Dialogues
WEALTH STRATEGIES FOR DISCUSSION
Whether you are focused on accumulating assets, preserving capital,
generating income or transferring wealth to loved ones, count on us to
help you develop an integrated financial plan for life's most important
events. Our comprehensive approach to wealth management centers
on creating a plan that addresses what is most important to you.
SPRING
2010
COURTESY OF
THE ONE ELEVEN GROUP
111 S. Pfingsten Road
Suite 200
Deerfield, IL 60015
Phone: 847-480-5416
Fax: 847-498-1546
Tollfree: 800-543-3623
[email protected]
www.fa.smithbarney.com/111group
DARREN GOLDE, CIMA®
Senior Vice President
Family Wealth Director
WILLIAM JOHNSON
Senior Vice President
Senior Investment Management Specialist
PAUL LEVITT, CFP®
Senior Vice President
Senior Investment Management Consultant
RHONDA SALINS
Senior Vice President
Financial Planning Specialist
CLARK GAPEN
First Vice President
Financial Planning Specialist
HOWARD FELIX
First Vice President
Senior Portfolio Management Director
CAROL PASSALAQUA, CIMA®, CFP®
Vice President
401(k) Consulting Director
SCOTT BERK
Second Vice President
Financial Planning Specialist
What’s Your Recovery
Investment Strategy?
As the recovery continues, you may be regaining the spirit to explore new
growth opportunities in your portfolio.
But is your portfolio positioned to pursue some of these opportunities?
Consider this: One of your portfolio’s priorities is to support a diversified
long-term investment strategy that’s optimized for your particular situation.
Staying diversified can provide exposure to growth—wherever and whenever
it occurs. We can work with you to build a strategy that carefully considers
your goals, risk tolerance, financial resources and investment time horizon.
After analyzing your personal and financial circumstances, we can tailor
an investment strategy that may help you to advance from your current
situation. Your strategy will be based on your goals—whether they’re to
spend retirement traveling or launching a business, to provide your charities
with major financial support or to leave a financial legacy. The investment
strategy will not be determined by short-term market events.
The process of building and implementing your strategy won’t happen
overnight. But with our help, it can happen—and you’ll know your portfolio
and your life will be better prepared to handle whatever the market may
bring tomorrow. ■
Diversification does not assure a profit or protect against loss in declining financial markets.
Growth Investing does not guarantee a profit or eliminate risk. The stocks of these companies can
have relatively high valuations. Because of these high valuations, an investment in a growth stock
can be more risky than an investment in a company with more modest growth expectations.
This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The
strategies and/or investments discussed in this material may not be suitable for all investors.
Morgan Stanley Smith Barney LLC recommends that investors independently evaluate particular
investments and strategies, and encourages investors to seek the advice of a Financial Advisor.
The appropriateness of a particular investment or strategy will depend on an investor’s individual
circumstances and objectives.
Morgan Stanley Smith Barney LLC. Member SIPC.
168567
DIALOGUES//2
Congress, the White House
and Your Portfolio
Greater health care spending and Washington’s continued economic
stimulus may spur inflation and higher tax rates. Here’s how to ready
your portfolio for these possibilities.
As the U.S. economy looks forward
to a recovery, government policies are
likely to continue driving growth significantly. And while such federal intervention
may be necessary, the resulting legislation
may produce some undesirable long-term
consequences. But you can take steps to
make your portfolio ready for inflation,
higher taxes or other possible side effects of
these initiatives.
Between March and October 2009, the
feds spent $92.8 billion on business tax
incentives, the expansion of COBRA
health care benefits and many other
recovery programs.1 When you add health
care reform—estimated to cost $871
billion over the next 10 years2—it’s
inevitable that the already large federal
budget deficit will increase considerably.
Rising deficits can depreciate the dollar,
opening the door to inflation. What’s
more, the government may need to raise
the top income tax brackets, as well as the
capital gains and dividend taxes. If these
possibilities concern you, consider these
asset-protection measures:
DEAL WITH INFLATION . . . ON YOUR
TERMS
Thankfully, rising prices are not yet an
issue: in November, the last month for
which data are available, core inflation
was flat compared with the previous
month, and rose only 1.7% compared
with the November 2008 rate.3 The
Federal Reserve expects a low inflation
rate, at least until the economy recovers.4
At that point, the combination of low
interest rates and large budget deficits
could raise prices significantly—and
weaken Americans’ purchasing power.
Here’s how to be ready for this possible
scenario: first, maintain adequate exposure
to equities. Also consider investing a small
portion of your portfolio in inflation
hedges such as commercial real estate and
commodities, which typically perform
well during inflationary times.
1
“92.8b in Tax Relief,” http://www.recovery.gov/News/featured/Pages/TaxReliefOct2009.aspx.
2
“Hopes Dim, G.O.P. Still Vows to Fight Health Bill,” Dec. 20, 2009.
http://www.nytimes.com/2009/12/21/health/policy/21health.html?hp.
3
“Consumer Price Index—November 2009,” http://www.bls.gov/news.release/cpi.nr0.htm.
4
Untitled Federal Open Market Committee press release, Dec. 16, 2009. http://www.federalreserve.gov/newsevents/press/monetary/20091216a.htm.
Conversely, inflation typically has a negative
impact on bonds, since it mitigates the
expected buying power of future interest
payments. That said, if you’re a bond
investor, consider diversifying your fixed
income holdings among bonds of various
maturities so you can attempt to capture
any future increase in interest rates. At the
same time, minimize your position in longterm bonds, since these are especially vulnerable to inflation.
The same long-term caveat applies to
certificates of deposit (CDs). Avoid tying
up cash, such as your household emergency fund, in this way. Instead, consider
maintaining a CD ladder, in which your
portfolio holds several CDs with staggered
maturity dates. When the CD with the
shortest term matures, you can roll the
cash into a longer-term CD.
GIVE YOURSELF A (TAX) BREAK
Many analysts believe that Congress will
raise taxes this year to finance health care
reform and ongoing economic stimulus
programs. With that in mind, you may
want to adopt forward-thinking tax-minimizing strategies for your earned and
investment income.
CONGRESS, THE WHITE HOUSE AND YOUR PORTFOLIO
First, contribute as much as you can to
your Traditional IRA, 401(k) or other traditional tax-deferred plans to reduce your taxable income. Roth accounts are particularly
useful if you anticipate that your tax rate in
retirement will be higher or if you will not
need the income from the Roth account in
retirement. Though your contributions are
not tax deductible, your retirement-time
withdrawals will be tax-free (provided
you’ve held the account for at least five
years and have reached age 59½). Consider
a Roth 401(k) if you have access to one, or
look into converting a portion of your
regular savings into a Roth IRA either
directly if you are eligible to contribute to a
Roth IRA under IRS rules or by making
after tax contributions to a Traditional IRA
and then converting to a Roth IRA. In any
case you should consult your tax advisor
before contributing to an account to
determine the tax consequences of
electing the Roth Option.
Also consider taking advantage of new
and existing tax breaks before they expire.
Among them:
DIALOGUES//3
» An expanded tuition tax credit
» The $2,500 to $7,500 electric vehicle credit
The past year has presented investors with a
difficult set of challenges—with more to
come as the economic cycle continues to
play out. Under these circumstances,
investors who guard themselves now against
inflation and possible tax hikes will enjoy
a financial advantage if these possibilities
come to pass. ■
» Tax credits for first-time homebuyers and
certain repeat homebuyers
» Credits for energy-efficient home repairs
Past performance is not indicative of future results.
The securities discussed may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Diversification does not assure a profit or protect against loss in declining financial markets.
Hedge funds may involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss,
can be highly illiquid, are not required to provide periodic pricing or valuation information to investors.
Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk. In general, as prevailing interest rates rise, fixed
income securities prices will fall. Bonds face credit risk if a decline in an issuer's credit rating, or creditworthiness, causes a bond's price to decline. Finally, bonds
can be subject to prepayment risk. When interest rates fall, an issuer may choose to borrow money at a lower interest rate, while paying off its previously issued
bonds. As a consequence, underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest
rates are lower than when the initial investment was made. NOTE: High yield bonds are subject to additional risks such as increased risk of default and greater
volatility because of the lower credit quality of the issues.
CDs are insured by the FDIC, an independent agency of the U.S. Government, up to a maximum amount of $250,000 (including principal and interest) for all
deposits held in the same insurable capacity (e.g. individual account, joint account) per CD depository, through December 31, 2013. On January 1, 2014, the maximum insurable amount will return to $100,000 (including principal and interest) for all insurable capacities except IRAs and certain self-directed retirement
accounts, which will remain at $250,000 per depository. For more information visit the FDIC website at HYPERLINK "http://www.fdic.gov"www.fdic.gov
This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Morgan Stanley Smith Barney LLC recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The
appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Smith Barney Financial Advisors do not provide
tax or legal advice. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals
are urged to consult their personal tax or legal advisors to understand the tax and related consequences of any actions or investments described herein.
DIALOGUES//4
Simplify Your Financial Life
with a Unified Managed Account
The ever-increasing complexity
of investment management
can leave investors with fragmented portfolios and investment
plans—and often with no clear
idea how their investments match
up with their long-term goals.
For many in this situation, it may seem as
though there are too many accounts to
oversee, too many investment strategies to
consider, too many reports to review and
too many tax statements to organize.
Over time, widely dispersed investment
accounts become much more than a
bookkeeping nuisance—they can actually
be detrimental to the decisions you make
about your money. You may be incurring
more risk than you think, you may not
be taking full advantage of certain
investment opportunities and you might
be creating headaches for your heirs in
the event that something happens to you.
The only way to get the best advice about
your wealth is if you and your Financial
Advisor are looking at the whole picture.
Components of wealth don’t stand alone;
it is only when you see them together that
you get answers to critical questions. How
much risk is in your combined portfolio?
Does borrowing make sense? What needs
to be in place to protect what you have?
From this perspective, consolidating your
accounts isn’t just a convenience. It is a
step toward a much richer approach to
managing wealth—one that may encompass a broader range of possibilities than
you imagine.
A unified managed account, or UMA, can
help streamline your financial life, saving
you time and sparing you frustration.
UMAs represent the next stage in the evolution of managed accounts and give you
the opportunity to combine separately
managed accounts, mutual funds,
exchange-traded funds and even alternative investments—all within a single
account structure and asset allocation
model. This structure means simplicity for
you, as you sign only one contract and
receive one monthly statement, one performance report and one consolidated
year-end tax statement.
Not only do UMAs offer you the opportunity to consolidate your investments
and simplify your financial life, they allow
you to do so without compromising on
the features, diversification benefits and
quality of your investment choices. Along
with helping you set your financial objectives and determine the most appropriate
asset allocation model to meet your needs,
we can analyze the holdings of your proposed investment products to help avoid
heightened exposure to a stock, an economic sector or another type of security
that may undermine the diversification
benefits of the proposed asset allocation
model for your UMA.
Speak with us for more information on
unified managed accounts—including
Select UMA, the new program from
Consulting Group, our managed money
unit—and to determine whether this
approach to investing might be suitable
for you. ■
© 2009 Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters,
it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek
advice based on the taxpayer's particular circumstances from an independent tax advisor.