Financing Real Estate Using Securities-Based Lending

This article discusses how an investment portfolio can help finance a real estate transaction via securities-based lending.

Deciding how to finance a real estate transaction can be as important as deciding which property to select. Most people think of mortgages as the way to finance real estate, but that might not always be the right solution. Liquidating financial assets to cover a large purchase such as real estate is another approach, but it can involve costs that are not immediately apparent, including potential tax consequences,1 the loss of future asset growth and/or an imbalance in your portfolio’s asset allocation.2

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A Different Way to Borrow
If one takes an integrated approach to their financial needs, there are various potential solutions for credit and liquidity needs. One strategy is securities-based lending.

When you establish a securities-based loan, you in essence unlock the value of your assets, allowing you quick and efficient access to funds (as long as there is adequate eligible collateral in the investment account). This may help you achieve a variety of real estate investment objectives, such as purchasing or constructing a primary or secondary home, financing a bridge loan to be used between selling one home and buying another, financing an investment in commercial or rental property or renovating your existing property.

A Potential Viable Alternative to Home Equity Lines of Credit
Prior to the financial crisis of 2008 and the subsequent housing market crash, some banks offered clients home equity lines of credit at 100% financing with low introductory interest rates and fees lower than mortgage costs.2 It was an inexpensive way to tap the equity in your home without refinancing your first mortgage. Then, when the real estate bubble burst and banks closed most home equity lines, those lines of credit disappeared along with the equity in the home. Some home equity lines of credit have a draw period, but once that period is up you can’t borrow more money and you must repay whatever you borrowed within the “repayment period.” Other home equity lines charge interest for a set period of time, but then charge an additional fee due at the end of the loan’s terms which may be so large that borrowers call it a “balloon amount.”3

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By comparison, securities-based loans or lines of credit typically offer competitive interest rates that tend to be lower than traditional bank financing options such as such as mortgages and home-equity lines of credit and other forms of borrowing.4
With no origination, maintenance or facility fees paid to the Bank and no down payment required, securities-based loans may be a cost-effective alternative to traditional bank financing.

Securities-Based Loan vs. Traditional Real Estate Loan—Illustrative Example*
What does it look like to purchase real estate with a securities-based loan instead of a traditional real estate loan? This example highlights some of the potential key advantages to this approach for a buying a $5MM property.

Securities-Based Loan Traditional Mortgage Loan*
Purchase Price $5,000,000 $5,000,000
Down Payment $0 $1,000,000**
Loan Amount $5,000,000 $4,000,000
Interest Rate*** 2.70% (L + 2.50%) 3.20% (L + 3.00%)
Annual Interest $135,000 $128,000
Origination Fee $0 varies

Funds Needed to Close $135,000**** $1,128,000*****

*The chart is for educational purposes only. All client situations are unique and all loans are subject to application and approval. For this example, the Traditional Mortgage Loan represents a 1 Month LIBOR adjustable rate mortgage.
**Assumes 20% down payment for bank financing, which is not necessary for securities-based loans.
***The interest calculation for a Securities-Based Loan is based on a LIBOR rate, which changes daily, plus an incremental percentage, which is determined by the approved loan amount. For this example, the LIBOR rate was 0.20% (as of April 3, 2013). The interest rate calculation for the Traditional Mortgage Loan depends not only on the interest rate, but also the outstanding principal balance from the month prior and the term. The calculation illustrated is a simplified estimate. LIBOR rates may be found at http://www.bankrate.com/rates/interest-rates/libor.aspx
****For letters of credit, there may be outside counsel costs for items such as the review of complicated trust agreements.
*****Real estate fees required for traditional bank financing are not included in the example. Real estate fees include real estate report fees and outside legal fees. The origination fee represents an upfront facility fee. The specific size of the fee may vary depending on the transaction, and it may also fluctuate. Underwriting requirements may include appraisal, survey and title search fees. Total costs will vary depending on the specific transaction. Some or all fees may not be refundable.

In addition to the benefits illustrated above, securities-based lending may offer other perks:

The process of applying for and closing a securities-based line of credit can be faster than the process for a traditional loan and relatively simple. The applicant can be an individual or a legal entity, such as a family trust, LLC, LLP or General Partnership.

There are flexible repayment options, including capitalizing the interest if you are borrowing for short term needs, paying interest only, or making payments to principal as desired. Many business owners find this helpful in managing seasonal cash flow for their business.

Perhaps the most important benefit is that since your investments are not liquidated, you preserve your potential for the growth of your assets.

There are risks associated with using your assets as collateral in a securities-based loan, and doing so is not beneficial for all clients. Sufficient collateral must be maintained and you may need to deposit additional eligible securities on short notice.2

For more information on these lending strategies and others, please contact Angel Chan, Private Banker with the El Camino Group for Morgan Stanley.
415-984-6006

1 Morgan Stanley and its Financial Advisors do not offer tax advice. Individuals should consult their personal tax advisor before making any tax-related investment decisions.

2 Securities-based Lending Risks: Borrowing against securities may not be suitable for everyone. You should be aware that securities-based loans involve a high degree of risk and that market conditions can magnify any potential for loss. Most importantly, you need to understand that: (1) Sufficient collateral must be maintained to support your loan(s) and to take future advances; (2) You may have to deposit additional cash or eligible securities on short notice; (3) Some or all of your securities may be sold without prior notice in order to maintain account equity at required collateral maintenance levels. You will not be entitled to choose the securities that will be sold. These actions may interrupt your long-term investment strategy and may result in adverse tax consequences or in additional fees being assessed; (4) Morgan Stanley Smith Barney LLC or its affiliates (the “Firm”) reserves the right not to fund any advance request due to insufficient collateral or for any other reason except for any portion of a securities-based loan that is identified as a committed facility; (5) The Firm reserves the right to increase your collateral maintenance requirements at any time without notice; and (6) The Firm reserves the right to call your securities-based loan at any time and for any reason.

Asset allocation does not assure a profit or protect against loss in declining financial markets.

3 The Wall Street Journal, “Home Equity Lines and HELOCS – Getting a Good Deal” December 17, 2008

4The Wall Street Journal, “Putting Stocks in Hock: Securities Are Backing for More Big Loans” March 4, 2013.

Morgan Stanley Smith Barney LLC is a registered Broker/Dealer, not a bank. Where appropriate, Morgan Stanley Smith Barney LLC has entered into arrangements with banks and other third parties to assist in offering certain banking related products and services. Banking and credit products and services are provided by Morgan Stanley Private Bank, National Association or Morgan Stanley Bank, N.A., members FDIC (the “Banks”). The Banks and Morgan Stanley Smith Barney LLC are affiliates. Investment products and services are offered through Morgan Stanley Smith Barney LLC, member SIPC. Unless specifically disclosed in writing, investments and services offered through Morgan Stanley Smith Barney LLC are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, the Banks and involve investment risks, including possible loss of principal amount invested.

Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor.

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Morgan Stanley Financial Advisor(s) engaged Silicon Valley Latino to feature this article.

Angel Chavez, CIMA® may only transact business in states where he is registered or excluded or exempted from registration www.morganstanleyfa.com/elcaminogroup/ Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Angel Chavez, CIMA® is not registered or excluded or exempt from registration.

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

CRC 648831 4/2013

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Omar Aguilar on Role Models

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Meeting Special Needs With Trusts

Trust, but verify. You can actually do both simultaneously to help meet the future financial needs of your special needs dependent.

How? By setting up a special needs trust. Properly structured and funded, a special needs trust can help assure financial security and stability for a dependent who may not be able to manage his or her own affairs effectively. It can also help ensure efficient use of resources for serving that person’s needs in the future.

Many people are familiar with the uses of trusts in estate planning. They are common vehicles for tax management, meeting philanthropic objectives and maintaining the long-term integrity of property holdings and investment portfolios. Trusts can serve many of these same objectives when you draw up a financial plan for a family member with special needs. But they can do much more.

Special Needs Trusts Have a Prime Directive

special needsThe overarching concept that distinguishes most special needs trusts from other trust applications is that they are intended to provide financial support that is, above all, “supplementary.” That is, in order to protect the trust beneficiary’s access to important resources such as Medicaid, a special needs trust must be structured to provide only supplemental and extra care to that beneficiary. This means that special needs trust proceeds should be used only for things that programs such as Medicaid would not ordinarily provide to a person with special needs. For example, a special needs trust could finance many educational and cultural undertakings that enrich the life of the beneficiary but do not provide essential lifeline support. A special needs trust could also finance advanced adaptive equipment and property modifications that might go well beyond baseline standards of accessibility, and it could finance a broad range of recreational activities.

Keep in mind that a typical special needs trust also has to be managed so that it funds only permissible benefits for the designated beneficiary, that it does so directly and that it does not give the beneficiary any direct access to or control over cash payments. Otherwise, the trust proceeds and its assets could be counted as resources for determining benefit eligibility.

The trustee must be someone other than the beneficiary. He or she must consistently act to ensure that correct protocols are observed and that only compliant expenses are funded from the trust. Meeting these requirements calls for carefully drawn trust language and an especially attentive trustee.

The legal principles underlying special needs trusts are spelled out in seasoned statutes that have changed little over the decades. But standards of care and administrative policies affecting individuals with special needs are more fluid, and in some cases, can change frequently. People charged with overseeing special needs trusts should be well versed in the legal fundamentals and well informed about current trends and developments. After all, the consequences of administrative transgressions are most likely to be borne by the special needs beneficiary himself or herself—publicly financed benefits can be curtailed or eliminated and trust assets can be redirected away from their originally intended purposes if the trust were to make impermissible disbursements.

The Basics of Special Needs Trusts at a Glance

Primary strategic objectives of special needs trusts include:

  • Assuring that adequate financial resources will be available for the beneficiary’s special needs.
  • Conserving the beneficiary’s assets in an efficient manner.
  • Protecting assets intended for meeting special needs from potential misapplication or misuse.
  • Establishing enforceable preferences for the ultimate disposition of any assets that remain after the trust is no longer needed.
  • Complying with applicable rules and regulations for special needs assistance programs.

Important funding sources for special needs trusts include:

  • Securities and income-producing assets you own.
  • Assets or property belonging to the individual with special needs.
  • Life insurance and annuities.
  • Cash bequests or gifts.
  • Child support payments.
  • Proceeds from legal settlements.

Principal Types of Special Needs Trusts

While trust law may be complex and some of its terminology arcane, the most common forms of special needs trusts can be assigned to one of two general categories: self-funded trusts and third-party trusts. The type of trust you use should generally be governed by the sources of trust funding and your ultimate objectives for the trust. Keep in mind that each type of trust may have different implications for control, inheritance, Medicaid eligibility and other important factors. Also note that there are niche trust types for certain applications that fall outside these primary categories.

An Overview of Self-Funded Trusts

The term “self-funded” is used when the source of the funding is the special needs person himself or herself. Actual financing for these trusts typically comes from gifts, insurance proceeds and tort settlements credited directly to the beneficiary.

However, since individuals cannot generally create trusts for which they are the primary beneficiaries, the actual creator of a self-funded special needs trust is a third party who has explicit legal authorization to act on behalf of the beneficiary—generally, a parent, grandparent, guardian or other court-authorized agent.

Self-funded special needs trusts can be set up so that they are generally not counted immediately as resources for benefit determination. Assets in these trusts may remain excluded from future benefit determinations as long as the trust continues to meet the standards for providing only supplemental and extra care and the special needs beneficiary is the sole beneficiary of the trust. But when the beneficiary of a self-settled trust has received publicly funded support from programs such as Medicaid, the funding agency generally has the right to reclaim funds it paid out from trust assets when the beneficiary dies. Only after all such claims are satisfied could any remaining trust assets generally pass into the beneficiary’s estate.

An Overview of Third-Party Trusts

The key feature of third-party trusts is that they are financed by assets that do not belong to the beneficiary and the beneficiary has no control over either asset management or trust disbursement. Assets within properly constructed third-party special needs trusts play no role in benefit determination and cannot be reclaimed for Medicaid or Supplemental Security Income (SSI) reimbursement. However, the special needs beneficiary must still be the sole trust beneficiary and disbursements from the trust must still meet the supplemental needs tests. Otherwise, the trust’s payments will be considered as resources, potentially leading to benefit exclusion.

Third-party trusts can typically be terminated when predetermined conditions are satisfied. Remaining assets could be distributed at that time according to whatever termination plan was specified in the trust documents. For example, assets remaining when the special needs beneficiary no longer requires trust support can be distributed to siblings, charities or other trusts as designated in the trust creation documents. Keep in mind that the tax consequences of various third-party special needs trust scenarios for you, your estate and your heirs are complex. They call for careful planning and expert guidance.

Niche Trust Applications

 The trust arrangements outlined so far are those used by and for individuals and families. They are typically used to finance the general spectrum of special needs. You may also wish to consider trusts designed solely for extended care and those which may benefit a designated philanthropy in addition to your intended special needs beneficiary.

The trust created to finance extended care is commonly known as a “Miller” trust, named for the court case that established the trust’s ground rules. The Miller trust is intended to finance the difference between Medicaid-financed long-term nursing home care and any desired level of more specialized care. It is used in those states that impose income limits on Medicaid long-term care eligibility. Assets in the trust are not counted in the eligibility calculation, and disbursements are allowed to enhance the care opportunities. However, as with the self-settled trusts discussed earlier, assets in Miller trusts are subject to claims for eventual reimbursement to Medicaid when the beneficiary dies.

The special needs trust format that can also benefit a designated philanthropy is known as a Nonprofit Pooled Income Special Needs Trust. In these arrangements, any assets that might remain after benefits are paid and Medicaid reimbursement requests are satisfied would pass to the sponsoring agency.

As you can see, trusts can address many special needs financing and legacy needs, but they must be constructed and operated according to strict rules. Let me help you identify the trust opportunities most suited to your needs and resources.

If you’d like to learn more, please contact Angel Chavez, CIMA®, 415-984-6008. 

Morgan Stanley Smith Barney LLC, its affiliates and Financial Advisors do not provide tax or legal advice.   This material was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer.  Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor.

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MSSB.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Morgan Stanley Financial Advisor(s) engaged SVLatino to feature this article.

Angel Chavez may only transact business in states where he is registered or excluded or exempted from registration http://www.morganstanleyfa.com/elcaminogroup/ Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Angel Chavez, CIMA® is not registered or excluded or exempt from registration.

Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC.                                                           

CRC 647991 [04/13]

Silicon Valley Latino Corporate Leaders Series Presents

An ongoing series spotlighting Latino leaders from Corporate America.

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Choosing the Right Financial Advisor Can Make or Break Your Retirement Goals

While many investors may not realize it, choosing the right financial advisor could quite possibly be the most important decision you ever make. Yet, there are some who will spend more time planning and researching a yearly vacation or automobile purchase than in analyzing the person who will be the driver of their retirement savings plan.

Some compare the process of picking a financial professional with that of hiring a key employee for a business – because the individual that is chosen will essentially be tasked with the responsibility of ensuring that assets continue to grow and that losses are minimized.

The advisor that you ultimately choose will play a big role in how – or if – your financial goals are achieved so that you can live the retirement lifestyle that you’ve dreamed of. With this in mind, there are several criteria that you should consider before turning your nest egg over.

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Determine Your Goals

Although most people dream of enjoying a relaxing retirement, doing so requires that you first determine specific goals that you would like to achieve. This includes having a good idea of what your future expenses will be, where you would like to live, and what activities you intend to participate in such as travel or hobbies. In coming up with an approximate expense figure, you can then “back in” to how much you will need in savings at a particular time in the future.

Seek Out Compatible Professionals

Once you have an idea of your investment goals, you should start researching financial professionals that may best fit with your specific financial needs, as well as with your risk tolerance and style.

Remember, you are choosing your advisor for a long-term relationship and with the intent of achieving very specific goals. Therefore, simply looking through ads or moving money to your best friend’s cousin won’t do.

Interview the Candidates

Once you have determined your short list of potential candidates, you should interview each one in order to determine whether or not they would be a good fit. While doing so over the phone can help you to get answers, oftentimes making a personal visit to the advisor’s office will give you a better feel as to how he or she runs their business.

Some important questions that should be asked of the advisor should include:

  • What is your background and experience in financial services? When inquiring about the advisor’s experience, you should ask him or her about the licenses that they hold, as well as any other qualifications such as industry designations. This will help you in sorting out the advisors who just view their position as a “job” and those who are career professionals.

 

  • What is your track record with other clients? There are several ways that a financial advisor’s track record can be evaluated. Certainly, a key component is how other clients’ portfolios have performed in relation to their goals. Another is whether or not the advisor has been involved in certain unethical or unlawful actions. In this instance, you can obtain information on any disciplinary actions from the U.S. Securities and Exchange Commission’s website if the advisor is registered with this entity.

 

  • How are you compensated? Knowing how an advisor gets paid is also an important factor. This is because there are several different types of compensation structures that are used in the financial industry. For example, advisors may be paid a flat fee for their services, they may be paid a commission based on the products that they sell to their clients, or their pay may constitute a combination of both.

 

  • Can we put it in writing? Once you have chosen an advisor to work with, the next step should be to get a written agreement that will outline the services they will provide you, as well as with the ways in which compensation will be paid for such services. Information in this document should also include details regarding the advisor’s investment strategies and certain benchmarks for the performance of your portfolio.

Stay Involved in All Decisions

Although you may find the perfect advisor and trust their judgment, it is imperative that you stay involved in all of the decisions regarding your portfolio. While your advisor will ultimately be the one transacting the purchase and sale of financial products, it is up to you to ensure that your advisor is working in your best interests.

*****

Adri1 Adriana Hammond is a Financial Advisor with CONCERT Wealth Management in San Jose, California where she specializes in working with Canadian and Latin immigrants. She advises on issues of immigration as they relate to taxes, inheritances and retirement. As a Colombo-Canadian, she possesses a unique understanding of the international markets and is fluent in both written and spoken Spanish.

CONCERT Wealth Management can be found at www.ConcertGlobal.com and Adriana.Hammond@ConcertGlobal.com

Key Tax Changes for 2013

In another down-to-the-wire scenario, Congress moved on New Year’s Day to avoid the tax side of the fiscal cliff by passing legislation that extended many of the Bush-era tax cuts. But the new law raised taxes for high earners, posing new planning considerations. 

The eleventh-hour extension of many of the Bush-era tax rates narrowly skirted an across-the-board increase in most federal tax rates. But the new rules differ in a number of ways from the old—particularly for those in the top tax bracket. Here are some of the important tax alterations you’ll want to be aware of as you plan for 2013:

  • Higher marginal tax rates: Legislation that resolved the fiscal cliff created the first upward tax-bracket revisions in decades. With the top marginal income tax rate now 39.6%, tax management strategies that once had limited cost-benefit may now be more attractive. For example, if you are relying on cash flow from a fixed-income portfolio in a taxable account, you may find that municipal bonds might offer better net cash flows now than they might have last year, even if their gross yields might be lower.
  • Capital gains and equity dividend taxes: The favorable tax rates on long-term capital gains and qualified equity dividends are now effectively graduated for many taxpayers. That means you may have to do a complex calculation to estimate the tax rate you might be liable for on your income from these sources.As a general rule, long-term capital gains and qualified dividend tax rates for those in the 10% and 15% income tax brackets are zero. For those in the 25% to 35% brackets, the rate is 15%. And for taxpayers in the top bracket (39.6%), it’s 20%.    Here’s where it becomes interesting: You may be subject to a higher rate on long-term gains and dividends than your ordinary marginal tax bracket might imply. That’s because your capital gains and dividend income tax bracket will be assigned according to what your ordinary tax bracket would have been if the capital gains and dividend income were tallied as ordinary income instead.                                                                                                                For example, assume that your employment earnings put you in the 33% tax bracket and you also have significant income from qualified long-term capital gains and qualified dividends. To estimate your dividend and capital gains tax liabilities this year, you’ll need to add your investment income total to your ordinary income total. You could then see what tax bracket the combined tally would put you in, and by how much. In this case, the portion of investment income that brings you up to the 39.6% threshold would still be taxed at 15%, but any portion of capital gains and dividend income beyond that would be taxed at the higher 20% rate. You could pay the top rate on favored investment income even though your ordinary income tax bracket would still be 33% for wages, salaries, interest income and the like. Keep in mind that the new 3.8% Medicare tax on investment income (more below on this) applies to qualified dividends and capital gains, effectively increasing the net tax rate even further for some taxpayers.
  • Medicare tax on unearned income: This tax is new for 2013 even though strictly speaking it was not part of the fiscal cliff legislation, but rather, mandated by the Affordable Care Act. The actual tax is assessed only on “unearned” income— typically interest, dividends, royalties, annuities, rents and other passive activity income, capital gains on investments and trading of financial instruments and commodities. The trigger for this tax is your modified adjusted gross income (MAGI): $200,000 for single taxpayers, $250,000 for those married filing jointly. Any strategy that effectively defers or reduces your reportable income can help you manage the impact of this tax in 2013.
  • Estate, gift and generation-skipping taxes: The taxes on inherited wealth and major gifts are higher now than they have been in recent years. But they are lower than they would have been if there had been no new action by Congress. What is more, for the first time in a decade, there may be a sense of statutory stability. As the law now stands, estate and gift taxes will remain as they are, without sunset or expiration provisions. The maximum exclusion amount ($5.25 million in 2013) will be indexed for inflation in the future if needed, but there are no scheduled changes in tax rates or other assessment policies. One new feature stands out: A taxpayer’s unused estate/gift exclusion allowance can be passed on to a surviving spouse and added to his or her own personal exclusion amount. Keep in mind that this transfer of a future tax benefit can be made only to a spouse who is a US citizen.
  • Alternative minimum tax: Like the estate tax, the alternative minimum tax (AMT) gained a new measure of predictability from the fiscal cliff law. Inflation adjustments have become a permanent part of the basic AMT calculation. That means that for income earned in 2012 and reported on tax returns filed this year, the basic exemption amount is $50,600 for individuals and $78,750 for couples. For income earned during 2013, the exemption amounts are $51,900 for singles and $80,800 for couples.

This is only a general summary of highlights from the new laws. It is not tax advice. Before you take any tax management steps you should consult your tax advisor. Also, please keep in mind that in federal tax discussions, tax benefits for spouses are available only to those couples whose marriages can be recognized by federal law.

That said, please feel free to contact me with any investment-related tax questions you might have. I would be pleased to help you assess the impact of tax changes on your investment and financial accounts.

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Sources: Tax information was compiled from Internal Revenue Service Revenue Procedure 2013-15, IRS news release IR-2013-4 (Annual Inflation Adjustments for 2013,  January 11, 2013), Internal Revenue Bulletin No. 2013-2 (January 7, 2013), and IRS news release IR-2012-78 (In 2013, Various Tax Benefits Increase Due to Inflation Adjustments, October 18, 2012).

If you’d like to learn more, please contact Angel Chavez, CIMA®, 415-984-6008, angel.chavez@morganstanley.com.

Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor.

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under 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 regarding any potential tax and related consequences of any investments made under such account, their tax advisors for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

Interest in municipal bonds is generally exempt from federal income tax.  However, some bonds may be subject to the alternative minimum tax (AMT).  Typically, state tax-exemption applies if securities are issued within one’s state of residence and, local tax-exemption typically applies if securities are issued within one’s city of residence.

Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk.  In general, as prevailing interest rates rise, fixed income securities prices will fall; additionally, the longer a bond’s maturity (duration), the more sensitive it is to this risk.  Bonds face credit risk if a decline in an issuer’s credit rating, or creditworthiness, causes a bond’s price to decline.  Finally, bonds can be subject to prepayment risk. When interest rates fall, an issuer may choose to borrow money at a lower interest rate, while paying off its previously issued bonds. As a consequence, underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest rates are lower than when the initial investment was made.  NOTE: High yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues. 

Morgan Stanley Financial Advisor(s) engaged Silicon Valley Latino to feature this article.

Angel Chavez, CIMA® may only transact business in states where he is registered or excluded or exempted from registration www.morganstanleyfa.com/elcaminogroup/. Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Angel Chavez, CIMA® is not registered or excluded or exempt from registration.

Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC.

CRC 619858 [03/13]

 

All About Indexes

Whether you are using market indexes as benchmarks to track the potential performance and risk of a given investment or you are engaged in index investing, indexes have something to offer every investor.

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Thoughtful investors can gain significant insight on the market’s behavior by studying index values and understanding what the numerical changes in indexes might represent. To help give you the context for judging index performance, it helps to first know what goes into the numbers reported by common market indicators.

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What Is an Index, Really?

An index is a select group of investments whose collective performance can be taken to represent a market as a whole, or at least a clearly defined subset of that market. While some indexes may be recalculated once a day or less, indexes representing large, liquid and active markets (such as the US stock market) are typically recalculated continuously during trading periods to reflect up-to-the-moment pricing data and to indicate the direction and magnitude of the market’s price sentiments.

Of course, major US equity indexes are not simply the sums of the individual prices for the investments they represent. Rather, indexes such as the S&P 500 and Dow Jones Industrial Average are statistical models of the universes they were created to mirror. They take the latest prices and adjust them to better reflect long-term changes in financial markets, the constituent companies and the economy.

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The numerical values of common indexes do not directly convey either the actual daily prices or percentage changes of their constituents, and when viewed as isolated points of data, major indexes typically provide little or no actionable significance. Rather, index values are intended to be viewed in a series so they can provide time lines that can chart relative performance from a consistent foundation. An index value today can be compared with its value days, years or even decades in the past to give a meaningful estimate of how the market might have changed over that time.
The components for each index are chosen according to the stated rules and policies of that index. Moreover, each index’s value is calculated using its own proprietary formula. As a result, even though two or more indexes may include the same company in their statistics, any particular market price change for that company is likely to have different effects on each index.

Distinguishing Among Different Indexes

The most commonly cited stock indexes in the United States—benchmarks such as the S&P 500, the Dow, the Morgan Stanley Capital International’s EAFE and Russell Investment’s Russell 2000—are actually parts of large index families. Some indexes in those families focus on specific areas of the market, such as large, midsized or small companies. Others specialize in sectors or investing styles such as growth and value. Each index has its own unique philosophy and methodology you should consider. Here are overviews of some of the key factors you can use to compare them:

• Coverage Criteria Some indexes use rigid statistical rules to select their constituents. For example, Russell Investment Group ranks substantially all publically traded stocks by their total market value, and then assigns each company on that list to an index based solely on its position on that list. Others use more fluid processes. For example, Standard & Poor’s analyzes and weights the relative importance of each business sector in the economy. It then selects cross-sections of companies from each sector to create stratified samples that mirror the market.
• Diversified or Focused? Among the most commonly quoted market benchmarks, the S&P 500 and Russell 1000 can be considered diversified, while the Dow Jones Industrial Average is not. Rather, it is composed of 30 of the largest and most venerable companies in the US economy. What the Dow might lack in market breadth, it could make up in depth—it has been calculated continuously since 1896, allowing direct performance benchmarking that stretches for more than a century.
• Sector Segmentation Many providers of diversified indexes segment their primary indexes into sector subsets. However, the definitions of sector vary, with different classification schemes in use. The Global Industry Classification Standard (GICS) was developed jointly by Morgan Stanley Capital International and Standard & Poor’s and forms the basis for each of these firms’ index sector distinctions. GICS is composed of 10 sectors, each of which includes one or more industry groups drawn from the GICS list of 24 such groups. The North American Industrial Classification System (NAICS) and its ancestors such as the Standard Industrial Classification (SIC) system are widely used by economists, the Securities and Exchange Commission and some other index providers. This system defines more than 400 individual industries in the economy, each of which can be grouped into one of 24 different sectors. An investor looking to use indexes for a sector rotation strategy should consider the classification systems used by the indexes.
• Market Capitalization and Float In the context of indexes, there are no universally applicable definitions for large-cap, midcap or small-cap. A company that is listed as small in one provider’s universe may be considered medium or large in another’s. That’s because some index providers view only market value when making their groupings, while others may adjust their categorizations to reflect variances in company age or maturity, business factors and growth rates. Float is another factor that leads to variation. Some index providers consider all shares equally when assessing the size of a company. Others consider only the value of shares that can be publically traded, a statistic known as the free float. For example, a company with a large number of shares held by insiders who are bound by trading restrictions will have a much smaller free float than a similar-sized company with no stock subject to trading restrictions.
• Weighting is the practice of adjusting each constituent’s contribution to the index to reflect its relative size in the index. Weighting is most typically based on price per share or total company size. In price weighting, a stock whose share price is $20 will have twice the influence on the index as a stock whose share price is $10. In capitalization weighting, a constituent whose total market value is twice as great as another’s would have twice the influence on the index. The DJIA, for example, uses price-weighting factors in its calculations, while the S&P 500 uses capitalization-weighting factors.
• Company Domicile Major stock indexes in the United States all reflect pricing action on US stock exchanges. But some indexes (such as the S&P 500) include companies based outside the United States who list their shares here, while others (such as the Dow and Russell) limit their constituent universes to US-domiciled firms.
• Index Turnover Some firms follow fixed schedules for reevaluating their constituent lists and making changes to those lists. Russell, for example, undertakes this kind of index revision once each year, at the end of June. Others respond more fluidly. Standard & Poor’s analysts continually monitor their index constituents and make changes to their indexes as conditions warrant, sometimes as often as daily or weekly.
• Investability and Tracking Error While it may be impossible to invest directly in any index, asset managers can create portfolios that are intended to replicate index performance. Along the same lines, index architects can design benchmarks that simplify the process of replication for portfolio managers. One important tool for measuring how well a portfolio tracks an index is tracking error. In its simplest statistical form, tracking error is the arithmetic difference between portfolio returns and benchmark returns; the smaller the difference, the closer the manager is to the benchmark.
A Brief Guide to Major Investment Benchmarks Around the World

Here are many of the investment world’s most prominent and widely followed benchmarks (and keep in mind that this listing is only a sampling; index compilers typically create broad families of benchmarks based on their overall indexing philosophies and practices):

• Standard & Poor’s Composite Index of 500 Stocks (S&P 500® Index): The S&P 500 is a broad-based index of the average performance of 500 widely held US stocks. Many people believe that the S&P 500 includes the 500 largest stocks on the New York Stock Exchange. Not true: Rather, it includes the stocks of companies that are or have been leaders in their respective industries and that are listed on the New York Stock Exchange and the Nasdaq system.
• Dow Jones Industrial Average (DJIA): Following the returns of 30 well-established, blue-chip US companies, the DJIA is among the most renowned of the stock market indexes. However, the S&P 500 can be considered a more diversified indicator of the stock market.
• Nasdaq Composite: This index was created in 1971 and tracks all domestic and non-US-based common stocks listed on the National Association of Securities Dealers Automatic Quotation System (Nasdaq) market. The index is composed of more than 4,800 stocks that are traded via this system. Traditionally, the Nasdaq composite has been considered representative of technology stocks; however, today it is composed of an ever-broadening variety of issues.
• MSCI EAFE® Index: Morgan Stanley Capital International’s Europe, Australasia, Far East (EAFE) Index is the most prominent of the indexes that track international stock markets. It is a subset of MSCI’s All Country World Index of investable markets, which reflects the performance of more than 9,000 securities across all capitalization, sector and style segments in 45 developed and emerging markets.
• Russell 1000® Index: The Russell 1000 Index measures the performance of the largest publically traded companies in the US equity market. It is composed of the 1,000 largest firms as determined by Russell Investment’s annual ranking by market capitalization.
• Russell 2000® Index: The Russell 2000 Index measures the performance of the small-cap segment of the US equity market. It includes the 2,000 companies ranked below the Russell 1000 in Russell Investment’s annual market-capitalization ranking.
• FTSE 100 Index: This index is part of the FTSE UK Series and is designed to measure the performance of the 100 largest companies traded on the London Stock Exchange that pass screening for size and liquidity.
• Nikkei 225 Index: This index is composed of the 225 largest stocks on the Tokyo Stock Exchange.
• Barclays Capital U.S. Aggregate Bond Index: Covering the principal investment-grade sectors of the US bond market (such as corporate, government and mortgage-backed), this benchmark is among the most broadly diversified indexes of bond market total returns.
• 10-Year U.S. Treasury Bond: The yield on this long-term US government bond is often looked to as the foundation bond yield for analyzing the performance potential of other long-term bond investments. The yield is not an index but a statistic derived from the reported prices for bond trades.
• iMoneyNet Money Fund Averages™: These benchmarks track the averages of taxable and tax-free money market fund yields on a 7- and 30-day basis. They are not indexes but averages of reported yields as calculated by the publisher (iMoneyNet).
Investment indexes are complex devices that can be invaluable tools when used properly, or hazardous when used inappropriately. And while you cannot invest directly in any index, you can find investments that mirror the performance of a specified index. Many investors find these investments ideal for certain purposes. I can help you get a better understanding of indexes and also find suitable index-based investments as appropriate to your particular needs. Please feel free to contact me with any questions.

If you’d like to learn more, please contact Angel Chavez, CIMA®, 415-984-6008.

Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor. Standard & Poor’s Financial Services LLC (“S&P”), which maintains the S&P500 index, is a subsidiary of The McGraw-Hill Companies.

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Morgan Stanley Financial Advisor(s) engaged Silicon Valley Latino to feature this article.

Angel Chavez, CIMA® may only transact business in states where he is registered or excluded or exempted from registration www.morganstanleyfa.com/elcaminogroup/ Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Angel Chavez, CIMA® is not registered or excluded or exempt from registration.

Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC.

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It’s 2013. Do You Know Where All Your Retirement Savings Are?

The case for consolidating your retirement accounts only grows more compelling over time.

A Traditional IRA here, a rollover IRA there, four job changes (so far!) and three retirement plan account balances left in the plans of former employers…

If this describes your situation, you are not alone.  Over the years, people accumulate a significant sum in retirement savings, often spread across various accounts.  As accounts multiply and companies change ownership, it can become difficult to keep track of exactly how much you have saved toward retirement and how those funds are invested. You may also find it challenging to determine your distribution requirements on various accounts once you turn 70 ½.

Consolidating accounts can help you make sure your savings are invested appropriately for your overall goals, track the performance of your holdings and, in many cases, discover more investment choices and incur lower fees.

With retirement savings in just a few accounts, it becomes far simpler to execute your strategy and to measure your progress.

 

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Why Consolidate?Streamlining the account structure of your retirement savings has many potential benefits.

 

 

 

Comprehensive investment strategy. Over time, your investment objectives and risk tolerance may have changed. Thus, it can be difficult to maintain an effective retirement investment strategy—one that accurately reflects your current goals, timing and risk tolerance—when your savings are spread over multiple accounts. Once you begin the consolidation process, you can strategize investments to match your current goals and objectives.

Greater investment flexibility: Often, 401(k) plans, other employer-sponsored retirement programs and even many IRAs have limited investment menus. A Morgan Stanley self-directed IRA can offer you the ability to choose from a wide range of investments including stocks, bonds, mutual funds, managed accounts and more.

Simplified tracking: It is easier to monitor your progress and investment results when all your retirement savings are in one place.

Less paper: By consolidating your accounts, you will receive one statement instead of several. That simplifies your life while protecting the environment.

Lower costs: Reducing the number of accounts may result in fewer account fees and other investment charges.

Clear required minimum distributions (RMDs): Once you reach age 70½, having fewer retirement accounts to manage can mean having fewer RMD requirements to follow.

Comprehensive knowledge of your assets. If your employer-sponsored retirement plan is terminated or abandoned (an “orphan plan”) or is merged with or transferred to a retirement plan of another corporation after you leave, it may be difficult to locate the plan administrator to request a distribution of your benefits or to change investments. By contrast, assets in an IRA are

always accessible if you want to change your investment strategy or need to take a distribution.

 

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Consolidate Your Retirement Savings and Qualify for a Lifetime Fee Waiver

With the Free Forever IRASM  you can transfer, roll over or add $100,000 or more to an IRA at Morgan Stanley during 2013 and we will waive your annual maintenance fee for the life of the account.¹

What Can Be Consolidated?  Listed below are types of retirement accounts eligible for consolidation.

  • IRAs held at financial institutions (banks, credit unions, mutual fund companies, etc.).
    • Retirement plan assets held at former employers including:

–   401(k) plans

–   profit-sharing plans

–   money purchase plans

–   defined benefit plans

–   Keogh plans

–   ESOPs

–   government 457(b) plans

–   403(b) plans

How it works.There are several ways to combine retirement assets into a single account.

  • IRA-to-IRA transfers: Ask the IRA custodian where you will be establishing your account to help you complete their IRA transfer paperwork. Once you’ve set up your IRA, the custodian will do the rest, including contacting your previous IRA custodian(s) to get your assets moved over. There’s no limit on the number of IRA-to-IRA transfers that you can complete in any given year. (However, please note that a Roth IRA can be consolidated only with another Roth IRA.)

 

Knowing how rollovers work can help you make a decision about whether or not to consolidate.

  • IRA-to-IRA rollovers: You can ask your current IRA custodian to send you a check for the amount held in your IRA. You will then have 60 days to deposit the funds into another IRA without incurring any current tax liability. Note that your former IRA custodian will report the amount as a distribution on IRS Tax Form 1099-R; your new IRA custodian will report the rollover contribution on IRS Tax Form 5498. If you miss the 60-day time period, taxes and penalties may apply. IRA-to- IRA rollovers are restricted to one every 365 days per IRA.
  • Direct rollover from qualified plan to an IRA: Ask your previous employer(s) about the paperwork needed to complete a direct rollover of your qualified retirement plan assets to your IRA. The assets will be transferred once you complete the paperwork. Note that your former employer’s plan will report the amount as a distribution on IRS Tax Form 1099-R; the IRA custodian will report the rollover contribution on IRS Tax Form 5498.  There are special rules involved in transferring a “pre-tax” retirement plan balance to a Roth IRA—talk with your tax advisor about the impact this may have on you.
  • Indirect rollover from qualified plan to an IRA: Like the IRA-to-IRA rollover, you can ask your previous employer(s) to send you a check for your vested plan balance and then redeposit those funds into an IRA or other qualified retirement plan within 60 days. However, the plan trustee will be required to withhold 20% of the taxable portion of the distribution as mandatory federal withholding. You will need to make up that 20% when you redeposit the funds into an IRA or the amount withheld will be subject to taxes and possibly penalties if you are under age 59½.

Speak with your tax advisor about these and other rules that may apply when consolidating retirement plan assets.

When You Might Not Want to Consolidate.  Notwithstanding the many benefits to consolidating your retirement accounts, there are some caveats to keep in mind. For example, while many qualified plans allow for loans, you cannot take a loan from an IRA. Thus, once you roll over a qualified plan into an IRA, the ability to take a loan is no longer available.  However, once you leave the company you may not be able to take a loan out anyway, since few qualified plans allow loans to be taken out by former employees.

Another consideration is RMDs. Upon reaching age 70½, owners of a Traditional IRA must begin taking required minimum distributions or face stiff IRS penalties. If the plan permits, qualified plan participants can delay taking required minimum distributions after attaining age 70 ½ if they are still working.

A final consideration may be employer stock. Employer (and former) employer stock held in a qualified retirement plan may be eligible for special tax treatment on distributions (known as “net unrealized appreciation” or “NUA”) that you lose if you roll over the stock to an IRA.  Check with your plan administrator and your tax advisor on whether or not the NUA rules may apply to you.

Generally speaking, simplifying your retirement account structure can help you take control of your financial future.  Your tax and financial advisors will be able to assist you in determining if consolidation makes sense given your specific circumstances and goals.

Don’t wait.  Your actions now can greatly affect your quality of life in retirement, whether it is years away or just around the corner.

 

¹Free Forever IRA program requirements:  The following IRA account types are eligible:  Traditional, Roth, Rollover, SEP, SIMPLE and SAR-SEP; the $100,000 addition to the IRA can be a combination of any of the following:  IRA contribution, rollover from another non-MS or qualified retirement plan, e.g., 401(k) or a transfer from another non-MS IRA; the fee waiver offer is limited to one lifetime annual account maintenance fee waiver per Social Security Number listed on the account documentation; other product fees and charges (e.g., commissions) continue to apply; assets must remain in the account for one year from the date of  deposit to qualify for the Free Forever IRA maintenance fee waiver; redeposit of a client’s prior IRA distribution does not qualify. The fee waiver will occur at the anniversary billing date following funding.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under 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 regarding any potential tax and related consequences of any investments made under such account.

 

If you’d like to learn more, please contact Angel Chavez, 415-984-6008. Angel.chavez@morganstanley.com
Article by Morgan Stanley Smith Barney LLC. Courtesy of your Morgan Stanley Financial Advisor.

 

Morgan Stanley Financial Advisor(s) engaged Silicon Valley Latino to feature this article.

 

Angel Chavez may only transact business in states where he is registered or excluded or exempted from registration www.morganstanleyfa.com/elcaminogroup/ Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Angel Chavez is not registered or excluded or exempt from registration.

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

CRC 599636  12/12

Finding Yield in a Low-Rate Environment With Dividend-Paying Stocks

Where do you go to find yield in today’s low-rate environment? Think dividends. A growing number of companies pay dividends and offer attractive yields.

 

For today’s income-oriented investor, it’s been a frustrating time. Yields on US Treasury bonds, as well as investment-grade municipal and corporate bonds have hovered near historical lows. Even longer-term issues remain in the doldrums; rates on 30-year Treasuries have not topped 4% since October 20081

 

But for investors seeking income, there is an alternative: dividend-paying stocks. There are now 395 companies in the S&P 500 that pay dividends, and the average yield on these stocks has been rising since 2000. As of December 31, 2011, the average yield of a dividend-paying stock in the S&P 500 was 2.4%, compared with 1.9% for 10-year US Treasuries.1

 

But there’s more to dividend-paying stocks than yield. The long-term benefits of dividends are significant:

 

•           Dividends are a key driver of total return. There are several factors that may contribute to the superior total return of dividend-paying stocks over the long term. One of them is dividend reinvestment. The longer the period in which dividends are reinvested, the greater the spread between price return and dividend reinvested total return.

 

•           Dividends help boost returns in down markets. Since 1926, dividends have accounted for over a third of the returns of the S&P 500. In down years, when price return is negative, dividends help offset the drop. Since 1926, dividends have provided an average return of 4.5% in all 12-month periods where the index declined, which helped offset the average price decline of 18.6%.1

 

•           Dividend-paying stocks offer potentially stronger returns and lower volatility.  Dividend-paying stocks have outperformed the broader market over time. Stocks with a history of increasing their dividend each year have produced higher returns with lower risk than non-dividend-paying stocks. For instance, since 1990, the S&P 500 Dividend Aristocrats–those stocks within the S&P 500 that have increased their dividends each year for the past 25 years–produced annualized returns of 11.04% versus 8.23% for the S&P 500 overall, with less volatility, as measured by standard deviation (14.14% versus 15.22%, respectively).2

 

 

•           Dividends benefit from continued favorable tax treatment. The extension of the Bush-era tax cuts helps to reinforce the current case for dividend stocks. The tax bill passed in late 2010 extended the 15% tax on qualifying dividends and other forms of investment income through December 31, 2012. Because there are restrictions on the types of dividend income subject to the lower 15% rate, investors should consult a tax advisor to determine how tax laws apply to their situation.

 

•           Dividends are a sign of corporate financial health. Dividend payouts are often indicative of a company’s financial health and management’s confidence in future cash flow. They are usually paid by mature businesses, and communicate a positive message to investors who perceive a long-term dividend as a sign of corporate strength.

 

The Growth of Dividend-Paying Stocks, 1950-2011

Dividend-paying stocks historically have demonstrated a performance edge. As this chart shows, an investor who invested a $1,000 portfolio consisting of the dividend-paying stocks within the S&P 500 in 1950 and reinvested all the dividends would have amassed in excess of $500,000 more than an investor with a portfolio of non-dividend-paying stocks within the index.

 

Source: Standard & Poor’s. Stocks are represented by the S&P 500, an unmanaged index considered representative of the broad US stock market. For the period January 1, 1950, through December 31, 2011. Past performance is not indicative of future results. Investors cannot invest directly in any index.

 

Keep in mind that like any stock, dividend-paying stocks can lose money, and there is no guarantee that dividends will be paid in the future. But for investors seeking current income or an income-producing alternative to diversify a portfolio, dividend-paying stocks can be an attractive choice. Morgan Stanley can help you find dividend-paying stocks that suit your portfolio.

 

Equity Securities’ prices may fluctuate in response to specific situations for each company, industry, market conditions, and general economic environment.

 

Morgan Stanley, its affiliates and Morgan Stanley Financial Advisors do not provide tax advice.  Individuals are urged to consult their tax advisor regarding their own tax or financial situation before implementing any strategies.

 

 

1Sources: Standard & Poor’s; The Federal Reserve, Selected Interest Rates (Daily) – Report H.15.

2Source: Standard & Poor’s. The S&P 500 Dividend Aristocrats index measures the performance of all stocks within the S&P 500 that have increased their dividends each year for the past 25 years. Stocks are represented by the S&P 500, an unmanaged index considered representative of the broad US stock market. For the period January 1, 1950, through December 31, 2011. Past performance is not indicative of future results. Investors cannot invest directly in any index.

 

 

Notices & Prohibitions:

The Morgan Stanley Legal and Compliance Department has approved this article for use exactly as it appears. It may not be changed in any way. However, longer articles may be run in two or more parts as long as any disclaimers also appear in the respective parts. Please note that the non-solicitation clause must appear at the end of every article.

 

Finding Yield in a Low-Rate Environment With Dividend-Paying Stocks

Courtesy of: El Camino Group at Morgan Stanley, Angel Chavez, CIMA®, Financial Advisor

Branch Name: Morgan Stanley San Francisco, CA

Phone Number: 415-984-6008

Web Address: www.morganstanleyfa.com/elcaminogroup/

 

 

 

If you’d like to learn more, please contact Angel Chavez, CIMA®, 415-984-6008.

 

Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“MSSB”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MSSB.  The information and data in the article or publication has been obtained from sources outside of MSSB and MSSB makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MSSB. Neither the information provided nor any opinion expressed constitutes a solicitation by MSSB with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged to feature this article.

 

Angel V. Chavez may only transact business in states where he is registered or excluded or exempted from registration www.morganstanleyfa.com/elcaminogroup/. Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where [Name] is not registered or excluded or exempt from registration.

 

Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC.

 

CRC 498648    (05/12)