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Asset Allocation Made Easy

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Asset Allocation Made Easy Reaching Your Goals At Your Pace Most people can rattle off their investment goals: retirement, college tuition, a new house. That s easy. What s harder is successfully reaching
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Asset Allocation Made Easy Reaching Your Goals At Your Pace Most people can rattle off their investment goals: retirement, college tuition, a new house. That s easy. What s harder is successfully reaching these financial milestones with a comfortable level of volatility. This is what a good asset allocation strategy is all about finding a diversified mix of investments that will let you reach your goals, while giving equal consideration to your tolerance for risk. The Real Reason Risk Matters Many investors run into problems when they overestimate their ability to deal with market declines. Consider the experience of the average investor during the period of , as shown below. While the stock market, as measured by the S&P 500 Index, grew 9.9% per year on average, investors during this period earned an average annual total return of just 5.2%. 1 One reason may be that some investors jumped in and out of the market based on short-term shifts, missing out on longer-term opportunities. A good asset allocation plan may help you better weather temporary market storms, so you can reach the long-term results you are after. You should note, however, that asset allocation does not guarantee a profit or protect against a loss. DOWNSIDE OF NOT STICKING TO A PLAN Average Annual Total Returns (20-Year Period Ended 12/31/2014) 9.9% 5.2% S&P 500 Index 1 Average Equity Fund Investor s Annualized Return 1 I want my money to grow, but I m not sure how much risk I can accept. How can I position my portfolio for the long term? CONSIDER ASSET ALLOCATION 1. Source: Quantitative Analysis of Investor Behavior, 2014, DALBAR, Inc. Most recent data available. An index is unmanaged and one cannot invest directly in an index. NOT FDIC INSURED MAY LOSE NO BANK GUARANTEE Asset Allocation at Work The charts below show how three asset allocation model portfolios performed historically versus the MSCI All Country World Index (global stocks) and the Barclays Multiverse Index (global bonds) over the 15-year period ended June 30, Please note not only the total returns of these hypothetical investments, but also the standard deviations, which measure return volatility and consistency. Asset Allocation Models Historical Performance 2 15-Year Period Ended December 31, 2015 Portfolio Stocks Bonds 40% Stocks 60% Bonds 15-Year Average Annual Total Return 5.37% 4.67% 4.87% Stocks % Bonds % Best One-Year Return 21.81% 35.41% 16.05% Worst One-Year Return % % -3.79% Standard Deviation of Returns % 16.14% 5.64% 60% Stocks 40% Bonds 15-Year Average Annual Total Return 5.38% 4.67% 4.87% Stocks % Bonds % Best One-Year Return 25.01% 35.41% 16.05% Worst One-Year Return % % -3.79% Standard Deviation of Returns % 16.14% 5.64% 80% Stocks 20% Bonds 15-Year Average Annual Total Return 5.13% 4.67% 4.87% Stocks % Bonds % Best One-Year Return 30.36% 35.41% 16.05% Worst One-Year Return % % -3.79% Standard Deviation of Returns % 16.14% 5.64% Standard deviation of returns measures the degree to which an investment s monthly returns vary from the mean. In general, the higher an investment s standard deviation, the greater its volatility. These charts are for illustrative purposes only and do not represent the performance of any Franklin, Templeton or Franklin Mutual Series fund. 2. Source: 2015 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Stocks are represented by the MSCI AC World Index, a free float-adjusted, market capitalization-weighted index that is designed to measure the equity market performance of global developed and emerging markets. Bonds are represented by the Barclays Multiverse Index which provides a broad-based measure of the global fixed-income bond market. Portfolios were rebalanced annually. Index data represents average annual total returns and includes reinvestment of dividends. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. These are model portfolios and are not recommendations as to the specific allocations. Past performance does not guarantee future results. 3. Standard deviation is a statistical measurement of the range of an investment s monthly total returns over a 15-year period. franklintempleton.com Asset Allocation Made Easy 1 Why Diversify? Because Winners Rotate. Perhaps nothing better illustrates the need for an asset allocation strategy than the chart below, which shows how various asset classes performed on a year-by-year basis over the last 20 years. The best-performing asset class for each calendar year is at the top of each column. Please remember, past performance does not guarantee future results. Annual Return of Key Asset Classes between Ranked in Order of Performance from Best to Worst Best % 36.53% 42.16% 43.09% 22.83% 14.02% 10.26% 48.54% 22.25% 14.02% 22.96% 33.36% 28.58% 28.25% 11.63% 8.44% % 47.25% 20.70% 5.82% 21.99% 31.78% 20.33% 27.30% 6.08% 2.49% % 46.03% 18.33% 4.91% 21.37% 29.98% 14.67% 21.26% -3.02% -9.23% % 39.17% 15.71% 4.71% 16.49% 22.36% 8.69% 21.04% -9.10% % % 31.79% 14.31% 4.55% 11.26% 12.95% 1.23% 12.72% % % % 28.68% 10.88% 4.15% 6.36% 9.65% -2.55% -0.82% % % % 25.66% 6.13% 4.00% Worst 3.63% 2.06% -6.45% -1.49% % % % 4.10% 4.34% 2.43% The indexes above are for illustrative purposes only and do not reflect the performance of any Franklin, Templeton or Franklin Mutual Series fund. For current performance of any Franklin, Templeton or Franklin Mutual Series fund, please visit franklintempleton.com or call (800) DIAL BEN/ Asset Allocation Made Easy franklintempleton.com I don t want all my eggs in one basket. How can I be prepared to face any type of market? DIVERSIFY ACROSS ASSET CLASSES % 11.63% 5.24% 34.47% 29.09% 7.84% 18.05% 43.30% 14.89% 5.52% Best 23.48% 9.13% % 32.46% 26.85% 4.65% 17.90% 38.82% 13.69% 1.38% 20.80% 7.05% % 31.57% 24.50% 2.11% 17.68% 34.52% 12.36% 0.55% 18.37% 6.97% % 27.17% 15.10% -0.48% 16.35% 32.75% 5.97% -0.39% 15.79% 5.49% % 26.46% 15.06% -2.91% 16.00% 32.39% 5.60% -1.38% 13.35% 1.99% % 21.18% 15.05% -4.18% 14.61% 31.99% 4.89% -3.13% 11.01% -1.57% % 20.58% 8.21% -5.50% 14.59% 23.29% 4.22% -4.41% 4.33% -9.78% % 5.93% 6.54% % 4.21% -2.02% -4.48% -7.47% Worst Diversification does not guarantee a profit or protect against a loss. 4. Source: 2016 Morningstar. Large-cap stocks are represented by the S&P 500 Index; large-cap growth stocks are represented by the S&P 500 Growth Index; large-cap value stocks are represented by the S&P 500 Value Index; small-cap stocks are represented by the Russell 2000 Index; small-cap growth stocks are represented by the Russell 2000 Growth Index; small-cap value stocks are represented by the Russell 2000 Value Index; foreign stocks are represented by the MSCI EAFE Index; and bonds are represented by the Barclays U.S. Aggregate Index. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. franklintempleton.com Asset Allocation Made Easy 3 Does Asset Allocation Really Work? Yes. In addition to helping reduce overall volatility and improving your chances to earn more consistent returns over the long term, keeping assets properly allocated helps investors avoid the temptation to try and time the market. Consider the three scenarios below, illustrating three different strategies used by investors. In each scenario, $10,000 was invested annually each January 1 over the past 20 years for a total investment of $200, While these returns can t guarantee future results, as you can see, the asset allocation strategy was the most successful during this period. OF $10,000 INVESTED ANNUALLY BETWEEN Total Investment Value of Portfolio Average Annual Total Return 1. Chasing the Winners Investing in last year s best-performing asset class 5,6 $200,000 $415, % 2. Investing with the Losers Investing in last year s worst-performing asset class 5,7 $200,000 $405, % 3. Asset Allocation Investing consistently across several asset classes $200,000 $446, % in equal proportion each year 5,8 This chart is for illustrative purposes only. It is important to note that an asset allocation strategy does not ensure results superior to other investment strategies and also does not guarantee a profit or protect against a loss. The chart does not represent the performance of any Franklin, Templeton or Franklin Mutual Series fund. Some say buy what s hot, others say look for bargains. Who should I believe? TAKE A DIVERSIFIED, LONG-TERM APPROACH 5. Source: 2016 Morningstar. The three scenarios above included large-cap stocks, represented by the S&P 500 Index; large-cap growth stocks, represented by the S&P 500 Growth Index; large-cap value stocks, represented by the S&P Value Index; small-cap stocks, represented by the Russell 2000 Index; small-cap growth stocks, represented by the Russell 2000 Growth Index; small-cap value stocks, represented by the Russell 2000 Value Index; foreign stocks, represented by the MSCI EAFE Index; and bonds, represented by the Barclays U.S. Aggregate Index. 6. Each year s new investments are made into the best-performing asset class index of the previous calendar year. 7. Each year s new investments are made into the worst-performing asset class index of the previous calendar year. 8. Annual investments are distributed evenly among all eight asset class indexes each year and the portfolio is rebalanced annually. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. This illustration assumes that indexes are reasonable representations of asset classes and their returns. However, investment manager performance relative to the different asset class indexes has varied widely during the past 20 years. 4 Asset Allocation Made Easy franklintempleton.com What s the Best Fit for You? One of the first steps in developing your asset allocation strategy is determining how much risk you can tolerate. Complete the questionnaire below and review the results with your financial advisor as a starting point to building your financial plan. RISK TOLERANCE QUESTIONNAIRE Check off one answer for each question. When you re finished, add up the corresponding points for each answer to get your total, which will be used to help you determine what kind of investment mix may be right for you. 1. What is your current age? o Less than 45 o 45 to 55 o 56 to 65 o 66 to 75 o Older than 75 5 points 4 points 3 points 2 points 1 point 2. When do you expect to need the money you re investing? o 10+ years o 7 10 years o 4 6 years o 1 3 years o Less than 1 year 5 points 4 points 3 points 2 points 1 point 3. Which of the following best categorizes your highest investing comfort level? I m comfortable investing in: o Call and put options, and shorting stocks o Individual stocks o Equity mutual funds o Bonds/bond mutual funds o Only CDs, saving bonds and money market funds 5 points 4 points 3 points 2 points 1 point Subtotal: continued on the next page... franklintempleton.com Asset Allocation Made Easy 5 Does Asset Allocation Really Work? continued from the previous page What are your expectations for the growth of your account over time? o Aggressive (13% or more/year) 5 points o Significant (9% 12%/year) 4 points o Moderate (6% 8%/year) 3 points o Steady (4% 5%/year) 2 points o Conservative (2% 3%/year) 1 point 5. In a particularly bad market occurring within a one-year time frame, which of the following statements best describes your tolerance for a decline in your account value? o I wouldn t worry about losses in that time frame o If I suffered a loss greater than 25%, I d be concerned o If I suffered a 10% 25% loss, I d be concerned o I can only tolerate a small, short-term loss o I d have a hard time accepting any loss 5 points 4 points 3 points 2 points 1 point 6. If you could increase your chances of improving your returns by taking more risk, would you be willing to take: o A lot more risk with all of your money o A lot more risk with some of your money o A little more risk with all of your money o A little more risk with some of your money o No more risk 5 points 4 points 3 points 2 points 1 point 7. Generally, investments with the highest potential for gains carry the greatest risk of loss. The scenarios below show the best and worst outcomes of $10,000 invested in five hypothetical portfolios for a five-year period. Which portfolio would you be most comfortable with? Best Case OF THE ACCOUNT Worst Case o Portfolio 1 $20,000 $5,000 5 points o Portfolio 2 $17,500 $6,250 4 points o Portfolio 3 $14,500 $7,750 3 points o Portfolio 4 $12,500 $8,750 2 points o Portfolio 5 $11,000 $10,000 1 point Add up the points shown to the right of your selected answers. Total: 6 Asset Allocation Made Easy franklintempleton.com What Does Your Score Mean? Match your point total from the questionnaire with the categories and portfolios on the scale below. 9 Please remember, this risk scoring system cannot replace the advice of a financial advisor, but it may help set the groundwork for an asset allocation strategy that best matches your needs. Higher Stocks Bonds Potential Return Growth (26 35 points) Moderate (17 25 points) Lower Conservative (7 16 points) Lower Relative Risk Higher Please remember, this questionnaire should be used as a tool to help determine your needs and should not be viewed as the sole determinant of your investment decisions. Franklin Templeton Can Help with Asset Allocation Franklin Templeton offers asset-allocated mutual funds ranging from conservative- to moderate- to growth-oriented. Each fund s assets are allocated among equity and fixed income investments by investing in a distinctly weighted combination of Franklin Templeton funds. The fund manager rebalances the portfolios as necessary to maintain broad asset class weightings. My life is busy. I want an investment plan that s simple and hassle-free. CONSIDER FRANKLIN ALLOCATION FUNDS Effective January 1, 2015, Franklin Moderate Allocation Fund increased target allocation to equity funds by 5% (from 55% to 60%) and correspondingly decreased the target allocation to fixed income funds (from 45% to 40%). The Fund s investment goal remains the same. 9. The categorization of sample portfolios as conservative, moderate and growth is relative. franklintempleton.com Asset Allocation Made Easy 7 Franklin Conservative Allocation Fund RISK TOLERANCE Lower FUND GOAL The fund seeks the highest level of long-term total return consistent with a lower level of risk. 10 This fund may be most appropriate for investors with a shorter investment horizon. CLASS A AVERAGE ANNUAL TOTAL RETURNS Periods Ended December 31, 2015 With Maximum 5.75% Initial Sales Charges 11 1-Year 5-Year 10-Year Since Inception (Date) -7.90% 2.41% 4.09% 5.34% (12/31/96) Without Sales Charges 1-Year 5-Year 10-Year Since Inception (Date) -2.26% 3.64% 4.71% 5.67% (12/31/96) CLASS A TOTAL ANNUAL OPERATING EXPENSES With waiver: 1.27%; Without waiver: 1.27% The fund has a fee waiver associated with any investments it makes in a Franklin Templeton money fund, an arrangement that is contractually guaranteed through at least its current fiscal year end. Fund investment results reflect the fee waiver, as applicable; without this waiver, the results would have been lower. Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month end performance data. Beta Standard Deviation % We want our money to grow, but we re not sure how much risk we can handle. GENERAL PORTFOLIO ALLOCATION 14 This pie chart reflects the guidelines used by the fund manager to allocate assets among broad asset classes. Return 20% 15% 10% 5% Franklin Conservative Allocation Fund Class A Bonds Equity Funds % Fixed Income Funds... 60% TOP 10 HOLDINGS 14 As of December 31, 2015 % % Templeton Global Total Return Fund Franklin Strategic Income Fund 5.65 Franklin Low Duration Total Return Fund Franklin DynaTech Fund 4.31 Franklin Growth Fund 9.56 Franklin K2 Alternative Strategies Fund 3.54 Franklin U.S. Government Securities Fund 7.75 Templeton Foreign Fund 3.24 Franklin Rising Dividends Fund 5.78 Franklin Mutual European Fund 3.23 RISK VS. RETURN COMPARISON (Without 5.75% Initial Sales Charge) Year Period Ended December 31, % 0% 5% 10% 15% 20% Risk If the sales charge had been included, the return would have been lower. 10. The risk/reward potential is based on the fund s goal and level of risk. It is not indicative of the fund s actual or implied performance or portfolio composition, which may change on a continuous basis. 11. As of January 1, 2013, the funds changed their target allocation, with short-term investments (formerly a targeted allocation of 20% for Conservative Allocation; 10% for Moderate Allocation) combined into the fixed income allocations; such a change can impact performance. The funds investment goals remained the same. Class A: Prior to 8/3/98, fund shares were offered at a lower initial sales charge; thus actual returns would have differed. The fund offers other share classes, subject to different fees and expenses that will affect their performance. 12. Beta measures a fund s market-related risk over a three-year period. For Franklin Conservative Allocation Fund and Franklin Moderate Allocation Fund, beta is calculated using the respective Blended Benchmarks, described below, which each have a beta of A beta lower than 1.00 indicates historically lower volatility than the index; higher than 1.00 indicates historically higher volatility. Effective January 1, 2015, Franklin Conservative Allocation Fund s Blended Benchmark changed to 40% MSCI AC World Index and 60% Barclays Multiverse Index. From January 1, 2013 December 31, 2014, the Blended Benchmark comprised of 28% S&P 500 Index, 12% MSCI EAFE Index and 60% Barclays U.S. Aggregate Index. Effective January 1, 2015, Franklin Moderate Allocation Fund s Blended Benchmark changed to 60% MSCI AC World Index and 40% Barclays Multiverse Index. From January 1, 2013 December 31, 2014, the Blended Benchmark comprised of 38.5% S&P 500 Index, 16.5% MSCI EAFE Index and 45% Barclays U.S. Aggregate Index. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. Stocks 8 Asset Allocation Made Easy franklintempleton.com Franklin Moderate Allocation Fund RISK TOLERANCE Moderate FUND GOAL The fund seeks the highest level of long-term total return consistent with a moderate level of risk. 10 This fund may be most appropriate for investors with an intermediate investment horizon. CLASS A AVERAGE ANNUAL TOTAL RETURNS Periods Ended December 31, 2015 With Maximum 5.75% Initial Sales Charges 11 1-Year 5-Year 10-Year Since Inception (Date) -7.54% 3.46% 4.76% 5.74% (12/31/96) Without Sales Charges 1-Year 5-Year 10-Year Since Inception (Date) -1.89% 4.69% 5.38% 6.07% (12/31/96) CLASS A TOTAL ANNUAL OPERATING EXPENSES With waiver: 1.29%; Without waiver: 1.29% The fund has a fee waiver associated with any investments it makes in a Franklin Templeton money fund, an arrangement that is contractually guaranteed through at least its current fiscal year end. Fund investment results reflect the fee waiver, as applicable; without this waiver, the results would have been lower. Performance data represents past performance, which does not guarantee future results. Current
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