Download Charting A Course Towards Your Financial Goals

Charting A Course
Towards Your Financial Goals
Without Running Aground
Harry S. Oakley, Jr., CFA®
Thomas D. Wing
William J. Mills IV
Kim Beard
Senior Vice President
Sr. Portfolio Management Director
Senior Vice President
Senior Portfolio Manager
Financial Advisor
Registered Client
Service Associate
The Oakley Wing Group at Morgan Stanley Smith Barney
64 South Main Street
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Essex, CT 06426
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860-443-7100
Today's Financial Challenges and Potential Opportunities
Times are tough for those trying to save and create personal wealth to reach their goals. Many are finding it
difficult to achieve a more fulfilling life while leaving something for their retirement years or legacy.
The economy is in peril one day and in recovery the next. The stock market is up and down. Wall Street is
in disarray.
Many individuals and families have seen little to no growth in their investment portfolios over the past 10
years. Most can’t afford another ten years of more of the same disappointing results.
Many individuals are seeking more abundance in their personal, financial lives yet face negativity from all
sides. The media, many on Wall Street, and the government all offer only pessimism and bad news which
leaves the rest of us searching for answers to today’s challenges.
You know there has to be a better way forward so you can achieve your financial goals and preserve your
wealth over the long-term.
You may be like a 65 year old husband and wife we worked with recently who had different
ideas of how money should be used. They also wanted to balance the short-term needs of
their family, grandchildren’s education, and sailing vacations, while protecting themselves
against life’s uncertainties and best positioning their money for the long-term.
Or, you may be an independent business owner who wants to make the most of her personal
wealth and create a financial strategy for the coming years that seeks to protect her and her
company from some market risk.
Or, you may be part of a busy, duel-income professional couple who hardly has time to go to
the bank, let alone create a financial strategy to meet important goals of buying a vacation
home and finally putting their retirement plan back on track.
We urge you to read Charting A Course Towards Your Financial Goals Without Running Aground.
Then, we invite you to “get to know us” and allow us to “get to know you” so we can help you get the most
from your investments and harness the power of professional portfolio management.
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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Today's Challenges in Charting Your Course
to Your Financial Goals
There are many challenges to creating and preserving wealth today. Here are some of the major barriers
that may be holding you back and putting your hard-earned lifestyle at risk.
An Uncertain Economy
The first barrier to creating abundance is this economy.
Not only have we just gone through one of the worst recessions in recent decades, but the average person
we meet seems to be pessimistic about the United States’ place in the world and fears that good times will
not return any time soon.
Beyond the normal business and economic cycles, people view trends like our increasing government debt,
low interest rates, high gas prices, and the rapid rise of countries like India and China as reasons to be even
more pessimistic.
One needs to look no further than the skyrocketing price of gold in recent years to understand the public’s
fear and uncertainty about our economy.
These factors, as well as the caution this uncertainty brings, can erode your own personal sense of control
over your financial future and impact the way you look at your wealth.
Next, let’s examine what has gone on in the financial markets recently.
Recent Market Performance
Most new people we meet today have not done well in the markets over the past decade or so.
Many individual investors were badly hurt by their investments, not only in 2007-2008 but also in 20002002. Both periods were the worst for performance since the Great Depression. In fact, the stock market
had negative performance for the entire decade of the 2000’s, which didn’t happen even in the decade of
the 1930’s.
Consequentially, many today are keeping a lot of their money on the sidelines in cash. In our opinion,
recent market performance has caused fear to rise and “scarcity thinking” has become prevalent.
So you may be unsure of what to do going forward so you look to “experts in the media” for guidance on
your future.
Now, what’s wrong with that?
With Our Media - Bad News Sells So That is What We Get
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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With the rise of the internet, there has been an explosion in the number of outlets and amount of
information produced and consumed on a daily basis. This applies to financial information as well as
general information and news.
As you likely know, bad news generally keeps attention and attracts more viewers than educational and truly
informational programming. The proliferation of media and information has led to a corresponding
increase in bad news to get your attention and boost ratings for the media.
For example, the financial media seems to be always telling you to “do something” or chase the latest hot
sector.
Let’s not forget the financial media’s job is not to educate or inform, but create a profit by selling ads. Let’s
also not forget they know nothing about you and cannot possibly know whether their “recommendation” is
right for you.
Being bombarded by bad news every day, especially about our uncertain economy or the volatile markets, is
going to handicap anyone in tapping into a spirit of abundance.
A Tendency to Put-Off Creating a Strategy to Help
Reach Our Important Financial Goals
Many individuals and couples of all types put-off creating a strategy to meet their goals because they think
the process will be painful, or are fearful it will cause them to change their lifestyle today.
Our clients generally find actually the opposite is true.
They are energized and excited by the process of creating a roadmap to important life goals.
They find that with our method of wealth and investment management, they often have enough assets to
get what they want in both the short and long-term.
Now that you know some of the factors holding many people back from creating and preserving their
wealth today, let’s take a look at:
The Perils of Investing Today
What you are doing now may not accomplish what you intend – preserving assets or avoiding common
risks. If you are investing on your own, chances are you are failing to match or surpass the market rate of
return (the rate obtained by investing in index funds).
Statistically, we know this:
The average investor does not beat the market as shown in the chart below
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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Average Stock Fund Return vs. Average Stock Fund Investor Return
(1990 – 2009)
10.0%
8.8%
Average Annual Return
8.0%
The “Investor Behavior”
6.0%
4.0%
3.2%
2.0%
0.0%
Average Stock Fund Return
Average Stock Fund Investor Return
Source: Quantitative Analysis of Investor Behavior by Dalbar, Inc. (March 2010) Lipper.
The Average Equity Investor, as studied by Dalbar, Inc., is a representation of a mutual fund investor
who does not have a buy and hold investment discipline, but rather, their investment behavior includes
market timing, lack of retention, and short-term allocation changes, primarily based on an aversion to
loss. Dalbar computed the "average stock fund investor" return by using industry cash flow reports
from the Investment Company Institute, and this return represents the average return for all funds
listed in Lipper's U.S. Diversified Equity fund classification model.
The tendency for investors is to move much or all of their money out of the market when they face a bear
market or down cycle. The outcome is they may have missed some of the best days in the markets.
According to Standard and Poor's Investment Service1, if a model portfolio of $100,000 missed just the top
15 best days over the years 1990 to 2009, the portfolio would be worth about 40% as much, $2,050,000
rather than $5,045,500.
It comes down to this: You may be the biggest obstacle to creating wealth in the markets.
Sometimes this obstacle takes the form of chasing after a market as it goes up (or down).
Too often, these actions accomplish nothing except to separate you from your wealth.
1
Standard and Poor’s Investment Service, 2010
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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5 Investment Forces Which Should Drive Your Individual Portfolio
Management…
(and don’t for virtually everyone we meet)
We believe there are many factors which need to be considered to create and manage a portfolio in today’s
economic and investing environment.
Here are 5 factors which should drive your individual portfolio management.
1. A Dynamic Assessment of Markets and Macro Economic Factors
One of the reasons the so called “buy-and-hold” strategy is failing many investors is because economic
information and markets are moving too fast to wait months (or longer) to adjust to.
We have what we call a dynamic assessment of both the economy and the markets. For example, we have
11 key economic indicators we track which all feed into our overall pulse of the economy. When one
changes, we immediately review how that impacts our overall outlook.
Underneath this global economic assessment is our perspective on the markets. We look at both the
fundamental forces and technical trends in the markets. We are continuously evaluating what could impact
our clients in general, and their portfolios in particular.
We also leverage our combined five decades of industry and portfolio management experience to make
timely decisions as new information presents itself. This is what we mean by dynamic. We are constantly
processing new information and market movements as well as data on individual investments to look for
potential opportunities and to manage risks.
While we know many advisors review much of this information quarterly, we feel if it were our money we
would not want to wait that long to act in today’s world.
2. Your Portfolio Needs to be Created and Actively Managed
Based on Your Current Financial Plan
One of the maxims in business is “you can’t manage what you can’t measure.”
We feel a professionally managed portfolio should be created and measured against a target rate of return
specific to your financial plan. This target rate of return is one major way we connect your financial plan to
your investment portfolio strategy.
While many advisors will try to compare all of their client’s portfolio performance to some arbitrary
benchmark like inflation or a stock index, what we feel is most relevant is investing with your financial plan
in mind.
After all, it is much more important what is happening in “your economy,” than the
overall economy or markets.
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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You may find your target rate of return is actually lower than what you are trying to achieve with your
current portfolio, and consequentially you’re taking on unnecessary additional risk. We create and actively
manage your portfolio with your investment risk criteria in mind. Risk is often described as the volatility or
changes in the portfolio that you are willing to see.
Risk is specific to you and many times investors get more conservative with their money as they approach or
move into retirement and their earning power and time horizon for needing money changes.
The bottom line is we are creating and actively managing your investment portfolio with you in mind, using
your risk criteria and a very specific target rate of return to help guide our portfolio management for you.
3. Your Professional Should Be Aligned with Your Goals
and Accountable to You
It gives us great pleasure and pride to know that one of the reasons clients stay with us year after year and
often times refer their friends and colleagues to us is we align their portfolios with their goals.
Our philosophy is simple.
A. We are investing for you, with your goals in mind.
B. We are accountable to you.
We maintain a small group of clients so we can have your situation in mind when markets start to move.
4. Your Investment Portfolio Should Be Managed with Your Tax Situation and
Cash Flow in Mind
We don’t like paying excess taxes and are sure our clients don’t either.
While we are all for everyone paying their way in this great country of ours, we don’t want you to get an
unexpected tax bill because your financial advisor did not make portfolio decisions with your cash flow or
tax considerations in mind. Or worse, we wouldn’t want to be responsible for passing the buck to a mutual
fund manager or other professional portfolio manager who only sees you as a number and has no way of
managing your tax liability.
In short, we seek to stay current with your needs and be pro-active about any changes to your personal
situation. Part of this philosophy is to maintain good relations with your tax advisor and coordinating with
them on your behalf. For example, in anticipation of a major windfall through the sale of a home or
business, there may be some investment losses that can be harvested to soften the cash hit.
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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5. Speed to Take Action Today
In the world of securities,
As we alluded to above, the markets are moving faster and
courage becomes the
with wider swings than ever before. We feel speed of decision
supreme virtue after
making and actively managing investments is important to
seek opportunity and preserve investment capital.
Because we have our pulse on the markets and are actively
investing on behalf of our clients with discretionary accounts,
adequate knowledge and
a tested judgment are
at hand.
we are able to make adjustments to individual investment
-- Benjamin Graham
positions and to your portfolio much quicker than with a
passive strategy, or if we had to set-up a meeting with all our clients before we made changes.
It does not help if we recognize shifts in trends or fundamentals but are unable to take advantage of the
potential opportunity or to avoid a known risk in a timely manner.
In short, is not managing risk and reward the art of investing?
Nine Investment Management Strategies
Most Oakley Wing Group Clients Benefit From
Now, let’s introduce to you some of the specific strategies we use to see if it fits your goals and the way you
would like your wealth handled.
Keep in mind that every individual situation is different and each of these nine reasons may not all apply to
you now. We are big believers in the long-term potential of the stock market, so many of these strategies
center around our efforts to harness its potential power for a client’s benefit. But, obviously there are cases
where stocks could make up only a small portion of a client’s portfolio.
Here are nine investment fundamentals we use to help build a portfolio with the goal of protecting against
downside risk while actively managing it for potential upside opportunity.
1. Our objective is to participate in a rising stock market and to outperform in a declining one.
2. Over an economic cycle our portfolios will change in composition. In an expanding economy, we
shift towards more growth and cyclical-oriented portfolios, while in a more stable or declining
economy, we move towards a more defensive and income orientation.
3. Our stock portfolios consist of companies which show strong financial metrics, hire talented
management teams, and offer products and services occupying the first or second tier in their
respective markets.
4. Each client’s portfolio is tailored to his or her risk tolerance and cash flow objectives with an
emphasis on appreciation, income, or a combination of both. Our client’s portfolios typically consist
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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of stocks that in aggregate have dividend yields that exceed the average dividend yield of the S&P
500 listed stocks, and bonds that are investment grade or better.
5. Our process is both “top-down” and “bottom-up” using the S&P 500 listed companies as our base.
We begin with our macro economic view—both domestic and global. Based on where we are in the
economic cycle, we apply sector weightings within the S&P 500. Economically sensitive sectors—i.e.
industrials, materials, technology, and financials—are given more emphasis in an expanding
economy. However, as we believe economic growth is beginning to slow, emphasis is placed on
consistent, less economically sensitive sectors—i.e. staples, utilities, and healthcare.
6. Our stock selection process within each industry sector is bottom-up. We focus on a company’s
financial strength, management talent, and product and service offerings. This process takes time
and discipline. In certain tactical situations where stock selection is less effective—i.e., investing in
sub-sectors and specific international markets—we use Exchange Traded Funds and institutionalshare class mutual fund. In these cases, we thoroughly vet fund managers and the nuts and bolts of
their portfolios.
7. Client portfolios will typically comprise 25 to 30 stock positions, weighted between 2-4% of the total
portfolio, with a cash position around 5%. Depending on the market and economic backdrop, we
may allow stock positions to appreciate to 5-6% of the portfolio before trimming and reallocating.
On average we take 3 to 6 months finding suitable entry points to fully invest a new account;
however, in difficult markets we may take up to 1 year.
8. Fixed income plays a significant role in maintaining stability in many of our clients’ portfolios. We
also actively manage our clients’ fixed income portfolios. In an expanding economy, we shorten
duration and in a stable-to-declining economy, we lengthen duration.
9. For tax-exempt accounts, we use investment-grade corporate credits, treasuries, and agencies. For
taxable accounts, we use investment-grade municipal bonds that are liquid and actively traded.
Note these 9 factors are used as guidelines as we realize every client’s situation will be unique.
So, if you like what you have read so far, what is your next step?
Taking the Next Step to Preserving Wealth
and Your Own Roadmap to Financial Success
To help you discover how you can benefit from the strategies outlined in their paper and see if we can meet
your expectations, we offer a no-obligation, personal introduction to our strategies called a Discovery
meeting.
Beyond Discovery is an easy and very powerful Wealth Management and Planning process guided by our
experienced team.
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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We use a combination of interviews, analysis of current resources and assets, and self-reflection through
questioning.
Together we map out your key personal financial goals include your current assets and income streams, and
then run financial simulations for your very personal situation.
The outcome is a financial roadmap on the best course of action to help you reach your goals and, on the
flipside, avoid life’s unknowns which can attack your money.
The Wealth Management and Planning process helps individuals and families enhance the chances to:
• support their desired lifestyle now and over the long term,
• give to future generations and important causes, and
• know they are getting a little closer every day to their goals with a solid and proactive investment
plan.
So here’s what you should do now.
To help you discover how you can benefit from our processes and our style of proactive,
professional investment management, request our no-obligation Discovery meeting by simply
filling out the Request Form at www.fa.smithbarney.com/oakley_wing/email.htm or contact our
lead Client Service Associate Kim Beard at [email protected] or call 860-443-7100.
In summary, we help our clients to feel confident and empowered in their wealth management plan and
invest on their behalf so they can maintain their current lifestyle priorities and have money for the future.
We hope you will contact us to begin to feel confident in your future and how your wealth is handled.
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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Harry S. Oakley, Jr., Senior Vice President, Sr. Portfolio Management Director
As co-founder and Senior Portfolio Manager of the Oakley Wing Group at Morgan
Stanley Smith Barney, Harry has worked within the financial services industry since
1991. Prior to joining Morgan Stanley Smith Barney, he consulted on corporate
retirement and benefit plans, having management oversight of retirement assets.
Harry earned the prestigious Charter Financial Analyst (CFA) designation,
internationally recognized as the standard of excellence in investment analysis and
portfolio management. He graduated with a BA from Washington and Jefferson
College, and a MBA from Boston College. He is a Past Commodore of the Shelter
Island Yacht Club, and is Treasurer of the Creative Arts for Developing Minds.
Harry enjoys navigating the waters of eastern Long Island with family and friends in his Endeavor 32
"Tempest".
William J. Mills IV – ‘Jay’, Financial Advisor
Jay Mills joined The Oakley Wing Group at Morgan Stanley Smith Barney as a
partner in 2010. Prior to Morgan Stanley Smith Barney, Jay worked as a Financial
Advisor at Merrill Lynch in New York City.
While growing up, the sport of sailing played an important role in Jay's life.
Through persistence and determination, Jay was able to help Hobart and William
Smith Colleges win two National Championships his freshman year, and go on to
become an All-American sailor. His ambition continued after college, setting a goal
to win the International Etchells Class World Championship. Competitive sailing
has allowed Jay to discover the advantages of commitment, discipline, and close
relationships. His passion transcends just sailing or competing. It's continuously being a student of the
game and always working towards reaching full potential. A bar which he believes should always rising.
These qualities are the foundation of his financial advisory practice.
Today, Jay constantly studies financial markets and planning techniques to discover how to gain greater
results for his clients. He strives to deliver a white glove experience to his clients.
Jay currently serves as Vice-Chairman of the Shelter Island Yacht Club Protest Committee and is an active
member of the New York Yacht Club. He is also a Class Agent for the Hotchkiss School Endowment Fund,
and volunteers to help coach the school's sailing team. He is a member of the Old Saybrook Chamber of
Commerce.
Jay lives in Essex, CT and enjoys spending time with family and friends, running, and any activity involving
being on the water.
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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Thomas D. Wing, Senior Vice President, Senior Portfolio Manager
As co-founder and Senior Portfolio Manager of the Oakley Wing Group at Morgan
Stanley Smith Barney, Tom began his financial services career in 1976. Tom’s career
followed many opportunities starting at Morgan Stanley Smith Barney then
spending a 10-year tenure with A.G. Edwards. In 1997, Tom rejoined the Morgan
Stanley Smith Barney team as a Portfolio Manager, and in 2001 as a Private Client
Portfolio Manger in the Essex office.
Tom is a graduate of Wittenberg University. He currently serves on the Finance
Committee of the Town of Lyme Ambulance Association, is a Past Commodore of
the Hamburg Cove Yacht Club, Past Treasurer and Former Board Member for The
Williams School.
Tom enjoys exploring the waters of eastern Connecticut on his Tartan 34, Memory with his family and
friends. On the rare occasion he would like to be on land, you can find him in his garden in Lyme, CT.
Kim L. Beard, Registered Client Service Associate
Kim strives to deliver first class service and support to the clients and advisors of
the group. Kim joined the Oakley Wing Group at Morgan Stanley Smith Barney in
2007. Her role, among being the first person client’s speak with on a daily basis, is
focused on the day-to-day aspects of client relations and marketing.
Kim is also in charge of planning and organizing client events throughout the year.
She is the team’s lead Client Service Associate and is fully registered with Series 7
and 63 licenses.
Kim is originally from Texas—as you’ll tell from her accent—and now currently lives
in Essex. She enjoys being on the water sailing and playing golf.
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Smith Barney 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. Past performance is no guarantee of future results.
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.
International investing may not be suitable for every investor and is subject to additional risks, including currency fluctuations,
political factors, withholding, lack of liquidity, the absence of adequate financial information, and exchange control restrictions
impacting foreign issuers. These risks may be magnified in emerging markets.
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.
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.
Morgan Stanley Smith Barney LLC. Member SIPC.
January 1, 2011
© The Oakley Wing Group at Morgan Stanley Smith Barney | 2011 | 860-443-7100
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