Orlowski Family Financial
Steven Orlowski, CFP® is a CERTIFIED FINANCIAL PLANNER™ practitioner with more than a quarter century of acquired financial services knowledge and experience gained by performing myriad roles in the industry from trading to investing to comprehensive financial planning. During those many years, he has provided a broad array of advice and guidance regarding financial products and services to individuals, businesses and institutions including but not limited to comprehensive financial planning, wealth management, life insurance and investment strategies, managed money, long term care, disability insurance, mutual funds, annuities, retirement income planning and estate planning.
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The opinions expressed herein are those of Steven Orlowski alone and in no way reflect the opinion or perspective of any current, former or future employer or affiliate of his.
That's not a technical term I'm familiar with, to "move" a bond to equity, and frankly it could be interpreted more than one way, so I'll describe what I think would be most likely.
For one, that phrase might be referring to a convertible bond that can be converted into stock. An investor buys a convertible bond because the owner wants the ability to convert it from a debt instrument, the bond (as in the issuer is paying you interest because by buying the bond you are lending the issuer your money), into an equity instrument, stock (ownership of which gives you a fractional share in the ownership of the issuing company). The operative term here is to "convert" the bond to stock, however, not "move".
Secondly, it might be used to mean to reallocate assets from debt to equity (bonds to stock). This is a bit inaccurate because you have to sell a bond (or bond fund) and use the proceeds of the sale to then buy a stock (or stock fund), you can't simply "move" a bond to equity.
There may be other possibilities, but if I was a betting man (although I'm not), I'd think it was one of the two I've described.
Dividend paying stocks are a good place to start, and there are different ways to go about doing so.
One way would be through an ETF (Exchange Traded Fund) or mutual fund. If you do not have a lot of money to start with, ETFs and mutual funds are an easy way to achieve diversification by buying funds with pre-existing portfolios of dividend paying stocks. Many ETFs and mutual funds are oriented specifically toward dividend stock strategies. And you can view the holdings and read about the funds particular strategy prior to investing.
If you are a very new investor, buying individual stocks may require more money than you have. There are different opinions on how many stocks an individual investor should own, but my rule of thumb has usually been that an individual position should amount to no more than 5% of your portfolio. That means that at a minimum you should own twenty stocks; those being stocks in different industries, regions and/or capitalization, among other considerations.
In addition to a bit of capital, buying twenty stocks also requires a fair amount of research so you can be sure that you want to own the ones you buy. But a lot of people lack the "Three T's" of investing: Time, Talent and Temperament.
You see, managing a portfolio is time consuming. It requires a bit of talent, as in identifying the better opportunities and the stocks to avoid. It requires a bit of Emotional Intelligence, as in not panicking when a stock is down and being willing to take profits and reinvest elsewhere when the stock is up.
By and large I recommend newer investors start with mutual funds or ETFs. But if you have enough capital, and believe you possess the Three T's, then building a portfolio of individual stocks can be profitable and gratifying. Good luck.
Before you do anything more understand that what you "should" do is determined by "what" you are trying to accomplish.
The "what" for most people include things like retirement, getting married, raising kids, buying a home/second home, starting or maintaining a business, and setting up funds to be left behind for your heirs (or heirs to be).
These things must be defined before any advisor can tell you what you should do. If you do not yet have defined goals then the default investment options are short-term cash equivalents like money markets and CDs.
Once you define your goal(s), then the "should" becomes more apparent. Time frame is critical, followed by your risk tolerance or risk aversion.
If you are saving for retirement, then thngs like IRAs, annuities, and cash-accumulating life insurance can be considered. These and other products designed for retirement savings are tax-deferred. This means the earnings in the accounts are deferred until withdrawn. However, the IRS penalizes you if you withdraw the money before you reach age 59 1/2. This restriction means that money being saved for a goal like a second home purchase, something to be gained sooner rather than later, should not be invested in any tax-defrred investments unless you will turn 59 1/2 bfore the money is needed.
Similarly if you are saving for something that is to be accomplished sooner rather than later you'd have to consider the time-frame related restrictions of the investment or the account type but also the amount of risk the investment presents (you do this with all investments and goals but the shorter time frame makes it even more critical). For example, if you were targeting a second home purchase in five years you'd want to minimize exposure to risky investments by looking at investments that will perform well and safely over five-year periods. This is because investments like equity mutual funds can do very well over time but they are unpredictable and can lose money over the mid-term and short-term. You wouldn't want to invest today for a home in five years but end up with less money than you started with for that goal.
However, some investors are willing to take extra and unnecessary risk. But that is an indiviual decision. My advice is to segment your savings by identifying your specific goals. Start with short-, mid-, and long-term goals. Then consider the amount of savings you are willing to commit currently and progressivley to each goal, appropriate for each goal's time horizon, until the time at which you anticipate reaching the goal.
Finally, look at the investments that are likely to get you the returns you need to achieve your goals and that are appropriate for the time horizon. I always try to take the least amount of risk necessary to achieve each goal. But take as much risk as you are comfortable with. Just remember that although you could end up with more money than you need you might end up with less.
The biggest variable when attempting to advise someone with a situation like yours is time. When will you need, or want, to access the funds you have to invest?
When I ask this question of my clients the answer is frequently "I don't know." So I ask my clients to think in terms of short-term, medium-term and long-term goals. Then I ask them to assign a probability of occurrence to each goal. This allows me to help assign a portion of, and in some cases the entire investable sum, to each or a particular goal and time frame. Once we have the goal and time frame identified then I can recommend what to invest in to best accomplish the objective and to ensure the funds are available when needed.
For example, if you are saving for a vacation home to be purchased in 5 years, then you'd have to look at investments that you can reasonably expect to grow at the proper pace over a 5-year time period to reach your objective. Short term time frames require lower risk investments (you don't want to get to the end of the time period having made less than you needed, or even worse having lost money). Also, shorter time horizons require more liquidity, as in you wouldn't buy something that matured in more than 5 years, nor would you invest in something that restricted your access to it for more than 5 years. Believe it or not people do invest in things inappropriate for their goals.
The same philosophy would apply to medium and long-term goals. A really long term goal for a twenty eight year-old would be retirement. With such a long time to go, assuming retirement for you would be for three or more decades in th future, you can really open up the menu of options and seek out those investments that may be short-term riskier, and possibly short-term illiquid, knowing that you won't need the money for thirty or more years and that the extended time over which the investment has to perform means you are more likely to experience the positive results you anticipate.
I know, the answer is not specific to a particular investment, but for your benefit you should think first in terms of goal, time horizon, liquidity needs, risk tolerance and of course what return you want to be able to expect. Having identified these factors will make it easy to eliminate options and narrow down your choices so you can determine what is best for you. Good luck.
The first thing I will suggest is to consider your investments in three different categories: taxable (as in current income, dividends and capital gains), tax-free, and tax-deferred.
As some of the other advisors have suggested, taxable investments can be considered retirement investments. In fact, anything that you invest in can be considered a "retirement" investment so long as you intend to not touch it until you retire (that of course has caveats. A stock portfolio in a taxable brokerage account needs to be touched (ie managed), but the invested dollars should be left in the account until and managed toward your ultimate retirement objective).
You have whole life, which can be an important part of many retirement plans, as high income investors who surpass maximum income thresholds for pre-tax and/or tax-deductible contribution accounts find it useful for tax-deferred cash accumulation, retirement income planning and estate planning.
And annuities may be of benefit, but as with any tax-deferred investment there are many considerations, not least of which is whether or not you will derive a tax-benefit (taking into consideration fees, expenses and expected returns) from the annuity after paying taxes upon withdrawal in retirement, or whether you would be better served in a tax-free or partially tax-free investment, like US treasuries, state municipal bonds or similarly invested mutual funds or ETFs.
But the answer as to which option(s) is(are) best depends on a thorough analysis of where you are today, when you want to retire and what your expectations are for income, net worth and standard of living, and whether or not the accounts, investments and savings rate currently in place will get you where you want to be, and if not, what additions and changes would best serve you in accomplishing your goals and objectives.