Fixed Income: Almost A Bedtime Story

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www.fixedology.northerntrustinvestments.com
Seldom have investors shown so much interest in fixed-income investing. There's nothing thrilling about Treasuries or bond yields - and maybe that explains investors' new-found curiosity!

Start the conversation with your clients: Download this fast-paced client-use Fixedology presentation.

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  • Seldom have investors shown so much interest in fixed-income investing. There's nothing thrilling about Treasuries or bond yields--and maybe that explains investors' new-found curiosity! This is a client-use presentation that may help financial advisors discuss the basics of fixed-income with their clients.
    Please note that any comments added about this presentation are not endorsed by Northern Trust Investments, nor do they represent our opinions.

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Fixed Income: Almost A Bedtime Story

  1. 1. Fixed Income: Almost a bedtime story.
  2. 2. Hey!
  3. 3. Where do you think you’re going?
  4. 4. The stock market has been showing signs of life.
  5. 5. And we’re all happy about that,
  6. 6. And we’re all happy about that, but
  7. 7. before you consider rushing back into stocks
  8. 8. can we (please) take a moment to consider
  9. 9. why you might want to leave some of your investments in
  10. 10. fixed income.
  11. 11. MUNICIPAL fixed income. HIGH YIELD
  12. 12. MUNICIPAL SHORT fixed income. SHORT-INTERMEDIATE ULTRA-SHORT INTERMEDIATE HIGH YIELD
  13. 13. U.S. GOVERNMENT MUNICIPAL SHORT fixed income. SHORT-INTERMEDIATE TAX-ADVANTAGED ULTRA-SHORT INTERMEDIATE HIGH YIELD
  14. 14. We know.
  15. 15. We get it.
  16. 16. Fixed income can’t compete with the excitement of (yawn)
  17. 17. Rising corporate earnings
  18. 18. Juicy stock dividends
  19. 19. Charismatic CEOs.
  20. 20. QUESTION: What’s another word for thrilling?
  21. 21. ANSWER: volat ili t y
  22. 22. Fixed income had its share of volatility recently.
  23. 23. Fixed income had its share of volatility recently. Psst: Fixed income may also be volatile in the future.
  24. 24. Bonds and bond funds come with their own risks.
  25. 25. INTEREST RATE RISK Bonds and bond funds come with their own risks. INFLATION RISK DURATION RISK
  26. 26. INTEREST RATE RISK DEFAULT RISK Bonds and bond funds come with their own risks. CREDIT RISK INFLATION RISK DURATION RISK
  27. 27. Over the long term,
  28. 28. fixed income could hardly be accused
  29. 29. of being thrilling.
  30. 30. Bond Investing Has Avoided Deep Negative Returns All-Stock, All-Bond Performance — 1970 to 2008 50% 40% 30% 20% Annual Total Return 10% 0% –10% –20% –30% Bonds Stocks –40% –50% 2000 2006 2004 2008 2002 1990 1992 1980 1984 1998 1996 1986 1988 1982 1972 1970 1978 1994 1976 1974 Past performance is not a guarantee of future results. This chart compares the performance of an all-domestic stock portfolio and an all-bond portfolio for the period from January 1, 1970, through December 31, 2008. Source: ChartSource, Standard & Poor’s Financial Communications. Domestic stocks are represented by the total returns of Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Bonds are represented by a composite of the total returns of long-term U.S. government bonds, derived from yields published by the Federal Reserve, and the Barclays Long-Term Government Bond index (prior to November 2008, the Barclays indexes were compiled by Lehman Brothers).
  31. 31. And that’s the way we like it.
  32. 32. (sigh)
  33. 33. People may like investing some of their savings in fixed income
  34. 34. because of what it may do for them.
  35. 35. Fixed income in a diversified portfolio could add that something extra
  36. 36. that may broaden your world
  37. 37. beyond stocks of public companies.
  38. 38. LOCAL GOVERNMENTS beyond stocks of public companies. STATE GOVERNMENTS BUILD AMERICA BONDS
  39. 39. LOCAL GOVERNMENTS REVENUE BONDS U.S. TREASURIES beyond stocks of public companies. BONDS OF CORPORATIONS STATE GOVERNMENTS BUILD AMERICA BONDS
  40. 40. And maybe even help cut back what you pay in taxes.
  41. 41. QUESTION: Why are you investing?
  42. 42. ANSWER: Because you want to see your investments grow.
  43. 43. That’s why you may need some fixed income.
  44. 44. And bond markets rally, too!
  45. 45. And when they’re not rallying
  46. 46. most bonds are generating income.
  47. 47. Invest in stock and bond markets together
  48. 48. and you have the possibility for
  49. 49. growth
  50. 50. Bonds Beat Stocks, Cash and Inflation Major Asset Classes, Annualized Total Returns — 1988 to 2008 Bonds Stocks 9.79% 9.58% Cash 10 8.43% 8.07% Inflation 8 6 Annual Total Return 4.53% 4 3.49% 3.30% 2.82% 2.52% 2.67% 2 0 –2 –1.38% –2.19% –4 Past 20 Years Past 10 Years Past 5 Years Past performance is not a guarantee of future results. This chart compares the annualized total returns of stocks, bonds and inflation, through December 31, 2008, over the past 5-, 10- and 20-year periods. Source: ChartSource, Standard & Poor’s Financial Communications. Stocks are represented by the total returns of Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Bonds are represented by the total returns of the composite of long-term government bonds (10+ years), constructed from yields published by the Federal Reserve, and the Barclays Long-Term Government Bond index. Cash is represented by the composite of the yield of 3-month Treasury bills published by Federal Reserve and the total return of the Barclays 3-Month Treasury Bill index. Inflation is represented by the change in the Consumer Price Index. Note that prior to November 2008, the Barclays indexes were calculated by Lehman Brothers.
  51. 51. Boring?
  52. 52. Boring? (yawn)
  53. 53. We don’t mind putting you to sleep talking about fixed income.
  54. 54. We don’t mind putting you to sleep talking about fixed income. Psst: The show’s almost over.
  55. 55. Because fixed income
  56. 56. is meant to help you sleep at night.
  57. 57. (zzzzz)
  58. 58. IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. For more information about this notice see http://www.northerntrust.com/circular230 Risk Considerations Equity Risk: Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. Bond Risk: Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates. U.S. Government Guarantee: U.S. Government guarantees apply only to the underlying securities of certain “government fund” portfolios and not the fund’s shares. High-Yield Risk: Although a high yield fund’s yield may be higher than that of fixed income funds that purchase higher-rated securities, the potentially higher yield is a function of the greater risk that a high yield fund’s share price will decline. Tax-Free/AMT Risk: Tax-exempt funds’ income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax. Regional Investment Risk: The geographical concentration of a regional fund’s portfolio holdings may involve increased risk. Diversification alone does not guarantee a profit nor protect against a loss. There are risks involved in investing including possible loss of principal. There is no guarantee that the investment objectives of any fund or strategy will be met. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Before investing you should carefully consider the fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by calling 877-867-1259. Please read the prospectus carefully before you invest. Shares of Northern Funds are distributed by Northern Funds Distributors, LLC, Boston, MA 02110, not affiliated with Northern Trust. NOT FDIC INSURED May lose value / No bank guarantee
  59. 59. Fixed.ology SM T H E L A N G UAG E O F F I X E D I N C O M E For information on a variety of fixed-income investing topics, visit northerntrustinvestments.com/fixedology

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