A smart mix of investments
Active investing involves using human portfolio managers to harness research and their own expertise to pick and choose investments. Generally speaking, the goal of active investing is to “beat the market,” or outperform certain standard benchmarks. For example, the S&P 500 is an index that tracks performance of large-cap U.S. stocks. If you’re an active investor, your goal may be to achieve better returns than the S&P 500.
While passive investing has grown in popularity over the last few years, we believe that active management can help investors be more nimble, especially if the market takes a plunge. In fact, over the last 20 years, top portfolio managers have significantly outperformed their benchmarks in years when the market has been down. The key is to find the best, most talented portfolio managers.
Morgan Stanley Access Investing blends active and passive strategies. We dynamically determine the appropriate mix of active and passive investments—mutual funds and exchange-traded funds (ETFs)—for you to hold in your portfolio. We determine the mix based on market conditions.
If you’re a passive investor, however, your goal is to match the performance of certain market indexes. Because active investing is generally more expensive (you need to pay for actual humans to do the work and fees for more frequent trading), many stock-pickers fail to beat the market by enough to offset their management costs.
We believe every investor should have a target asset allocation in mind when investing—an appropriate mix of stocks, bonds and other investments suited to his or her own unique goals, risk tolerance and timelines.
If your goal has a target date, we’ll look for opportunities to lower the overall level of risk in your portfolio as you draw nearer to your end date. Generally speaking, the further you are from needing your money, the more risk you’ll want to take on. The closer you are to your goal, the more conservatively you’ll want to invest, increasing the likelihood you’ll reach your target while minimizing the long-term impact of market fluctuations. We’ll do all of this automatically for you.
Additionally, our research team will sometimes recommend portfolio changes based on broader market trends. For example, if research favors a certain region over another, we might automatically tweak your portfolio to reflect the areas of the world where we see the most opportunity. In doing so, we won’t change your risk tolerance.
Over time, it’s normal for a portfolio to stray from your target asset allocation. For example, let’s say you’re aiming to hold 50% stocks and 50% bonds. Maybe, after a certain amount of time, stocks have outperformed and grown to comprise 60% of your portfolio, with bonds now at 40%. To get back to your mix, you’d want to sell some stocks and buy some bonds. Think of it as your portfolio getting a haircut.
Periodically, the Morgan Stanley Access Investing algorithm will check to see if your asset mix remains within a certain level of “drift.” If you’ve drifted too far from your target allocation at any given time, we’ll buy or sell accordingly to bring your portfolio back into balance. Of course, we’ll let you know whenever we do so.
Please keep in mind that asset allocation, diversification and rebalancing do not assure a profit or protect against loss. There may be a potential tax implication with a rebalancing strategy. Please consult your tax advisor before implementing such a strategy.
When you incur losses from selling your investments or other assets, you might be able to enjoy a potential tax benefit. Under current U.S. tax law, you can offset your capital gains with your capital losses. Essentially, you need to pay taxes on your investment income, but you can subtract your losses from your gains in order to arrive at a lower total profit—which means you’d owe less in taxes.
In tax-loss harvesting, if an investment has a loss, you sell it in order to offset your taxes. When you sell the security, you’d use the proceeds to buy a similar investment. That means that you’d maintain the same or similar asset allocation, but you can get a deduction on your federal income taxes to offset your capital gains and up to $3,000 of ordinary income each year—potentially resulting in a lower tax bill.
If you choose, Morgan Stanley Access Investing can monitor your account to find potential for tax-loss harvesting opportunities. When we find that you could lower your tax bill by harvesting losses, we’ll do it for you automatically. There are no trading costs to harvest your losses, and we’ll reinvest all the money we’ve “harvested” so you don’t lose out on market opportunities.
Note that we’ll also protect your Access Investing accounts against “wash sales,” an Internal Revenue Service (IRS) rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security under certain circumstances. According to the IRS, a wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you buy substantially identical stock or securities. We’ll make sure that our buying and selling doesn’t inadvertently burden you with short-term capital gains tax.
There is no guarantee that any harvesting request will achieve any particular tax result. Morgan Stanley does not provide you with any tax advice in connection with tax-loss harvesting. Tax-loss harvesting may adversely affect the investment performance of your account. Moreover, the wash sale protection is only applicable to your Morgan Stanley Access Investing accounts. If you own any of the same securities in other brokerage accounts, you may be subject to wash sale rules.
For more information, please refer to the Access Investing ADV Brochure.
Ongoing portfolio monitoring
We believe that investors can make progress toward their goals when they stay on top of their investments. Checking in regularly is key, because you can stay informed on the growth of your portfolio and make any necessary changes if you’re not hitting your targets in the way you’d hoped.
Morgan Stanley Access Investing will show you your portfolio’s hypothetical forecasted performance and progress toward your financial goals. In particular, we use our Global Investment Committee’s capital market assumptions to help you forecast how your portfolio might grow over time, across a possible range of outcomes. As part of this process we look at the past performance of relevant indices which are used as a proxy for each of the asset classes that would be invested in your Access Investing portfolio.
We chart out these potential outcomes based on your initial and ongoing contributions, as well as the projected performance of the portfolio we recommended to help you meet your goal. (For simplicity’s sake, we make a few assumptions, such as assuming you won’t make any withdrawals until your goal's end date.) We run this simulation thousands of times, using different rates of return, to model which outcomes are the most likely. Then we show you a graph with estimated outcomes for scenarios ranging from “Unfavorable Market Conditions” to “Favorable Market Conditions” (with “Average Market Conditions” as a solid line down the center).
At any point, you’re free to make the changes you need to your account. That includes your personal info, your financial situation and your contribution amounts. We’ll adjust your recommended investing plan accordingly.