Dedicated to Service
The Advisor
Committed to Excellence
Fall 2014
The Filla Latzke Group
at Morgan Stanley
www.MorganStanleyFA.com/fillalatzke
Mark Filla, CIMA®
Senior Vice President
Financial Advisor
Portfolio Management Director
mark.filla@morganstanley.com
262.241.1946
Scott Latzke, CFP®
Senior Vice President
Wealth Advisor
Portfolio Management Director
scott.latzke@morganstanley.com
262.241.1977
Dear Friends,
After three years of relatively calm markets, volatility returned this fall.
From mid-September to mid-October, the S&P 500 fell nearly 10% on an
intraday basis. Many foreign markets were even worse. Concerns about
European growth prospects and the removal of Federal Reserve stimulus
seemed to be fueling the retreat.
While it may be tempting to abandon things like asset allocation and
diversification when markets get volatile, it is precisely these moments
when those principles are most critical. It should be noted that these
losses were almost completely recovered by the end of October.
A few principles we try to remember during more volatile times:
Chandra Hackett
Portfolio Associate
chandra.hackett@morganstanley.com
262.241.1941
Dawn Boegel
Senior Registered Associate
dawn.boegel@morganstanley.com
262.241.1942
Renate Capek
Senior Client Service Associate
renate.capek@morganstanley.com
262.241.1936
Morgan Stanley
11501 North Port Washington Road
Mequon, WI 53092
1. Focus on the long-term, not the short.
2. Stay diversified.
3. Don’t let emotion dictate action.
Inside we offer a little deeper look at the idea of diversification. It can be
difficult to stay diversified when some of the things you own aren’t doing
as well as others but there are risks to abandoning short-term losers.
Secondly, we reiterate our case for investing in equities, provide a
reminder about Required Minimum Distributions and answer a question
about account security at Morgan Stanley.
Please let us know if there is anything we can do for you. Times of
market volatility can trigger questions that need to be answered and
fears that need to be calmed. Our doors are always open.
Toll Free: 888.791.8360
Fax: 262.241.1921
Inside this issue
Just the FAQs . . . . . . . . . . . . . . . .2
Diversification . . . . . . . . . . . . . . . .2
Longer-Term View on Equities . . .3
Team Talk. . . . . . . . . . . . . . . . . . . .4
Professional Development. . . . . . .4
FYI. . . . . . . . . . . . . . . . . . . . . . . . .4
Morgan Stanley Smith Barney, LLC. Member SIPC.
Mark and Scott
Just the FAQS
have been reading about data
Q: Ibreaches
at several large
companies. How is Morgan
Stanley protecting our
information and what can I do
to protect myself?
A:
Morgan Stanley understands
that protecting clients’ online
personal and account
information is an essential
part of our commitment to
helping clients achieve their
financial goals. Morgan
Stanley has fraud prevention
teams that use advanced
technologies and industrytested processes and
procedures to provide
multiple layers of defense to
protect you against
electronic fraud.
Morgan Stanley has
developed a 4-page guide
that reviews the integrated
approach Morgan Stanley is
taking to secure your online
accounts and steps you can
take to reduce the risk of
becoming a victim of
electronic fraud. If you would
like to view a copy of the
report, please call Chandra
or Dawn, or visit
www.morganstanleyclientserv
.com and click on “Morgan
Stanley Online Security
Center.”
An Important Reminder About Diversification
By Mark Filla, CIMA®, Senior Vice President, Portfolio Management Director
“Don’t keep all your eggs in one basket.”
This is an old cliché about why an investor should diversify their portfolio. Most
people would agree that it makes sense to spread your risk among several
different asset classes rather than bet your entire future on one investment. There
are too many unknowns and the risk is too great (especially when you are talking
about your nest egg) to place your entire future on one thing.
There are, however, two sides to diversification. While a diversified portfolio will,
ideally, experience smaller losses in a down market when compared to a nondiversified portfolio, it can also reduce gains in a positive one.
There are three things we think anyone who chooses to diversify their investments
must accept as givens:
1. You will always own the worst performing asset class in any given year.
2. You will never perform as well as the best performing asset class in a given year.
3. You will never know what the best and worst performers will be in a given year.
When everything is going up people really don’t care which one is doing the best
because everything looks pretty good. However, having some things do well when
others don’t presents an awfully powerful temptation to move assets away from the
poor performers and into the better performers.
Succumbing to this temptation can not only lead to a non-diversified portfolio but
also results in an investor buying higher priced assets and selling lower priced
ones; the opposite of “buy low and sell high”.
In the current environment, it might be tempting to sell foreign equity investments
and buy more US stocks. The S&P 500 has outperformed the MSCI EAFE Index
(Europe, Asia and Japan) three of the last four years and 2014 might make it four
out of five.i In addition, it appears the US economy is on more solid footing than its
foreign counterparts.
History, however,
would tell us that
staying with a
diversified portfolio
is the best plan. The
accompanying chart
illustrates how
quickly asset classes
can change course.
Each column of the
chart ranks the
performance of
various asset classes
for the last 10 years.
Each color
represents a
different asset class.
The white boxes
with the black line though them represent how a diversified portfolio may have
behaved during this time. It is easy to see that, while a diversified portfolio can
never be the best performer it can’t be the worst either.
After this 10-year period that includes the financial crisis, this hypothetical
diversified portfolio still returned 7.2% per year which should be enough to sustain
most retirement spending plans for a long time.
i
JP Morgan Asset Management - “Guide to the Markets”, 3Q 2014
Recent Volatility Does Not Change our Longer-Term View On Equities
By Mark Filla, CIMA®, Senior Vice President, Portfolio Management Director
After hitting an all-time high of 2019 on September 19 the S&P 500 fell nearly 10% over the following 4 weeks prompting
the media and investors to speculate about whether this was the beginning of the next recession or just a typical correction
in an otherwise advancing market.
The reasons sighted for the selloff were a possible 3rd European recession in the last 5-6 years, the drop in oil prices, ISIS in
the Middle East and the spread of Ebola. Time will tell if this correction had any merit.
Now that it has happened, we need to ask ourselves if any of it should cause us to change our opinion on where we are
going and how we are allocating assets.
First, a little perspective is needed. While the spike in
volatility is never comfortable and no one likes seeing their
account values fall, it is important to remember how far the
market has come since the dark days of March, 2009.
On March 6 of that year the S&P 500 reached its crisis low
of 666. During this most recent correction, it lowest closing
value was 1862 or 175% higher than the 2009 level. More
recently, in the summer of 2011 with the US government on
the brink of default for the first time in history, the S&P 500
fell 18%. It has rallied, very steadily, 69% since then.i
March 9, 2009
We have included three charts here to illustrate some of this
perspective.ii All three show the S&P 500 from different
starting points and ending at the recent low point in
October. The first chart begins on March 6, 2009, the
second begins on August 19, 2011 and the third begins on
January 1, 2014. Notice how small this 9% correction seems
as the time lengthens.
We hope these visuals will put into perspective the
magnitude, or lack thereof, of the recent volatility for the
long-term investor (which we consider ourselves to be).
August 19, 2011
Still, the issues mentioned above should not be dismissed
out of hand. Recent economic news out of Europe was
troubling, the drop in oil prices may be a sign of slowing
economic activity and the thought of Ebola spreading in the
US is enough to keep anyone awake at night.
We believe the odds of any of the worst case scenarios
playing out are very small making the recent selling
overdone for the following reasons: 1.) interest rates are low
and many analysts now believe they will continue to be low
YTD
for longer than previously suspected; 2.) corporate profits
remain at all-time highs with expectations that they will
continue to rise; 3.) jobs data in the US continues to improve, 4.) GDP growth in the US and most places around the world
remains positive.
In that environment, we think equities will continue to offer attractive returns relative to other asset classes, however, the
extended period of low-volatility and high returns we’ve been enjoying may be over.
i Data from ThomsonONE
ii Charts from Yahoo! Finance
Professional Development
Scott Latzke, Renate Capek, Dawn Boegel, Chandra Hackett, Mark Filla
team talk
Riley and Fletcher Filla are busy with soccer and swimming this fall. Riley had personal
best times in four different events at a meet in October. Fletcher is also playing
basketball but refuses to wear his new shoes outside. He is very excited for indoor
practices to begin so he can try them out. Lisa is busy helping out at school and is
vice president of the PTA.
The Latzkes have been busy this fall attending many of Marin’s
soccer games. Marin loves playing soccer and is enjoying dance
classes. Evah is also taking dance classes and is involved with Girl
Scouts; her most recent Girl-Scout outing was horseback riding.
Val joined Scott at a Morgan Stanley conference in Miami, FL in
September. Val continues to volunteer at school and is preparing
for a marathon in November. Their favorite fall day was spent at a
pumpkin farm in Germantown picking pumpkins, enjoying a hay
ride, and making pumpkin chocolate chip cookies.
Jim and Chandra did a 4 wheeler trip in October in beautiful
Wonewoc, WI with two other couples. The colors in that area
are spectacular! There is one more trip planned for a weekend
in Necedah, WI and then the 4 wheeler will have the plow
attached and be ready for snow plowing. Jim has been
working hard getting the yard and plants ready for winter.
Hopefully spring will return quickly!
Fall has been extremely busy for the Boegel family. Jack and
Luke have kept them busy with soccer games and tournaments
near and far every weekend. Anya continues to practice
gymnastics and participate in Daisies. Dawn and Brian have
been enjoying all of the beautiful colors around the lake and
are not looking forward to having to pull the pier out soon!
Latzkes
Pumpkin Picking
In September, Mark and Scott met with
Rick Reider, Co-Head of Americas
Fixed Income at BlackRock. Rick
provided his outlook on the U.S.
Economy, Interest Rates, and his
thoughts on Investment Strategy in a
rising interest rate environment.
In September, Scott traveled to the
Morgan Stanley Master’s Conference in
Miami, a recognition trip that both
Mark and Scott qualified for. Several
top industry experts provided market
and economic outlooks. Scott
especially enjoyed hearing from Philip
Orlando, Chief Equity Strategist at
Federated, and Joe Deane, Executive
Vice President at PIMCO.
F.Y.I.
Required Minimum Distributions
4 Wheeling
with Friends
Dan and Renate spent a wonderful week in Gatlinburg, TN.
They took many hikes in the Smokey Mountains and also went
to a few moonshine tastings. They also went to Ashville, NC
and took a tour of the Biltmore Estate. The house and
surrounding acres were beautiful. They have already booked
their cabin for next year. Alyssa spent her 21st birthday in Las
Vegas and actually came home with a few winnings. Danielle is
Dan & Renate in the
busy working and starting up barrel racing with her horse.
Smokey Mountains
As a reminder, if you have an IRA
account at Morgan Stanley and are over
the age of 70 ½ or have an inherited
IRA account, you must take 2014’s
required minimum distribution by
December 31st, 2014. Your required
minimum distribution amount can be
found on your monthly statement or by
contacting Dawn or Chandra. If you are
unsure if you have satisfied your RMD,
please contact Dawn or Chandra.
The investments listed may not be suitable for all investors. Morgan Stanley Smith Barney LLC recommends that investors independently evaluate particular investments, and encourages investors to seek the advice of a financial advisor. The appropriateness of a
particular investment will depend upon an investor's individual circumstances and objectives.
Barclays Capital Global Aggregate Bond Index contains investment grade and high yield credit securities from the Multiverse Index. (The Multiverse Index is the merger of two index groups: the Global Aggregate Index and the Global High Yield Index.) The investment
grade component of the Global Credit Index is a subset of the Global Aggregate Index, and contains credit securities from the U.S. Aggregate, Pan-European Aggregate, Asian-Pacific Aggregate, Eurodollar, 144A, and Euro-Yen indices. The high yield component is a
subset of the Global High Yield Index, and contains securities from the U.S. Corporate High Yield, Pan-European High Yield, and Emerging Markets indices. The index is denominated in U.S. dollars. An investment cannot be made directly in a market index
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
REITs are subject to special risk considerations similar to those associated with the direct ownership of real estate. Real estate valuations may be subject to factors such as changing general and local economic, financial, competitive, and environmental conditions. REITs
may not be suitable for every investor.
Dividend income from REITs will generally not be treated as qualified dividend income and therefore will not be eligible for reduced rates of taxation.
The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management 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.
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. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any
investments made under such account.
Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness.
Asset allocation and diversification do not guarantee a profit or protect against a loss in a declining financial market.
Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.
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
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The individuals mentioned as the Portfolio Management Team are Financial Advisors with Morgan Stanley participating in the Morgan Stanley Portfolio Management program. The Portfolio Management program is an investment advisory program in which the client’s
Financial Advisor invests the client’s assets on a discretionary basis in a range of securities. The Portfolio Management program is described in the applicable Morgan Stanley ADV Part 2, available at www.morganstanley.com/ADV or from your Financial Advisor.
Past performance of any security is not a guarantee of future performance. There is no guarantee that this investment strategy will work under all market conditions.
The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. As of May 30 2011, the MSCI World Index consists of the following 24 developed market country
indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. An
investment cannot be made directly in a market index.
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