Not FDIC Insured May Lose Value No Bank
Not FDIC Insured May Lose Value No Bank Guarantee EO 028 290847 2/15 |1
What is a bond? A loan to a corporation or government. • Investors lend the money • Repaid in specified period of time (up to 30 years) • Repaid with specified amount of interest income EO 028 290847 2/15 |2
Risk versus return • Amount of income reflects creditworthiness of issuer Highest-quality bonds (rated AAA or AA) = Lowest yields • U. S. Treasury bonds • Municipal bonds • Bonds issued by corporations with a spotless track record of honoring their debt obligations Medium-quality bonds (ratings from AA to BB) = Moderate yields • Non-U. S. government bonds • Bonds issued by corporations in decent financial health Lowest-quality bonds (rated BB or lower) = Highest yields • Emerging-market bonds • Bonds issued by new corporations or those in poor financial health EO 028 290847 2/15 |3
Taxable or tax free? EO 028 290847 2/15 |4
Municipal bond yield Consider the tax-equivalent yield Your tax bracket 28. 0% 36. 8%* 38. 8%* 15. 0% 25. 0% 43. 4%* 3% 3. 53 4. 00 4. 17 4. 75 4. 90 5. 30 4% 4. 71 5. 33 5. 56 6. 33 6. 54 7. 07 5% 5. 88 6. 67 6. 94 7. 91 8. 17 8. 83 6% 7. 06 8. 00 8. 33 9. 49 9. 80 10. 60 Equivalent yield of a taxable bond For illustrative purposes only. * Includes 3. 8% Medicare surtax effective 1/1/13 EO 028 290847 2/15 |5
Municipal bond yield Consider the tax-equivalent yield 15. 0% 3% 4% 5% 6% 25. 0% Your tax bracket 28. 0% 36. 8%* 38. 8%* 3. 53 4. 00 4. 17 An investor subject to a 4. 71 5. 33 5. 56 36. 8% tax rate with a 5% tax-free yield will get the 5. 88 6. 67 6. 94 equivalent of a 7. 91% 7. 06 8. 00 8. 33 after-tax yield. 43. 4%* 4. 75 4. 90 5. 30 6. 33 6. 54 7. 07 7. 91 8. 17 8. 83 9. 49 9. 80 10. 60 Equivalent yield of a taxable bond For illustrative purposes only. * Includes 3. 8% Medicare surtax effective 1/1/13 EO 028 290847 2/15 |6
Calculating tax-equivalent yield Tax-free yield 100 – your tax rate 5 100 – 36. 8 = Tax-equivalent yield = 7. 91% For illustrative purposes only. EO 028 290847 2/15 |7
What benefits can bonds provide? • Interest income during the life of the bond • Potential for capital appreciation if interest rates decline and/or market dynamics change • Potential to reduce overall volatility of portfolio composed primarily of equities EO 028 290847 2/15 |8
One predictable thing about the market — it is unpredictable Changes in market performance, 1992– 2014 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Highest return Lowest return U. S. Small-Cap Growth Stocks | Russell 2000 Growth Index International stocks | MSCI EAFE Index (ND) U. S. Large-Cap Growth Stocks | Russell 1000 Growth Index U. S. Bonds | Barclays U. S. Aggregate Bond Index U. S. Small-Cap Value Stocks | Russell 2000 Value Index Cash | Bof. A Merrill Lynch U. S. 3 -month Treasury Bill Index U. S. Large-Cap Value Stocks | Russell 1000 Value Index Past performance does not indicate future results. Indexes are unmanaged and show broad market performance. It is not possible to invest directly in an index. EO 028 290847 2/15 |9
When stocks get shaky, bonds can add stability Annual market results (%) U. S. Stocks 40 U. S. Bonds 20 0 -20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 19 99 -40 Data is as of 12/31/14 and is historical. Past performance does not guarantee future results. Stocks are represented by the S&P 500 Index, which is an unmanaged index of common stock performance. Bonds are represented by the Barclays Aggregate Bond Index, an unmanaged index of U. S. investment-grade fixed-income securities. It is not possible to invest directly in an index. EO 028 290847 2/15 | 11
Active rebalancing Without rebalancing: The market controls asset allocation and investors don’t systematically rotate out of less attractive and into more attractive investments Stocks Bonds Balanced portfolio 60% 72% 40% 28% Out-ofbalance portfolio 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Stocks are represented by the S&P 500 Index and bonds by the Barclays U. S. Aggregate Bond Indexes are unmanaged and represent broad market performance. It is not possible to invest directly in an index. Data is historical. Past performance is not a guarantee of future results. Diversification and rebalancing will not necessarily prevent you from losing money; however, they may reduce volatility and potentially limit downside losses. EO 028 290847 2/15 | 12
Active rebalancing Without rebalancing: The market controls asset allocation and investors don’t systematically rotate out of less attractive and into more attractive investments Stocks Bonds Balanced portfolio 60% 40% Balanced portfolio 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Stocks are represented by the S&P 500 Index and bonds by the Barclays U. S. Aggregate Bond Indexes are unmanaged and represent broad market performance. It is not possible to invest directly in an index. Data is historical. Past performance is not a guarantee of future results. Diversification and rebalancing will not necessarily prevent you from losing money; however, they may reduce volatility and potentially limit downside losses. EO 028 290847 2/15 | 13
A BALANCED APPROACH A WORLD OF INVESTING A COMMITMENT TO EXCELLENCE EO 028 277723 EO 001 290847 2/15 5/13 | 14
Why Putnam for fixed income? • Over 75 years of fixed-income investing experience • Manages $55. 7 billion in fixed-income securities • More than 80 investment professionals organized into specialist teams As of 6/30/14. EO 028 290847 2/15 | 15
Putnam fixed-income funds cover all bond sectors Putnam American Government Income Fund Putnam Diversified Income Trust Putnam Emerging Market Income Fund Putnam Floating Rate Income Fund Putnam Global Income Trust Putnam High Yield Trust Putnam Income Fund Putnam Short Duration Income Fund Putnam Tax Exempt Income Fund Putnam Tax-Free High Yield Fund U. S. government securities Investment-grade corporate bonds International bonds High-yield bonds Tax-free investmentgrade bonds Tax-free high-yield bonds Floating rate loans Mortgage-backed securities Emerging-market bonds EO 028 290847 2/15 | 16
Building a solid financial foundation with bonds • What is a bond? • Taxable or tax free: Which is right for you? • When stocks are shaky, bonds often are stable – Adding bonds reduces volatility • Work with a trusted financial advisor – To select the right investments – To ensure that accounts are set up with your future in mind EO 028 290847 2/15 | 17
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