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

The Center 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!

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.

Webinar in Review: Year-End Tax and Planning Strategies

Josh Bitel Contributed by: Josh Bitel

In November of 2017, the Tax Cuts and Job Act of 2018 passed with numerous changes to our tax code. This year we provided a refresher on some of those changes as well as some planning opportunities to think about as 2018 wraps up.

If you weren’t able to attend the webinar live, we encourage you to check out the recording below. 

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

  • (04:20): New 2018 Marginal Tax Brackets

  • (06:30): Highlights of the 2018 Tax Cuts and Jobs Act (TCJA) – comparing 2017 with 2018

  • (14:24): Planning charitable gifts under the new tax law

  • (19:15): Healthcare coverage overview – Health Savings Accounts (HSAs) and Medicare

  • (25:30): Roth IRA conversions as an attractive planning opportunity

  • (33:20): How to utilize your employer retirement plan most effectively

  • (36:30): How we help mitigate taxes & tax efficient investing

  • (41:30): Updates to gifting and intra-family gifting for 2018

What Do Organ Donation and 401(k)s Have In Common?

 While taking a Duke University course on Behavioral Finance, which is a topic I find fascinating, the professor presented the following scenario on organ donation: 

While individuals around the world generally approve of organ donation, very few actually sign a donor card to grant permission, especially here in the US

According to the chart below, some countries like Austria and France have an extremely high participation rate, 100% of the population.  Why, then, is there such a difference from a country like Germany with only a 12% participation rate to Austria with a 100% participation rate?  They share a border and culturally don’t have vastly different beliefs.  

“Do Defaults Save Lives?”  www.sciencemag.org

The answer is actually much simpler than cultural differences or beliefs. It is Defaults.  Individuals love to take the easiest way out.  The fewer decisions we have to make the better.  Requiring people to opt out of something rather than opt in is a very effective way to push us toward a choice.

Defaults can be a very powerful tool, not only to increase organ donors, but also in investing for your retirement.  Many 401(k)s offered by employers opt to automatically enroll their employees in the plan.  If just a few percent is automatically deducted from employee’s paycheck, most individuals will not go out of their way to stop this as shown in the graphic below.

Automatic enrollment plans actually encourage individuals who are younger and have lower incomes to start saving for retirement much earlier than they normally would, when the effects of compounding interest are the most powerful.

While I will likely never live to regret being an organ donor, 401(k) contributions make me cringe just a little precisely every other Monday.  Hopefully though this delayed gratification will pay off in retirement!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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 Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Don’t Leave Free Money on the 401(k) Table

In this economy (or in any economy, for that matter!), none of us can afford to leave “free” money on the table.  So why -- and how -- are so many Americans giving away free money?

According to an article in the November 2011 edition of Financial Planning magazine, FINRA recently issued an investor alert urging approximately 30% of American workers who are not contributing enough to their 401(k) plans to receive their full employer match.  Failing to take advantage of this match compromises these workers’ ability to step-up their contributions and to potentially increase their eventually retirement savings.  One of the most common employer 401(k) matches is a dollar-for-dollar match of up to 3% of an employee’s salary.

While most of us will need to save much more than the 3% that may be matched to fund a successful retirement, it makes sense for all of us to do at least the minimum amount needed to get the “free” matching funds.   

Make sure your 401(k) contributions are set-up for 2012!!  Once you’ve taken the first step to start saving (and getting a no cost boost from your employer), meet with a financial advisor to form a strategy for saving additional funds to meet your future retirement goals.

Don’t Let Your Beneficiary Designations Surprise You

For many people, retirement accounts such as an IRAs, 401ks, or 403(b)s are their largest assets.  And while many spend considerable time thinking about wills and trusts in determining where their hard earned assets will go, many, unfortunately, are too cavalier in addressing their IRA, 401k or 403(b) beneficiary designations.    

A beneficiary form is called a “will substitute” because a will does not speak to your qualified retirement assets. This means that the beneficiary form determines who will receive your assets in these plans.  It is important to coordinate beneficiary forms with your overall estate and income tax planning to ensure that those you want to benefit from those assets receive them.  

In working with a new client recently, let’s call them Mike and Carol, we discovered (much to their surprise) that their beneficiary forms were inconsistent with their living trusts.  Mike and Carol had recently amended their Trusts to provide half to each other and half to their children from previous marriages at their deaths.  Upon review of their IRA beneficiary forms, we discovered that their forms still listed each other as primary beneficiary and, therefore, their desire to split the assets would not occur.  Fortunately, Mike and Carol were able to update their beneficiary forms and now their planning is consistent with their goals.   

Beneficiary designation forms are free to complete or change, and they are just as important as your wills or trusts. 

Review your beneficiary designations today, and leave any surprises for your next birthday!