Posted 07.28.2010

Revamp your investment strategies

Developing defensive-oriented solutions

By Jack Robinson

Investors often wonder what the best investment solutions are for their portfolios and how to provide sufficient diversification to weather various market environments.

For years, investors diversified portfolios with a combination of domestic stocks, international stocks, bonds, and cash. At times of extreme market conditions, many of these traditional asset classes experience times of high correlation. In 2008 for instance, most risk assets endured substantial losses, as investors fled to cash and other risk-free assets, such as Treasury bonds, in the wake of the financial crisis and economic downturn. To provide sufficient protection in various market conditions, it is paramount that investors complete their portfolios with non-traditional asset classes that add a further layer of balance and diversification.

To provide the necessary portfolio protection, our advisory team, The RHY Group at Morgan Stanley Smith Barney, has created an all-weather ‘completion portfolio' that will lessen the volatility of client investments and will provide meaningful diversification. Within the portfolio, The RHY Group tactically allocates funds to investments such as commodities, managed futures, floating rate securities, and other assets that move independent of the broad stock and bond market indices. Moreover, many of the investments can buffer a portfolio in a rising interest rate environment.

This balanced strategy from The RHY Group protects client's portfolios in volatile markets as well as in an inflationary environment. By working closely with our wealth advisory team to create a defensive oriented portfolio, an investor may have a better chance at overcoming difficult market conditions throughout the coming years.

Investing in a Higher Tax Environment

As we head towards 2011, investors want to know how to protect their net-worth and investments in a higher tax environment. Economists are projecting a rise in tax rates and interest rates in 2011; the top two marginal income tax rates are expected to go up 3 and 4.6% points respectively and capital gains tax rates will move from 15% to 20%. The most meaningful increase may come from the tax treatment of dividends. At the end of 2010, the tax rate on ordinary dividends is scheduled to revert back to ordinary income tax rates from the current 15%. Investors should be prepared.

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