How to Invest in Bonds in Retirement

Episode #12: How to Invest in Bonds in Retirement

Hello. As always, I'm your host Cameron Valdez, and today I'm going to go over a lot of extremely useful information about bonds and how you might consider using them in retirement. You know, bonds, those super boring things you can invest in and are kind of hard to understand, but you've been told that you should have them in your investment allocations, especially nearing retirement.

[00:00:50] Well, bonds are actually very. More so than stocks actually, and hopefully today I can teach you some interesting, exciting, and actionable things about them that you may not have known that can help you. My goal is for you to better understand the role bonds can play in retirement and when you might consider using them in your investment allocations.

[00:01:09] Now, bonds are very misunderstood by most retirees and investors A. Simply because they don't get much love and attention. They aren't sexy and very interesting investments. They don't make a lot of juicy headlines. Financial TV channels don't plaster a chart with red and green on it to show you the movements in the bond markets like they do for stocks.

[00:01:29] And therefore many investors don't take the time to learn about them as much as they probably should. And if you own a portfolio of say, stocks and. You are far more likely to focus more of your attention towards the wild price actions of the stocks or the stock funds that you own rather than how the bonds are working, and that's just a function of being human and investing.

[00:01:51] Whether you truly understand bonds or not, you likely have some lying around in your various investments. You may not be able to pinpoint the exact reason why you. or even what kind of bonds or bond funds that you own, but you still have some. Now, this isn't your fault and it's not necessarily a bad thing.

[00:02:07] If this sounds like you, the reason is likely because you heard from someone at some point say something along the lines of, Hey, you should have some bonds in your portfolio as you get closer to retirement because they can help reduce the volatility and provide a smoother ride. Now, speaking in very broad terms, a statement like that has some truth to it, but it depends on many other factors.

[00:02:30] Okay, so I first want to provide some general education about what bonds are, how they work, the different types that are out there, the tax implications, and what are some of the risks involved. Then I'll end with why and when you may want to consider them as an investment choice at some point in retirement.

[00:02:47] So in general, a bond is an investment that you can buy, which is essentially an i o. When you buy a bond, you are lending money to the bond issuer for a specified period of time, and they are making a promise to pay you back your initial investment that you loan them at the end of that time period, plus some interest.

[00:03:05] Until that day comes, a bond issuer is usually either the government, like the US government. Who issues what are called treasury bonds. It could be a company who issues what are called corporate bonds or a municipality that issues municipal bonds. So, so far, pretty simple. These different entities could be issuing bonds to fund many different aspects of their operations.

[00:03:29] However, that may not necessarily matter to you. The end investor, you just want to collect your interest payments and get your initial investment, which is also called your principle back at the bonds maturity date. That period of time from which a bond is issued to its maturity date is called its term, and it can be a matter of months or even a matter of.

[00:03:51] As a bond holder, you get paid interest typically on a semi-annual basis, but not always while you hold the bond until it matures or is called. We will get into what callable bonds are and what that means exactly. When we get to the risks associated with bonds a little bit later. These interest payments and the fact that you are supposed to get your invested principle back as long as you hold the bond all the way until it matures is one reason why bonds are deemed quote unquote safer than.

[00:04:21] In general, the interest payments or what's called the yield received on bonds are what I would call cash on cash returns. This is in comparison to something like a dividend yield from a stock, which is very different. Now, this is a very important concept to understand in investing. If you don't, you are bound to be misled.

[00:04:42] Let me explain with some examples. Let's start with a hypothetical example of how a bond would work, and just as a side note, I'm going to ignore taxes for now. So let's say you buy a newly issued five year bond for $1,000 with a 3% interest rate or coupon. Interest rates are stated in annual terms always.

[00:05:04] So if you hold the bond for the full five years, it might look something like, You buy the bond and now you're out of pocket a thousand dollars, but you get to begin collecting $30 in interest each year, which is actually $15 paid semi-annually. For five years and in the final year, you also get your $1,000 back as well.

[00:05:24] So you end up with $1,150 when all is said and done. And theoretically you earned 3% per year for accumulative total of 15% return before taxes over the five. I do want you to understand, however, that your interest payments received from the bond are actually taxable in the years received when you hold them in any kind of non-retirement account, more on taxes later.

[00:05:52] A stock dividend yield, on the other hand is quite different. This is the key takeaway I want you to fully understand. When you get a dividend from a stock, the stock's price or its value is reduced by the amount of the dividend. Hypothetically, it works like this. You buy, let's say, one share of ABC stock that is currently worth $100, and let's say it has an annual 5% dividend yield, which is five.

[00:06:20] You'll receive that $5 over the course of one year. However, the key is that the $100 stock price will be immediately adjusted to $95 after that dividend is paid. So after you receive your $5 dividend, you don't have $105 of value in your account. You still have a hundred. And this is because the dividend is paid out of the company's cash technically, which therefore reduces its value.

[00:06:49] Not only that, but that $5 dividend is also taxable in the year that it's received if held in any non-retirement account. So technically you end up with even less than a hundred dollars after taxes. The real power of stock dividend. isn't fully harnessed until you reinvest those dividends consistently to buy more shares of the stock.

[00:07:12] Another key difference is that dividends from stocks, which again, stocks are just a fractional ownership of real companies, they're not contractually obligated. They can stop, skip, or change dividend payments if they want to. In general bonds on the other. Are contractual obligations, but we will dive deeper on that when we get to the risks associated with bonds a little bit later in the show.

[00:07:35] The key thing I want you to understand from this is not to be duped by yields. Yields on different types of investments technically mean different things. Some yields include a return of your own investment, and some such as bond yields are an actual. on your investment. I'm not at all saying that stock dividends or other investment yields out there are a bad thing.

[00:07:59] You just need to be aware of how these things work so you can make better investing decisions depending on your situation. Okay, so there's one more thing that throws a wrench in the simplicity of bonds, and that is the fact that after they're issued, they can be traded with other investors, kind of like a stock people trade bonds, rather than holding them until they mature for a variety of reasons.

[00:08:20] Maybe they need cash, maybe there's a new bond paying a higher interest rate, or maybe their investment objectives have changed and they don't want to invest in bonds. . Your reason is your reason. Now, because they are traded, their individual values move every day based on the market. Yours will too. Even if you don't actually trade it.

[00:08:37] Remember that $1,000 that you paid for that newly issued $1,000 bond in my example? Well, that $1,000 value of that bond will move up or down on a daily basis based on your bond's current value in the marketplace after you purchase it. Therefore, if you decide to sell it before it matures, you will get either more or less than you originally paid for it if you hold it until maturity.

[00:09:02] On the other hand, those ups and downs don't necessarily matter. You get your principle back at the maturity date. Most investors, however, don't buy bonds when they're originally issued. Most buy them from other investors in the. Or they access them through mutual funds, index funds, or exchange traded funds, or ETFs.

[00:09:22] This isn't a bad thing whatsoever. It just adds a little more complexity. When you buy bonds on what we call the secondary market from other investors, they trade at a premium or a discount to their original value. and that original value is also called their par value. If the value of a bond has gone up, you pay a premium to buy it on the secondary market.

[00:09:42] If a bond is worth less today than it was when it was originally issued, you can buy it at a discount. So you're likely wondering why would a bond's price move up or down? There could be several reasons, but one of the biggest reasons is due to changes in interest rates. Bond prices or values typically move in the opposite direction of interest rates.

[00:10:03] So if interest rates go up, the price of currently outstanding bonds go down, and if interest rates go down, the prices of bonds currently outstanding. Up this reasoning is rather simple. Imagine you buy a bond that pays a 3% interest rate, then interest rates go up significantly. Now, in order for bonds to remain appealing investments to investors, the issuers have to increase the interest rates they pay on their bonds to say 5%, for example.

[00:10:32] Now, imagine you want to sell your bond for whatever reason. Will investors want your bond that pays 3% or a newer bond that pays five? Likely the newer bond, which is why yours will be worth less. You would therefore have to sell it at a discount or again, just hold it until maturity. Now, don't worry, you don't need to figure out what value you need to sell your bond for the market prices.

[00:10:56] This for you, and we'll tell you what you can sell it for at any given time. There's a little more to bonds in how their values change over time, but we can save the really technical stuff for a later. So what are the main different types of bonds? How are they taxed and what are the different ways that you can own them?

[00:11:14] As I previously mentioned, in general, you can buy treasury bonds, which are those issued by the US government. You can buy corporate bonds, which are issued by large companies. Or municipal bonds which are issued by municipalities. There are some other nuanced and complex types of bonds as well, but these are the primary types.

[00:11:32] Now treasury bonds are some of the lowest risk bonds available, and this is because they are backed by the full faith and credit of the US government. This means the US government is guaranteeing they will pay you your principle and interest payments if you hold the treasury bond all the way to maturity, and there is no dollar limit on this protection.

[00:11:53] Treasuries are state and local tax exempt, and therefore only taxable at the federal. However, please note that if you receive interest from government treasuries in a non-retirement account, sometimes there may not be any specific indication on your 10 99 tax form that you'll receive, that the income is state tax exempt In these cases.

[00:12:16] In order to get the tax benefit of these bonds, you or your tax professional must be sure to manually adjust your state's tax return. If your state has an income, This is often missed and can get even more complex if you earn only partial treasury bond interest from certain funds or mutual funds that own government bonds, as well as other types of bonds like corporate bonds.

[00:12:40] And although, uh, not a US treasury bond, you can also buy bonds issued by foreign governments. However, these do not share the same tax advantages of US government. There are also corporate bonds that you can buy. These are a contractual obligation from a company, typically a very large and well-known company.

[00:13:02] Even though they are bonds, they are not technically guaranteed. If a company goes bankrupt, bond holders are essentially first in line to get paid back. If there's any proceeds to pay back. This is one reason why corporate bonds are riskier inherently than government bonds, for example, because there's the risk that the company defaults.

[00:13:23] You can also buy corporate bonds from companies in foreign countries, and corporate bond interest is taxed as ordinary income at both the federal and state levels. If your state has an income tax, municipal bonds are another common bond investment that's usually purchased in non-retirement accounts due to their tax benefits.

[00:13:43] These bonds are issued by local municipalities to. Projects for things like let, let's say, building hospitals or toll roads or even public parking structures, et cetera. These bonds typically pay federally tax-free interest, which is the primary reason investors consider them some muni bonds, as we call them.

[00:14:04] However, it can be subject to the alternative minimum tax, so you'll want to be careful. In addition, if you own muni bonds in your own resident state, they can be fed and state tax free. These bonds don't make sense to own in retirement accounts like IRAs. Since the money in those accounts is taxed as income when withdrawn and money withdrawn from Roth IRAs is already tax free when withdrawn.

[00:14:32] Therefore, these tax benefits of municipal bonds becomes irrelevant. One way to access these different types of bonds are to purchase them individually inside a retirement account or a non-retirement, what we call brokerage account. You can also buy the different types of bonds via an exchange traded fund or ETF, maybe an index fund or a mutual fund, which is what most investors.

[00:14:58] So, for example, there are funds that invest in government bonds only tho that's those treasuries, some that invest in corporate bonds only, and some that invest in a variety of different types of bonds. There are also plenty of funds that invest in municipal bonds only if those are what you need. When purchasing bonds individually, you'll want to be very familiar with how bonds work and very clear on your goals with the money that you're going to invest in them.

[00:15:24] Otherwise, you can get very confused and lost rather quickly. Buying individual bonds is more difficult and cumbersome than owning them through a fund of some sort. However, there are several benefits to buying individual bonds over funds. Some examples are that you can decide whether or not you hold the bond to its maturity.

[00:15:44] The costs of holding a bond of maturity can be lower than owning the bonds through some sort of fund. You can basically be your own money manager if you want to buy a series of bonds that. Each year for five years, also known as a bond ladder. You can, using funds to do strategies like this can get very difficult and lead to less predictable income streams since you don't decide which bonds are purchased, when they are purchased, and when they are sold.

[00:16:13] In addition, if you are going to buy individual bonds and plan to hold them to maturity, You'll likely have low initial costs to purchase the funds. If you use a fund of some sort, you'll likely pay ongoing fund management fees as long as you are invested in the fund. However, again, there are also many advantages to using bond.

[00:16:34] Funds over buying individual bonds. The most notable advantage is that when you buy bonds using a fund, you get almost instant diversification amongst your bonds when you invest in a fund. That fund owns many, many different bonds sometimes. Thousands. If you tried to replicate that yourself with individual bonds, it would be incredibly time consuming, very expensive, and would require an in-depth understanding of each of the issuers of the bonds.

[00:17:03] Most investors and retirees don't have the time or expertise for this endeavor. Some other advantages of funds are that you can typically buy and sell any random amount of your investment in the bond funds. You can invest with smaller dollar amounts, and they are very liquid. Another benefit is that bond funds typically pay their interest out on a monthly basis versus a semi-annual basis like most individual bonds do.

[00:17:31] However, this is usually only an issue if you are, quote unquote, living off the interest of your bond investments and you want more frequent income. With bond funds, you can easily reinvest your interest payments if you would like, as they are paid from the. This is because you can purchase into funds with any dollar amount, whether it's $1 or $60,000.

[00:17:55] It generally doesn't matter. So reinvesting is easy with individual bonds, this isn't as easy. Since, in order to reinvest and buy a new bond, you'll need at least the cost of the individual bond itself. Therefore, this isn't really an automated process. And you'll just have cash from those interest payments just accumulating as time goes on, and it will be your job as the money manager to reinvest it as you see fit.

[00:18:22] Now, taxes can also be easier to handle when using funds, since you won't have to worry about the tax reporting nuances that can come with certain individual bonds. In any case, please note that if you sell a bond or a bond fund for more than you paid for, You will have a capital gain if held in a non-retirement.

[00:18:44] Now this is true even for municipal bonds. Remember, only the interest payments from municipal bonds are eligible to be tax free and only the interest payments from treasuries are state and local tax exempt. Whether or not you invest in individual bonds or utilize funds will ultimately depend on your needs.

[00:19:03] Goals and what you value. If you value your time above everything else, like most retirees I speak to, then using a fund or even hiring an advisor to make decisions and manage your money for you to make you as efficient as possible, may very well be worth the associated costs. A couple other common investments that are related to bonds worth mentioning are certificates of deposits, which are CDs and tips, which are treasury inflation protected securities.

[00:19:33] CDs are similar to bonds in almost every way. They're essentially the simplest form of bond. The issuer, which is almost always a bank, borrows money from the investor who buys the. They promised to pay an interest rate over a specific time period, and at the maturity date you get your original deposit back.

[00:19:50] That's it. One of the primary reasons investors buy CDs is that when issued by banks, they are typically FDIC insured up to $250,000 per bank and investors like those guarantees. Because CDs have little risks associated with them. They usually pay lower interest rates than some of the other bonds I mentioned.

[00:20:11] Now some CDs can be traded actually on a secondary market, like the other bonds. Uh, just know that they essentially act the same as a bond in those cases and can be bought at a premium or a discount to their original value. The main risk with CDs is liquidity risk. Most bank CDs will have a penalty if you try to take your money too early during the interest payment period, and before maturity life changes.

[00:20:36] Sometimes you need your money earlier than you thought. Some CDs that are traded on the secondary markets, however, don't have these penalties because you can sell them to another investor rather than redeeming them. However, if you sell them at a. You would be getting less money back, which is kind of like a penalty, so you have to be careful there.

[00:20:55] All interest from CDs is taxed as ordinary income at the federal and state levels, which is the least tax advantageous, similar to corporate bonds. The other type of bond that I wanted to mention again are tips, which again stands for Treasury Inflation protected Securities. I won't spend too much time on these because we could do a whole episode on them, but you should at least know the basics.

[00:21:19] Tips are a form of government treasury bond that give you some protection against rising inflation. Their principle and interest are indexed or adjusted to grow with inflation. The primary reason for buying tips is to preserve your purchasing power over. if there is unexpected inflation, for example, at their most basic level.

[00:21:41] If the government borrows a thousand dollars from you today and inflation doubles by the time the tips bond matures, they will pay you $2,000 back. In principle, this is in addition to the adjusted inflation or the inflation adjusted interest payments, I should say, that you receive while you hold that.

[00:22:00] tips can be purchased individually or through various types of funds, just like the other bonds. They're a special form of treasury bond, so they are also only subject to taxation at the federal level. Tips do have some other nuanced tax implications, but these are only going to arise if you own them individually.

[00:22:20] And as always, consult your financial advisors or tax professionals about how this might affect. Okay, so now that you have a far better understanding of the bond world, let's quickly review some common risks associated with bonds. While a lot of people associate bonds with being safe, or at least safer than other, more risky investments like stocks, there are still some risks involved.

[00:22:42] The primary risk bonds have is. Interest rate risk. As I mentioned before, if interest rates go up, the value of your bond or bond funds will go down. If rates go down, the value of your bond or bond fund will go up. Bonds are also subject to general market risk. In other words, bond prices can change frequently simply due to a changing market environment or investor attitudes towards a particular bond investment.

[00:23:10] Another risk that affects bonds and is most notable when investing in individual bonds is liquidity risk. Like I mentioned earlier, if you initially invest in bonds with no intent to need the money until that bond, , but then life happens, and now all of a sudden you need to access that money. You may have to sell your bond for less than what you paid for it, depending on market conditions, specifically with individual bonds, you also won't be able to liquidate any amount of cash that you want.

[00:23:39] You'll have to sell entire bonds for whatever their value is. You can't sell half of your bond for. So for example, if you can sell your bond for say, $1,050, but you only need $500 of cash, you'll have to sell the whole bond. In addition, you may have to pay trading fees and costs to sell your individual bonds on a per trade basis.

[00:24:03] In any case, most bonds can be sold fairly quickly and therefore they still have a good deal of. In bond funds, you have even better liquidity. In general, you can liquidate any amount of cash from a bond fund, and this process typically takes one to two business days. For a lot of bonds, such as a good deal of corporate bonds, actually, another major and impactful risk is the fact that they may be callable, as I mentioned earlier, this simply means that the issuer can cancel the debt and pay you back your principle early.

[00:24:39] They typically do this when interest rates fall and they do so so that they can reissue new bonds at a lower rate, which will benefit them, not you. The end investor treasury bonds, on the other hand, are generally not callable. Having callable bonds is primarily a disadvantage to you in my opinion, because now you can be left with cash to reinvest

[00:25:02] After rates have gone down, if they call the bond early, meaning if you end up reinvesting in bonds, you will then find bonds paying a lower rate than before, and this impacts your income obviously in a negative way. This is a risk in and of itself, also known as reinvestment rate risk. You can tell whether or not an individual bond is callable when purchasing those individual bonds through whatever investment custodian that you might use when investing in funds.

[00:25:32] However, it is very difficult to know which bonds might be callable and which bonds aren't. It's not so transparent. So why would any investor buy a Callable bond? Well, usually when a bond is callable, it will pay a higher interest rate than a similar non callable bond to help offset that risk. Therefore, if you look at bond funds that have really high yields compared to.

[00:25:58] The current interest rate environment or some other bond funds, for example, those funds might contain a lot of callable bonds. However, some investors or money managers may not mind if a bond is callable, if they think rates won't go down by the time that particular bond matures, and therefore it likely won't be called early.

[00:26:19] Another risk primarily with corporate bonds is called credit risk or default risk. And this is essentially, again, that risk that the company or even a municipality defaults on its payments due to a struggling business or maybe just poor money management. and perhaps one of the biggest risks to long-term investors is of course inflation risk.

[00:26:40] This is the risk that your bond yields don't keep up with inflation, and you lose the purchasing power of your money over long periods of time. You can, however, incorporate tips like we discussed to help alleviate this particular risk in your bonded investments. We will dive more into tips specifically in a later.

[00:27:00] All in all, there are several risks to certain types of bond investments, and there can be more than those that I just mentioned, depending on the specific types of bonds that you may own. Just know that if someone tells you bonds are quote unquote safe, don't assume that you can't lose money. Now I want to end this episode by going over when you may want to consider bonds as part of your overall investment portfolio and allocations.

[00:27:24] As I mentioned at the beginning of today's show, most people I meet with own bonds for the wrong reasons or own specific types of bonds that aren't very efficient for their situation. Now, this may not be you. This is just what we commonly see. You will either own bonds for consistent and rather dependable cash flow, while at the same time aiming to preserve the wealth that you've already accumulated, meaning you primarily own them for the interest payments or you will own them to diversify away from stocks and for volatility reduction purposes, meaning you own them to smooth the ride for your overall investment portfolio.

[00:28:03] That includes other riskier investment types. Most, but not all retirees fall into the diversification away from stocks camp. This is because if you were to buy bonds just for cash flow purposes, you will need a sizable nest egg in order to live off the income that they can provide. For example, if you need $50,000 per year in supplemental retirement income and could buy a bond that pays 4% interest, that means you would need one.

[00:28:34] $250,000 to invest in that bond, and that's not including the effective taxes, which means you'll likely need even more in order to have $50,000 hit your bank account within a year. Now, you may say, great, I have that much so I can do that. But I would warn you that from a financial planning perspective, that may not be a great idea.

[00:28:56] You see, life happens, things change you. . If you were to have all or most of your liquid wealth tied up into the very thing that generates your steady income, you will eventually have to break it when life trips you up. For example, let's say you want to help pay for your grandchild's wedding or college expenses, or something happens to you medically requiring a large lump sum to be paid due to things like co-insurance, if most or all of your liquid money is.

[00:29:25] Bond or a series of bonds, you will either need to liquidate some of them or find money elsewhere, such as, uh, home equity, which isn't necessarily ideal because that will cost you money to get access to. And if you liquidate some bonds and then try to reinvest in some other bonds, you might be in a situation where those new bonds that you're buying pay a lower interest rate and therefore you're not getting the same income that you used.

[00:29:51] This is why most retirees will own bonds almost exclusively to diversify away from things like stocks. However, as you've learned, not all bonds share the same risks with one another, and not all bonds are created equal. If your goal is to diversify away from stocks with a bond allocation, you have several options as to what types of bonds you buy and with what investment vehicle.

[00:30:15] As a reminder, all interest from bonds other than municipal bonds produce ordinary income, which is not the most tax efficient. Therefore, if you have somewhat of a balanced investible net worth that's spread across retirement accounts and non-retirement accounts, you may consider housing your overall portfolio's bond allocation in the retirement accounts.

[00:30:37] Since the type of taxation of the. Doesn't matter. The taxes depend on the amounts you withdraw from those retirement accounts and what type of retirement account you have, such as a traditional IRA versus a Roth. I rra. Maybe if you were to hold a lot of bonds in your non-retirement accounts, on the other hand, you will pay the taxes on the interest received each and every year.

[00:31:00] Just because you have a non-retirement account that is subject to taxes each year, doesn't mean you should only invest in municipal bonds either. This is because normal taxable bonds of the same term and quality of a municipal bond may have higher yields than that municipal bond. In this case, if you are in a relatively low tax bracket, you may still end up with more money from the taxable.

[00:31:26] even after you pay taxes. Therefore, this decision will largely depend on your own tax situ. And I would say one of the most important things to understand is that some bonds typically diversify away from stocks better than others, which again, is likely the true reason you want bonds to begin with. If, for example, you own primarily corporate bonds that are also callable, there is inherently more risk associated than say, a treasury.

[00:31:55] Remember that the corporate bond in this example will likely pay higher yields than the treasury bonds because of that increased risk, and they might look more attractive on the surface. But the yield itself is not the primary reason. You are allocating money to the bonds. Not only that, but you're likely loaning to a company that is also publicly traded on the stock market, meaning that if that particular company's stock suffers during any given time period, the value of their outstanding bonds may suffer at the exact same time from that general market risk we discussed.

[00:32:32] Therefore, this may not be the best diversifier away from. In summary, this all ties back to the one thing that I repeat fairly often to retirees and investors alike, and that is to make sure you have a purpose to your various accounts and the investments you have in them. Otherwise, you may be paying too much in taxes or adding too much risk to your retirement nest egg and jeopardizing your retirement.

[00:32:58] Longevity there is, of course much more to bonds than what I've discussed today, but hopefully you're now armed with useful information that you can use to increase your confidence and try to make your retirement more efficient. That's all for today's show. If you have a minute and find this information actionable and insightful, and you wanna stay up to date on the latest and useful retirement planning content.

[00:33:18] Please subscribe to or follow the show on your podcast app. If you'd like to learn more about the rules and strategies discussed in today's show, you can find links to the resources we have provided in the show notes on your podcast app. Or you can visit us at retireishpodcast.com/12. To help you plan for the New Year!

[00:33:36] See today's show notes as we are including our newest 2023 quick reference guide that includes the important numbers to know for 2023, such as retirement plan, contribution limits, IRMAA, Medicare, surcharge, brackets, tax brackets, and more. So you can start planning for the new year. You can also sign up for the monthly retired ish newsletter there as well, where each month we discuss money and emotions, investing, tax, estate tips, Medicare and Social Security, and even a brief discussion about the current markets

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[00:34:37] You need guidance, strategies to use yeah, I'm gonna show you how to do this. Investing and tax, estate tips you needed. I'm gonna give you my help. I'm gonna give you my help.

Securities and advisory services are offered through LPL Financial, A registered Investment Advisor, member FINRA/SIPC . The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you,

[00:35:03] consult the appropriate qualified professional prior to making a decision.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA.

[00:35:21] In addition, if you are required to take a required minimum distribution RMD in the year you convert, you must do so before converting to a Roth. Investing involves risk, including the potential loss of principle. No investment strategy can guarantee a profit or protect against lost Past. Performance is not a guarantee of future results.

[00:35:37] Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise in bonds are subject to availability and change in price. Government bonds and treasury bills are guaranteed by the US government as to the timely payment of principle and interest, and if held to maturity offer a fixed rate of return and fixed principle value.

[00:35:57] Treasury inflation protected securities or tips are subject to market risk and significant interest rate risk as their longer duration makes a more sensitive to price declines associated with higher interest rates. Municipal bonds are subject to availability and change in. They're subject to market an interest rate risk if sold prior to maturity.

[00:36:14] Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax free, but other state and local taxes may apply. If sold prior to maturity capital gain tax could apply. Neither LPL Financial nor its registered representatives offer tax or legal advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular.

[00:36:34] Asset allocation does not ensure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non diversified portfolio. Diversification does not protect against market risk.