you can no longer contribute to an HSA. However, funds can be withdrawn for any purpose, medical or not, and you will no longer be subject to the 20% penalty. The withdrawal will be included in taxable income, as with an IRA or 401k distribution. This can present a great planning opportunity for clients who may want to defer additional money, but have already maximized their 401k plans or IRAs for the year.

Although you have to wait longer to avoid the penalty than with a traditional retirement plan (age 59 ½), this investment vehicle could reduce taxable income in the year contributions were made, while earnings have the opportunity to grow tax-deferred and tax-free.  

As you can see, a Health Savings Account can be a great addition to an overall financial plan and should be considered if you are covered under a high-deductible health plan. No one likes medical expenses, but this vehicle can potentially soften their impact.

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.®

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Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Bond woes: “Why do we own bonds if we think they aren’t going to do well in a rising rate environment?”

Contributed by: Center Investment Department

Hoping for capital gains is not a good reason why you should own bonds. Actually, owning or  buying bonds in this low and rising interest rate environment with the hope that you'll be able to sell them later at a higher price may not work out. BUT…just because you can’t sell this investment at a profit later does not make the investment a bad idea.

A great real life comparison is a car. We own a car to get our family and us from one place to another, hopefully safely. Many components go into the makeup of a safe driving automobile. The engine is key in making the car go. Stocks act much like the engine of a car.  They make our portfolios go/grow. But, would you ever drive a car that wasn’t equipped with brakes or an airbag? Brakes and airbags are similar to the bonds in our portfolio. Bonds help you control some of the risk of owning stock. For most people, the reason to own bonds is to slow down our bottom-line losses experienced in our portfolio during major market declines. Without this moderation (and sometimes even with it), investors tend to panic when stock prices fall.

So in a nutshell, “Why own bonds?”

They make the scary times less so. When the stock market experiences an extended decline, investors look around for where to turn. Cash and Bonds are usually the place they turn to.A volatile stock market can happen suddenly and unexpectedly. Waiting to add bonds until something happens means you are going to suffer much of the downside before you actually add them to the portfolio. You have to have already had them in the portfolio for them to help. Talk with your financial planner to make sure you have the proper amount of your portfolio invested in bonds so you can hang on to your investments through those difficult times. A portfolio makeup that allows you to stay the course over the long term is much more likely to get you to your destination!

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https://www.marketwatch.com/story/why-bonds-are-the-most-important-asset-class-2015-06-10 Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.