Wealth Management
3500 Winchester Rd
Suite 100
Allentown, PA 18104
Retirement
Viewpoints
August 20 14
No, I’m Not Retiring!!
INSIDE THIS ISSUE
1
No, I’m Not Retiring!!
2
Dividends Matter
3
The Return of Capital Gains
Taxes
3
Walking
4
For More Information
In the last few weeks a number of clients have asked me if I’m
retiring. The simple answer is NO! While I recently reached a milestone
age (65) and my hair is white/grey, reports of my retirement, to
paraphrase Mark Twain, are greatly exaggerated.
Simply put, I love my work. Every day I get to talk with the best
people I know, my clients, and help them achieve their goals and
dreams. I’m also continuing to learn new things every day and helping
younger advisors begin their careers as well.
Just to put retirement ages in perspective, consider the following list
of people who are still working and their ages:
Supreme Court Justices: Antonin Scalia 78
Anthony Kennedy 78
Stephen Breyer 75
Ruth Bader Ginsburg 81
Politics:
Jerry Brown (CA governor) 76
Orrin Hatch (US Senator) 80
“Every day I get to talk
with the best people I
know, my clients…”
Diane Feinstein (US Senator) 81
John McCain (US Senator) 77
Entertainment:
Clint Eastwood 84
Betty White 92
William Shatner 81
Cloris Leachman 86
Business:
Warren Buffett (Berkshire Hathaway) 83
Charles Munger (Berkshire Hathaway) 90
Compared to them, I’m just a youngster!!
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Retirement Viewpoints
Dividends Matter
Last September, S&P Dow Jones Indices published an article by
Aye M. Soe, Director of Index Research & Design, “Dividend Investing and
A Look Inside the S&P 500 Dow Jones Dividend Indices.”
“Stock dividends don’t
rise and fall with the
whims of the
marketplace and the
activities of traders..”
There were several major points made in the article. Key among
them is, “Dividend yield is an important component of total return. This
is particularly true in light of the financial crisis in 2008, continuing
volatility in the equity markets and the current low interest rates.”
According to Soe, dividends make up about a third of total return
form equity investing. “From December 1926 to December 2012, dividend
income constituted 34% of the monthly total return of the S&P 500.” He
went on to say that many academic studies show that dividend payers
tend to outperform non dividend payers across market cycles.
Soe further reports that while stock prices are volatile in both
directions (up and down) “dividends are by definition positive.” Stock
dividends don’t rise and fall with the whims of the marketplace and the
activities of traders and speculators. As such they show very little
fluctuation.
The report highlights three types of dividend index benchmarks
from S&P. these are the Dividend Aristocrats which are designed
measure the performance of companies around the world that have
consistently raise dividends for long periods of time; the Dow Jones
Select dividend Indices, which represent a country’s highest yielding
securities; and the S&P Global Dividend Opportunities Indices which seek
to measure high yield common stocks from around the world but also
meet diversification requirements as well as meeting profitability and
tradability criteria.
As an example of the indices they supervise, the S&P 500 High
Yield Dividend Aristocrats is made of companies selected from the S&P
1500 that have consistently raise their dividends every year for at least
20 years. The index is weighted by the annual dividend yield (higher
dividend companies carry more weight than lower yield companies.
Another index that I find interesting is the S&P 500 Dividend
Aristocrats, which is made up of companies that have ( among other
criteria) raised their dividend every year for at least 25 years, are
included in the S&P 500, and have a market capitalization (float adjusted
of at least $3 billion.
An investment cannot be made directly in a market index. However, an
index can be used as a benchmark to measure how a portfolio performs.
Also, a well selected index can be a starting point for constructing a
portfolio that has particular characteristics.
Page 3
Retirement Viewpoints
The Return of Capital Gains Taxes
Capital gains taxes never really went away, but in the last few
years many investors found themselves no paying substantial long term
gains taxes for a couple of reasons. First, unfortunately, the major
declines in the equity markets in the early 2000s and then in the
financial crisis of 2008 left investors with little if any gains, and more
likely, losses. Additionally, those long term gains that were subject to
tax were taxed at rated of 15% or less.
“tax management refers
to the actions that can be
taken to offset, prevent or
delay realized gains that
occur through the normal
course of trading an
investment portfolio”.
Now, with the equity markets climbing to new highs, and with
recent changes in tax law, investors now face the possibility of paying
substantial long term gains again. To review, the profits on capital assets
such as stocks and bonds are subject to long term gains taxes if held for
more than a year. Profitable assets that are sold in less than a year are
subject to short term gains taxes which are at the same level as ordinary
income taxes. Also, recent changes in the tax law may subject higher
income investors to long term tax rates of as much as 20% plus in some
cases, an additional 3.8% Medicare surtax.
With rates this high, it pays to manage your tax burden. One
simple way to avoid paying taxes is to continue to hold as asset as long as
it continues to meet your investment objectives. Another tool is to try to
hold assets until their gains are taxed at long term rates and not the
higher short term rates. Also, you can consider offsetting gains by
realizing investment losses. The taxes you pay are only on the net gains
you realize in a tax year.
Among the services we offer at Morgan Stanley is a “tax
management overlay” on certain managed accounts. As described in our
recent white paper, “tax management refers to the actions that can be
taken to offset, prevent or delay realized gains that occur through the
normal course of trading an investment portfolio”. For more information
on how this works, please call me for a copy of our new white paper,
“Capital Gains, Taxes and Your Managed Account: They’re Back!”
Walking (an excerpt) by Henry David Thoreau
My vicinity affords many good walks: and though for so many years I have walked almost every
day, and sometimes for several days together, I have not yet exhausted them. An absolutely new
prospect is a great happiness, and I can still get this any afternoon. Two or three hours’ walking will
carry me to as strange a country as I expect to see. A single farmhouse which I had not seen before is
sometimes as good as the dominions of the King of Dahomey. There is in fact a sort of harmony
discoverable between the capabilities of the landscape within a ten miles’ radius, or the limits of an
afternoon walk, and the threescore and ten of human life…
I can easily walk ten, fifteen, twenty, any number of miles, commencing at my own door, and
without going by any house, without crossing a road except where the fax and the mink do: first along
by the river, and then by the brook, and then the meadow and the woodside.
Page 4
Retirement Viewpoints
For More Information:
If you would like more information on some of the topics discussed in this issue,
just request any of the the following white papers or brochures, which are
available at no cost or obligation:
Capital Gains, Taxes and Your Managed Account: They’re Back
Asset Repositioning Strategies: Planning for Future Generations
Retirement Standard: Social Security Benefits
Retirement Standard: Health Care Cost Evaluation
IRA Beneficiary Reviews: Saving You Life Savings
My Investment Philosophy
Please feel free to pass along this newsletter to friends and family. If they
would like to subscribe, please have them contact me.
Ph il i p Sega l , CLU ® , Ch FC ® , RICP ®
Sec on d Vi ce Pr esi den t
Sen i or Por t fol i o Ma n a ger
Fin an ci a l Advi s or
Mor gan Stan l e y
3500 Win ch est er Rd. Al l en t own , PA 18104
610-391-6331
phil.segal@morganstanley.com
http://www.morganstanleyfa.com/phil_segal/index.htm
Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley
Financial Advisors or Private Wealth 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 tax 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.
Various factors, including an economic downturn, may cause a company to
reduce or eliminate its dividend.
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.
Page 5
Retirement Viewpoints
The views expressed herein are those of the author and do not necessarily reflect the views of Morgan
Stanley 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.
Equity securities may fluctuate in response to news on companies, industries, market conditions and general
economic environment.
The value of fixed income securities will fluctuate and, upon a sale, may be worth more or less than their
original cost or maturity value.
International investing entails greater risk, as well as greater potential rewards compared to U.S. investing.
These risks include political and economic uncertainties of foreign countries as well as the risk of currency
fluctuations. These risks are magnified in countries with emerging markets, since these countries may have
relatively unstable governments and less established markets and economics.
Index information is provided for informational purposes only. An investment cannot be made directly in a
market index.
This material does not provide individually tailored investment advice. It has been prepared without regard
to the individual financial circumstances and objectives of persons who receive it. The strategies and/or
investments discussed in this material may not be suitable for all investors. Morgan Stanley recommends
that investors independently evaluate particular investments and strategies, and encourages investors to
seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will
depend on an investor’s individual circumstances and objectives.
Diversification does not guarantee a profit or protect against a loss.
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