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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. Risk versus return. Amount of income reflects creditworthiness of issuer. Taxable or tax free?.
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What isa bond?A loan to a corporationor government. Investors lend the money Repaid in specified period of time (up to 30 years) Repaid with specified amount of interest income
Risk versus return • Amount of income reflects creditworthiness of issuer
Consider thetax-equivalent yield Municipal bond yield
Consider thetax-equivalent yield Municipal bond yield An investor in the 33% tax bracket with a 5% tax-free yield will get the equivalent of a 7.46% after-tax yield. For illustrative purposes only.
Calculating tax-equivalent yield Tax-free yield 100 – your tax rate Tax-equivalent yield = 5 100 – 33 7.46% = For illustrative purposes only.
What benefits dobonds provide? • Interest income during the life of the bond • Potential for capital appreciation if interestrates decline • Potential to reduce overall volatility of anequity portfolio
One predictable thing about the market — it is unpredictable Changes in market performance, 2000–2010 Highestreturn Lowestreturn 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.
When stocks get shaky,bonds can add stability Annual market results (%) U.S. stocks U.S.bonds Data is as of 12/31/10 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 Capital Aggregate Bond Index, an unmanaged index of U.S. investment-grade fixed-income securities. It is not possible to invest directly in an index.
Active rebalancing Without rebalancing: The market controls asset allocation 57% 62% 43% Out ofbalanceportfolio 38% Balancedportfolio 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Stocks are represented by the S&P 500 Index and bonds by the Barclays Capital Aggregate Bond Index. 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. .
Active rebalancing With rebalancing: Asset allocation remains consistent 55% 67% 67% 67% 45% 33% 33% 33% Balancedportfolio Balancedportfolio 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Stocks are represented by the S&P 500 Index and bonds by the Barclays Capital Aggregate Bond Index. 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. .
A BALANCED APPROACH A WORLD OF INVESTING A COMMITMENT TO EXCELLENCE
Why Putnam for fixed income? • Over 70 years of fixed-income investing experience • Manages nearly $46.66 billion in U.S. fixed-income securities and over $56.50 billion in U.S. and international fixed-income securities • More than 70 investment professionals organized into specialist teams As of 1/31/11.
Building a solid financialfoundation 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 futurein mind