Dialogues
WEALTH STRATEGIES FOR DISCUSSION
We know how hard you worked to accumulate your wealth, and
that key concerns go beyond investing in stocks and bonds. We
make wealth work by helping you determine what's important to
you, then developing actionable strategies to help you realize
your goals and guard against the things that might undo them.
FALL
2011
COURTESY OF
RUSS T. CLEVER
101 South Hanley Road
Suite 600
Clayton, MO 63105
Phone: 314-889-4876
Fax: 314-854-5606
Tollfree: 800-444-7259
[email protected]
http://fa.smithbarney.com/clever/
Russ T. Clever, CFP®
Second Vice President
Financial Advisor
Approaching the Unpredictable
If you could predict the future, just think how different your life would
be—you’d always know which day to bring an umbrella, you’d never have to
grapple with tough choices like whether to accept that new job offer or buy
that new house and you’d be hailed as a genius for your uncanny ability to
pick the Super Bowl winner each year.
But you can’t predict the future, so you do what everyone else does—you try
to make the best possible decisions for your situation based on the information that is available. As a prudent investor, this approach should carry over
to your investment portfolio, which is why you hear and read so much
about the concepts of asset allocation and diversification.
The whole point of asset allocation (the spreading of funds across different
asset categories, such as stocks and bonds) and diversification (the spreading
of funds across different investments within each asset category) is to help
smooth some of the surprising and turbulent price swings that are an
inevitable part of life in the financial markets. By spreading out your investments, you also spread out—and possibly reduce—your overall risk. What’s
more, you may improve your longer-term returns as well, by giving your
portfolio the opportunity to spend more time compounding and growing
and less time trying to play the market’s ups and downs.
A prudent, long-term investment strategy built on the sound principles of
asset allocation and diversification may help your investment portfolio be
more successful in today’s uncertain world. We can review your current
strategy and allocation to see if there’s an opportunity to make your wealth
work harder for you—and to do so with less risk.
And take comfort in knowing that life is much more interesting when it
includes the occasional surprise. n
Diversification does not ensure against loss.
Morgan Stanley Smith Barney LLC. Member SIPC.
197587
DIALOGUES//2
Lessons of Value
Teaching Children the Financial Facts of Life
In Charles Dickens’ classic novel
Great Expectations, a secret
benefactor provides the orphan Pip
with a large fortune intended to allow
him to focus on his education. Pip,
unschooled in the ways of money, spends
irresponsibly in the pursuit of pleasure
and luxury—until the painful legacy of
his accumulated debts finally catches up
with him.
While Pip eventually recovers from his
spendthrift ways, his modern counterparts
are often not so lucky. Ignorant of the
economic facts of life, many young people
stumble into serious financial mistakes—
excessive debt, inadequate savings, poorly
diversified investment strategies—that
can take years, even decades, to put
right. In many cases, a few lessons in
the financial basics could have helped
them avoid errors.
By default, parents are usually the primary
source of a financial education. However,
the studies cited suggest many young
people may receive allowances—or even
sizable inheritances—without a sound
base of knowledge in saving, budgeting,
investing and financial planning.
To help the children in your life develop
a responsible attitude about money, it
might help to consider these points:
BE A ROLE MODEL
There is a significant relationship
between the way children view money
and your own spending habits. Instead
of viewing money and personal finance
as a forbidden topic, discuss your own
financial goals and plans. The level and
amount of information shared is up to
you, but bring the younger generation
into at least a portion of your plans. How
you deal with money issues—from the
monthly bills to planning the family
vacation of a lifetime—are important
and long-lasting lessons about money
management and the value of money.
ENCOURAGE SAVINGS
AND INVESTMENTS
One of the simplest ways to encourage
a responsible attitude about money is
to encourage children to save. This could
include designating a portion of a child’s
allowance to a savings account, or
making gifts of cash directly to an
account in their name. Discuss account
statements together, and stress the
concept of “paying yourself first” with
dedicated, regular deposits. For younger
children, set modest attainable savings
goals. For older children, encourage the
development of a long-term savings plan
for the purchase of a large-ticket item like
a computer or car. Consider an occasional
“matching grant” to encourage regular
deposits and help keep goals visible.
Take the time to explain basic investment
types such as cash instruments, stocks
and bonds. Make investing interesting by
engaging in conversation about companies
that provide popular children’s products
such as toys or clothing.
DEVELOP A SENSE OF
FINANCIAL EMPOWERMENT
Developing responsible spending habits
means encouraging well-thought-out
choices. Guide and advise rather than
dictate how money should be saved and
spent. Keep goals visible with pictures
or create charts that plot the growth of
funds needed.
Take children on window-shopping
trips to compare prices and products and
adopt the mind set that every trip to a
store is an exercise leading to a potential
purchase. To limit impulse buying,
consider instituting a rule that prices
and products are compared at a minimum
of three locations.
GIVE UNTO OTHERS
Involve children in your financial
decisions regarding philanthropy. Discuss
the merits of gift applications you may
have received and weigh the advantages
and limits of each. Explain the tax
advantages of charitable giving but,
at the same time, stress the altruistic
goals of giving.
Even a contribution to a canned
food drive or the creation of a holiday
basket for a needy family can grow into a
family-wide event. By helping children
contribute time or money to a charitable
cause, you can teach them that money is
important in ways other than personal
consumption.
DIALOGUES//3
LESSONS OF VALUE
PERSONAL FINANCE GUIDELINES
The Institute of Consumer Financial
Education is dedicated to helping consumers of all ages improve their spending,
increase savings and use credit wisely. The
Institute has developed the following personal finance guidelines:
» Avoid collecting credit cards and using
them for borrowing.
» Always honor your debts and other
financial obligations.
» Project your income and expenses for
the next 12 months and track variances.
» Manage your expenses so they don’t
exceed your income.
» Focus on the relationship between the
risk and projected return of investments.
» Spend money thinking of your future
as well as your present.
» Maintain organized records for tax and
general financial planning purposes.
» Begin saving early to take advantage of
compound interest.
» Have a plan and a purpose for your
investing.
» Obtain a financial education to be in
a better position to make intelligent
financial decisions.
Developing a sound knowledge of
basic financial practices can often go a
long way to helping the children in
your life achieve life-long financial
security. Fortunately, Morgan Stanley
Smith Barney has a variety of tools that
can help parents encourage their children
to develop strong savings, investments
and charitable goals. For more information, just contact us. n
This article has been prepared for informational purposes only. It 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. Morgan Stanley Smith Barney recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Morgan Stanley Smith Barney Financial Advisor. The appropriateness of a particular
investment or strategy will depend on an investor’s individual circumstances and objectives. All opinions included in this report constitute Morgan Stanley Smith Barney’s
judgment as of the date of this article and are subject to change without notice. Past performance is not a guarantee of future results.
Information contained herein is based on data from multiple sources and Morgan Stanley Smith Barney makes no representation as to the accuracy or completeness of
data from sources outside of Morgan Stanley Smith Barney.
Morgan Stanley Smith Barney and The Institute of Consumer Financial Education are not affiliated entities.
© 2010 Morgan Stanley Smith Barney LLC, member SIPC. Consulting Group is a business of Morgan Stanley Smith Barney LLC.
DIALOGUES//4
Did You Know?
The Benefits of Starting Early
Thomas Jefferson once said, “Never put off till tomorrow what you can
do today.” A familiar phrase that no doubt has rolled off the tongues of
many a parent who implored an unwilling child to mow the grass, take
out the trash or clean a room.
But like the procrastinating child who
waits until the last minute, many
adults fail to heed their own words. They
put off until tomorrow the investment plan
they should begin today.
There’s no better time than the present to
begin planning for the future. Your child’s
education or your retirement may seem a
long way off, but don’t be fooled. A delay
today can impact what you may earn
tomorrow. Let’s take a look at two hypothetical investors, Nancy and Tom. Nancy
is a working mother who plans to retire in
20 years. She hopes to grow her retirement
nest egg to a level that will support her in
retirement. Tom, meanwhile, just got married. He and his wife anticipate starting a
family and would like to start investing in
a college fund with a 20-year time horizon.
Nancy starts her investment program
today with a $2,000 initial investment.
She invests the same amount each year for
the next ten years for a total investment of
$20,000. Tom, on the other hand, procrastinates. He puts off his initial $2,000
investment for five years, then tries to
make up for lost time by investing $2,000
each year for the remaining 15 years. His
total investment reaches $30,000. Who
do you think fared better at the end of the
20-year period? Nancy, who invested less
money? Or Tom, who invested more?
The answer may surprise you. Assuming
that both earned an 8% annualized rate of
return, Nancy’s $20,000 grew to $67,555
while Tom’s $30,000 grew to $58,649.
Remember, this chart is for illustrative
purposes only and is not meant to be a
recommendation. And in the real world,
unlike in our hypothetical model, taxes,
market fluctuations and the costs of
investing can alter investment results.
However, in this case, the benefits of
starting early are evident. n
The Effects of Starting Early
Nancy stops
10 years later
Total Invested
$20,000
Tom stops
15 years later
Total Invested
$30,000
Tom starts
5 years later
Source: Morgan Stanley LLC
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.
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© 2011 Morgan Stanley Smith Barney LLC. Member SIPC.