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Transcript of EO028 265388 2/11 | ‹#› Not FDIC Insured May Lose Value No Bank Guarantee EO028 265388 2/11 | 1.
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Not FDIC Insured
May Lose Value
No Bank Guarantee
EO028 265388 2/11 | 1
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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
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Risk versus return• Amount of income reflects creditworthiness of
issuerHighest-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)= Average 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 corporations in poor financial health
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Taxable or tax free?
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Consider thetax-equivalent yield
Mu
nic
ipal
bon
d
yield
Your tax bracket
15% 25% 28% 33% 35%
3% 3.53 4.00 4.17 4.48 4.62
4% 4.71 5.33 5.56 5.97 6.15
5% 5.88 6.67 6.94 7.46 7.69
6% 7.06 8.00 8.33 8.96 9.23
Equivalent yield of a taxable bond
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Mu
nic
ipal
bon
d
yield
Your tax bracket
15% 25% 28% 33% 35%
3% 3.53 4.00 4.17 4.48 4.62
4% 4.71 5.33 5.56 5.97 6.15
5% 5.88 6.67 6.94 7.46 7.69
6% 7.06 8.00 8.33 8.96 9.23
Equivalent yield of a taxable bond
Consider thetax-equivalent 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.
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.
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Calculating tax-equivalent yield
= Tax-equivalent yield
Tax-free yield
100 – your tax rate
= 7.46%5
100 – 33
For illustrative purposes only.
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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
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One predictable thing about the market — it is unpredictable
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.
Highestreturn
Lowestreturn
1990
1995
2000
2005
2010
U.S. Small-Cap Growth Stocks | Russell 2000 Growth Index International stocks | MSCI EAFE IndexU.S. Large-Cap Growth Stocks | Russell 1000 Growth Index U.S. Bonds | Barclays Capital Aggregate Bond Index
U.S. Small-Cap Value Stocks | Russell 2000 Value IndexCash | BofA Merrill Lynch U.S. 3-month Treasury Bill Index
U.S. Large-Cap Value Stocks | Russell 1000 Value Index
Changes in market performance, 2000–2010
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When stocks get shaky,bonds can add stability
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.
Annual market results (%)
-40
-20
0
20
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
U.S. stocks
U.S.bonds
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Active rebalancing
Stocks
Bonds
Balancedportfolio
Out ofbalanceportfolio
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.
.
Without rebalancing: The market controls asset allocation
62%
38%
57%
43%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
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67%
33%
55%
45%
67%
33%
67%
33%
Active rebalancing
Stocks
Bonds
Balancedportfolio
Balancedportfolio
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.
.
With rebalancing: Asset allocation remains consistent
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
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A BALANCED APPROACH
A WORLD OF INVESTING
A COMMITMENT TO EXCELLENCE
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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.
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Putnam American Government Income Fund
Putnam Diversified Income Trust
Putnam Floating Rate Income Fund
Putnam Global Income Trust
Putnam High Yield Trust
Putnam Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam fixed-income funds cover all bond sectors
U.S. governmentsecurities
Investment-gradecorporate bonds
International bonds High-yield bonds U.S. governmentincome trust
Tax-free investment- grade bonds
Tax-free high-yieldbonds
Floating rate loans Mortgage-backed securities
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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
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