US savers experience stealthy confiscationAverage T-BillYieldAverage InflationReal Yield(nominal lessinflation)1980s 8.9 5.1 +3.81990s 4.9 2.9 +2.02000s 2.8 2.5 +0.3Today, the picture looks very different1:Today 0.1 1.8 -1.7110 Year Treasury Bond yield and forward expected CPIas of 12/31/2012 (Sources: Board of Governors of the Federal Reserve System and Bureau of LaborStatistics)
US savers experience stealthy confiscationAverage 10 YRTreasury BondYieldAverage InflationReal Yield(nominal lessinflation)1980s 10.6 5.1 +5.51990s 6.7 2.9 +3.82000s 4.5 2.5 +2.0Today, the picture looks very different1:Today 2.2 2.8 -0.6110 Year Treasury Bond yield and forward expected CPIas of 12/31/2012 (Sources: Board of Governors of the Federal Reserve System and Bureau of LaborStatistics)
Game Plan•Avoid Long Maturities•Beware of Bond Index Funds•Consider Flexible Strategies•Don’t stretch for Yield•Consider mortgage backed securities•Investment globally•Consider alternatives•Think outside the box
Main Takeaways• At this point in time, we believe investors should not rely on government bonds for incomeand safety to the extent they have done in the past• Central banks pushed yields down below inflation, in order to neutralize the financial crisis• Central bank action has succeeded in bringing the financial crisis to an end, as well ashelped increase the value of stocks and real estate• Government bond yields have slid from more than 15% in 1981 to less than 2% in 2013.• While a significant rise in bond yields is not imminent, it will likely occur when theemployment situation improves. A rise in bond yields will result in lower bond prices.• Various bonds may react very differently to a potential rise in yields.• We have identified and implemented specific strategies to help our clients navigate throughthe current environment.• We also stand ready to help other people and organizations that our clients care about toachieve their financial goals
DisclosuresNOTE: The actual investment vehicles used to gain exposure to various investment sectors mentioned above varyalong with the unique circumstances of every client portfolio(s)Government bonds and treasury bills are guaranteed by the US government as to the timely payment of principaland interest and, if held to maturity, offer a fixed rate of return and fixed principal value.This material contains the current opinions of the author, which may be subject to change without notice.Forecasts, estimates and certain information contained herein are based upon proprietary research and should not beconsidered as investment advice or a recommendation of any particular security, strategy or investment product to anyindividual investor.Past performance is no guarantee of future returns. A word about risk: Equities may decline in value dueto both real and perceived general market, economic and industry conditions. Investing in the bond market is subjectto certain risks including market, interest rate, issuer credit and inflation risk; investments may be worth more or lessthan the original cost when redeemed. Investing in foreign denominated and/or domiciled securities mayinvolve heightened risk due to currency fluctuation, economic and political risk, which may be enhanced in emergingmarkets. Mortgage and Asset –backed securities may be sensitive to changes in interest rates, subject to earlyrepayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; whilegenerally supported by some form of government or private guarantee, there is no assurance that private guarantors willmeet their obligations. High-Yield, lower rated, securities involve greater risk than higher rated securities;portfolios that invest in them may be subject to greater levels of credit and liquidity risks than portfolios that do not.Diversification does not ensure against loss. There is no guarantee that these investment strategies will work underall market conditions or are suitable for all investors. Each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. No strategy assures success or protects against loss.Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Allperformance information referenced within is historical and is no guarantee of future results.