The Market Update. And Financial Planning Topics

Transcription

1 November 2013 The Market Update And Financial Planning Topics Michael F. Souza Financial Advisor Senior Portfolio Manager Bryan C. Gould Financial Advisor Portfolio Manager TABLE OF CONTENTS 1 Precious Metals 2 Portfolio Positioning 3 Social Security: Part I October was a very positive month for stocks and bonds as the Washington DC Political Food Fight got pushed out until the New Year and the Fed continued to keep its foot on the accelerator in regards to their current monetary policy. In this issue, we wanted to touch on the following: 1) Precious Metals why haven t they worked in ) Handicapping positioning into year-end 3) Social Security Review (Left to Right) Bryan Gould, Michael Souza To subscribe to The Market Update, please bryan.gould@morganstanley.com The Ohana Group 1

2 The dollar was officially adopted as our nation s unit of currency in Precious Metals What Happened in 2013? Precious Metals are owned by investors for many reasons whether it s fear of Armageddon, diversification or as a surrogate currency in a world where governments have the ability and have exercised the right to print what appears to be limitless amounts of paper currency. It would seem at a time when the world s three major currencies US Dollar, Japanese Yen and European Euro are being led by central bankers who have embraced low interest rate policies that precious metals would take their place at the table as the fourth and in some opinions true currency. After all, you can t create gold, silver, platinum and other precious metals via a printing press! While this argument makes perfectly good sense - why have investors been fleeing these assets at a time when it would appear they would be most needed? The answer thus far comes in multiple forms and we will do our best to explain why we abandoned our precious metals allocations after the first quarter of this year. Strategists and portfolio managers can tell you that they Love an asset but frankly if the motivation of sellers is greater than that of buyers then investor selling will draw assets out of an asset class. Below you will find a 5 year chart of the spot price of gold. 2 You can see the relentless The Ohana Group 2

3 run up in price from early 2009 until it peaked in September of 2011 (Somewhat coinciding with the European Crisis of that year). Since that spike/peak, the market had been moving sideways in what market technicians often refer to as a Consolidating Channel. Suddenly in mid-april of this year gold prices spiked lower and almost collapsed. Since that move down, gold prices and those of other metals have not been able to work their way back higher. Regardless of the asset whenever we see these types of price breaks, we are inclined to sell our holdings and regroup. In addition to the technical issues surrounding the price movements of precious metals, we have actually seen inflation numbers either staying subdued here in the US or actually dropping in Europe. Amazingly, with money so cheap it has yet to create the run-away inflation that many investors had feared since QE was initiated to stem the tide of the financial crisis. Within our portfolios, our impetus for owning precious metals was an inflation hedge against our bond portfolios that we owned for clients for the purpose of generating income/cash flow and preserving wealth. may be suitable for investors with moderate to longer term time horizons in relation to their goals. This particular portfolio is more heavily weighted in equities (60% - 65%) and the remaining allocations divided between Bonds, Cash and Alternatives. For the remainder of the year our objective is to continue to do what we have always done try to find investments that generate risk adjusted returns that allow our clients to meet their goals. While we have noticed that there are parts of the US stock market that remind us greatly of valuations last seen in 1999/2000, those holdings don t concern us as we don t own any of the companies that fit that description. Therefore, we see no need to sell. In regards to our bond allocations, in recent months we have heeded the warning of the Fed and have been working diligently to reduce the interest rate risk of our bond holdings by selling individual bonds with longer maturities and reinvesting into those with shorter maturities. All in all we like what we currently own and if anything will use weakness in the market to add to our current positions in preparation for Portfolio Positioning into Year End As we head into November to close out the year, we have often been asked our opinion of what to do with our assets. Should we book profits and wait for the second bout of Washington wrangling in January/February? Should we continue to own and buy more of what s working namely US equities? Before we answer those questions, let s first describe which strategy, goals and risks we ll be utilizing as a benchmark. In this particular example we ll be considering our Moderate portfolio, which Kimberlyn, Michael and Bryan at the TEDxAFC Conference The Ohana Group 3

4 Social Security: Part I Social Security can play a vital role in providing a portion of ones retirement income plan. With many experts calling for retirement replacement income of upwards of 80%, maximizing your Social Security has never been as important as it is today, so it may come as a surprise to learn that nearly three-out-of-four Social Security recipients elect to receive their benefits early 3 - permanently reducing the amount they receive; not only during their lifetime, but for their spouse, after they die. In contrast, by delaying when you start receiving Social Security benefits, you can increase your retirement benefit by as much as 32% 4. Understanding how much you will receive is largely dependent on three factors: 1. When you begin receiving retirement benefits 2. Your lifetime income. Generally, Social Security takes into account the highest 35 years of income. 3. If you (or your spouse) are eligible to receive spousal benefits. You may begin receiving Social Security retirement benefits as early as age 62. However, you are not eligible to receive full Social Security retirement benefits until reaching Full Retirement Age. Depending on your year of birth, your Full Retirement Age is between age 66 and 67. You also have the ability to delay your start date of Social Security retirement benefits beyond Full Retirement Age. In this case, the monthly benefit amount increases, up to age 70. Retirement Benefits 5 Year of Birth Age 62 Benefit Full Retirement Age (FRA) % % 66 and 2 months % 66 and 4 months % 66 and 6 months % 66 and 8 months % 66 and 10 months 1960 and later 70.0% 67 The age at which you elect to begin receiving benefits will impact your benefits (and, in some cases, the spousal and survivor benefits of your spouse) throughout your entire retirement. Consequently, it is vital that you consider the benefit reduction implications of electing to receive benefits before Full Retirement Age, as Learning about the effect of adding CO2 to Seawater at TEDxAFC Conference 3 Older Worker s Employment and Retirement Trends, CRS Report to Congress, Social Security Administration 5 Social Security Administration The Ohana Group 4

5 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Impact of Receiving Benefits Before (and After) Full Retirement Age well as the benefit increase implications of electing to delay benefits beyond Full Retirement Age. If you decide to take benefits before Full Retirement Age, you can possibly impact your benefits in two ways reduced benefits and reduced work history. Reduced Benefits According to the Social Security Administration, if your Full Retirement Age is 66 and you are expected to receive $1000 per month, your benefit would be reduced to $750 a month if you begin receiving Social Security benefits at age 62. Reduced Work History Social Security benefits are generally based upon your average (indexed) earnings during the 35 years in which you earned the most. There may be gaps in your employment history and by working just a few additional years, you may be able to positively impact your Social Security benefits. Disclosure Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC ( Morgan Stanley ), its affiliates and Morgan Stanley Financial Advisors do not provide tax or legal advice and are not fiduciaries (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. 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 encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account. This material is intended only for clients and prospective clients of the Portfolio Management program. It has been prepared solely for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in any trading strategy. The individuals mentioned as the Portfolio Managers are Financial Advisors with Morgan Stanley participating in the Morgan Stanley Portfolio Management program. The Portfolio Management program is an investment advisory program in which the client s Financial Advisor invests the client s assets on a discretionary basis in a range of securities. The Portfolio Management program is described in the applicable Morgan Stanley ADV Part 2, available at stanley.com/adv or from your Financial Advisor. The Ohana Group 5

6 The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This report contains forward looking statements and there can be no guarantees they will come to pass. Historical data shown represents past performance and does not guarantee comparable future results. The information and statistical data contained herein have been obtained from sources believed to be reliable but in no way are guaranteed by Morgan Stanley as to accuracy or completeness. 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 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. The initial rate on a floating rate or index-linked preferred security may be lower than that of a fixed-rate security of the same maturity because investors expect to receive additional income due to future increases in the floating/linked index. However, there can be no assurance that these increases will occur. The value of fixed income securities will fluctuate and, upon a sale, may be worth more or less than their original cost or maturity value. commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention. Morgan Stanley 4350 La Jolla Village Drive, Suite 1000 San Diego, CA Michael.souza@morganstanley.com Bryan.gould@morganstanley.com Morgan Stanley Smith Barney LLC. Member SIPC 11/13 S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market. An investment cannot be made directly in a market index. Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the The Ohana Group 6