Revamp your investment strategies

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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What does this mean for you as an astute investor? The current market environment offers an opportunity to make changes in order to protect your portfolio in the future. The RHY Group at Morgan Stanley Smith Barney, a Denver-based wealth advisory team, has created an investment management plan designed to protect your investments from extreme market conditions and is designed to deliver predictable, tax-advantaged income as the tax environment changes. The RHY Group has outlined a few key investment opportunities to assist investors to diversify their income stream.

Now more than ever, investors should think of their investments on a net after tax basis. In particular, high net-worth, income-oriented investors should consider municipal bonds which can provide an income stream potentially free from local, state and federal taxes. The RHY Group has extensive expertise with Colorado and national issues varying from the local school districts, airport, highways, as well as other essential service revenue bonds and major infrastructure across the state. At Morgan Stanley Smith Barney, The RHY Group has access to offerings from Citigroup and Morgan Stanley which combine for 23.6% of the total national market share of negotiated and competitive municipal new issuances.

Municipal bonds are an important investment component for high-net worth, high tax bracket individuals. However, it is often important for investors to diversify their overall income stream with multiple asset classes. Quality corporations that are paying sustainable, consistent, predictable dividends may continue to be a effective way to generate income in retirement while also offer upside appreciation potential.

Another investment opportunity to consider that offers tax advantaged distributions is Master Limited Partnerships or MLPs. The underlying asset of an MLP is energy infrastructure, such as refined petroleum product distribution and natural gas extraction and transportation. An MLP portfolio combines the tax benefits of a limited partnership with the liquidity of publicly traded securities.

As you move forward with investment considerations for 2010 and into 2011, keep in mind these four key considerations:

1) Income taxes and taxes on dividends and capital gains may rise considerably in 2011;

2) Think of your investments on an after tax basis;

3) Consider municipal bonds that can provide a tax exempt income stream from local, state and federal taxes, and;

4) Continue to diversify with opportunities that offer tax advantaged, increasing distribution yield such as Master Limited Partnerships. We are confident that our expertise in some of the aforementioned areas may help guide you through uncertain market conditions.
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Jack Robinson is a Senior Vice President with the RHY Group at Morgan Stanley Smith Barney in Denver, Colorado.

Corresponding sidebar:
4 Key Investment Considerations:
1. Income taxes and taxes on dividends and capital gains may rise considerably in 2011
2. Think of your investments on an after tax basis
3. Consider municipal bonds that can provide a tax exempt income stream from local, state and federal taxes
4. Continue to diversify with opportunities that offer tax advantaged, increasing distribution yield such as Master Limited Partnerships

Categories: Finance