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Meet Dave AN UNEXPECTED INVESTOR A hypothetical illustration This is Dave’s story. Right before he turned 22, his grandfather passed away. Dave and his younger brother, Paul, each inherited $50,000. Paul Like his grandfather had done, Dave invested the money in Franklin Income Fund, which seeks to maximize income, while maintaining prospects for capital appreciation, by investing in a diversified portfolio of stocks and bonds. Paul bought Certificates of Deposit (6‐Month CDs), which were earning an attractive interest rate at the time. From 1970–2015, both Dave and Paul left the money invested and never made another contribution. While Paul never touched the money, Dave withdrew $359,688 for several important events throughout his life. Investor’s Profile (Hypothetical) Dave Cincinnati, Ohio 67 Years Old Married FRANKLIN INCOME FUND – CLASS A $50,000 Total Amount Invested in 1970 Let’s take a look at Dave’s journey. Where is Dave now? 46 years later… Open flap to see answers. CAROLYN IS OFF TO COLLEGE HOME SWEET HOME For the next four years, he pays her tuition, room and board as she prepares for her career in the field of Accounting. Dave jumps at the opportunity to purchase a beautiful house in his childhood neighborhood. A hypothetical illustration $24,118 $17,9503 $50,000 1980 1979 VACATION MEMORIES Carolyn gets married and Dave gives the happy couple a generous gift to start their new life together. 1981 $6,438 2 2010 FOURTH GRANDCHILD $25,000 1990 2000 $1,000 IT’S A BOY Dave and Claire welcome a new addition to the family, a sweet boy named Luke. Dave buys the hip Ford Pinto he has had his eye on for a while. $3,000 GOODBYE, PINTO 2009 THIRD GRANDCHILD 2003 1985 $1,887,433 Just as he’s done for the first two, Dave opens a third 529 College Savings plan. VS. 2007 Another grandchild arrives and another 529 College Savings plan is opened. $55,000 $359,688 ENDING PORTFOLIO VALUE 5 SECOND GRANDCHILD $13,207 1973 TOTAL WITHDRAWALS $60,000 2 $2,852 Carolyn always said she wanted a big family! Dave opens a fourth 529 College Savings plan. $65,000 $55,000 Dave’s beloved Pinto breaks down and he purchases a new Honda Accord. 2 1974 Dave’s first grandchild is born. With the future already in mind, he opens a 529 College Savings plan. 529 NEW CAR SMELL Dave and Claire celebrate the birth of their first child, a beautiful girl named Carolyn. GRANDPA DAVE Dave and Claire spend two weeks in Europe celebrating their 15-year wedding anniversary. 529 IT’S A GIRL WEDDED BLISS 529 Dave marries Claire, his college sweetheart. 529 WEDDING BELLS 1976 2016 FATHER OF THE BRIDE $2,000 With two kids to drive around, Dave purchases a Ford LTD Station Wagon. 1970 $29,1234 1995 1991 Dave takes his family on a vacation to Florida to see the Space Shuttle and spend some time at the beach. DAD-MOBILE 1978 Dave is getting ready to retire and rediscover some old passions. As he thinks about what’s next, Dave works with his financial advisor to develop a written retirement income plan. As Dave figures out how to deal with an “empty nest,” he pays for four years of tuition, room and board while Luke studies as an English major. Dave invests On January 1, 1970 in Franklin Income Fund – Class A1 WHAT’S NEXT? LUKE IS OFF TO COLLEGE 4 529 Dave’s journey $1,670,920 S&P 500 INDEX6 After all the withdrawals Dave made, the ending value of his investment in Franklin Income Fund is over 1,8 million dollars! 2005 1987 What about Paul? % Annual Total Returns—Class A (with Sales Charge)8 ‘70 ‘71 ‘72 ‘73 ‘74 ‘75 -1.34 19.96 4.31 -4.21 -12.34 25.82 ‘76 22.63 ‘77 8.66 ‘78 8.36 ‘79 28.56 Average Annual Total Returns—Class A9 (Periods Ended December 31, 2015) 1-Year 3-Year 5-Year 10-Year Since Inception (8/31/48) With Maximum 4.25% Initial Sales Charge10 -11.85% 1.63% 4.15% 5.00% 10.08% Without Sales Charge 5.47% 10.15% -7.81% 3.12% 5.09% ‘80 19.58 ‘81 1.14 ‘82 36.07 ‘83 15.35 Gross Expense Ratio11 30-Day Standardized Yield12 0.61% (As of 12/31/15) 4.73% ‘84 15.51 ‘85 18.36 ‘86 19.65 Beta (3-Year)13 (As of 12/31/15) 0.72% Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund’s investment returns and principal values 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/342-5236 or visit franklintempleton.com for the most recent month-end performance. 1. $50,000 in 1970 would be worth $306,630.15 in today’s dollars (2015). Source: United States Department of Labor, Bureau of Labor Statistics Inflation Calculator. As of October 2015. http://www.bls.gov/data/inflation_calculator.htm 2. Source: Kelley Blue Book. Historical prices for a new Ford Pinto Sedan in 1974, Ford LTD Wagon in 1978 and Honda Accord LX in 1987. 3. Source: U.S. Census Bureau—New Residential Sales. 25% down payment on an average home price of $71,800 for a new single family home in 1979. 4. Figure is the aggregate cost of college tuition, fees, room and board for a public 4-year university during the respective 4-academic year period. The illustration assumes that withdrawal of the | | Not FDIC Insured May Lose Value No Bank Guarantee Meet Dave: An Unexpected Investor ‘87 4.87 ‘88 8.81 ‘89 12.67 ‘90 -8.77 ‘91 41.15 ‘92 15.24 ‘93 21.53 ‘94 -6.38 ‘95 21.29 ‘96 10.45 cost for each academic year was made at the end of the applicable calendar year. Source: The College Board, Trends in College Pricing © 2016 The College Board, www.collegeboard.com. Table 2—Average Tuition and Fees and Board in Current Dollars and in 2014 Dollars, 1971–72 to 2014–15 (Enrollment Weighted). 5. Hypothetical Franklin Income Fund ending portfolio value for the period 1/1/70–12/31/15 assumes a $50,000 initial investment on 1/1/70, Class A with current maximum sales charge withdrawals made at the end of each applicable year, and the reinvestment of all dividends and capital gains at net asset value. 6. Index performance includes hypothetical withdrawals for comparison purposes. Source: © 2016 Morningstar, Inc. 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. Past performance is no guarantee of future results. 7. Hypothetical 6-Month CD investment ending value for the period 1/1/70–12/31/15 assumes a $50,000 initial investment on 1/1/70, no withdrawals, and the reinvestment of interest. Methodology: the annual rate for a 6-Month CD was divided by 12 to get an approximate monthly rate to run the investment illustration. Sources: The Federal Reserve H.15 Report (1/1/70–6/30/13) and BanxQuote © 2016 BanxCorp (7/1/13–12/31/15). 8. Annual total returns reflect the fund’s return for each year and do not take into account the withdrawals shown in this hypothetical illustration. franklintempleton.com ‘97 16.85 ‘98 0.95 ‘99 -0.74 ‘00 20.59 ‘01 0.65 ‘02 -1.06 ‘03 30.96 ‘04 12.17 ‘05 1.85 ‘06 19.12 ‘07 5.31 9. This fund offers other share classes, subject to different fees and expenses that will affect their performance. 10. Effective 5/1/94, the fund implemented a Rule 12b-1 plan, which affects subsequent performance. 11. The fund has a fee waiver associated with its investments in a Franklin Templeton money fund, contractually guaranteed through at least its current fiscal year end. Fund investment results reflect the fee waiver; without this reduction, the results would have been lower. For its most recently completed fiscal year, the impact of this fee waiver was immaterial. 12. The 30-Day Standardized Yield reflects an estimated yield to maturity. It should be regarded as an estimate of the fund’s rate of investment income, and it may not equal the fund’s actual income distribution rate, which reflects the fund’s past dividends paid to shareholders. 13. Beta is a measure of a fund’s volatility relative to an appropriate index based on its investment goal. A beta greater than 1.00 indicates volatility greater than the market’s. Beta calculated using S&P 500 Index as the benchmark. Based on monthly returns over the last three years. IMPORTANT LEGAL INFORMATION The figures shown represent performance of a hypothetical investment and withdrawals to illustrate how this fund may fit as part of a well-diversified franklintempleton.com ‘08 -30.51 ‘09 35.01 ‘10 12.91 ‘11 2.83 ‘12 13.68 ‘13 14.23 ‘14 4.12 ‘15 -7.81 retirement income investment portfolio. The hypothetical illustration is provided for general educational purposes only and does not constitute investment or tax advice. It’s important to note that the amounts withdrawn do not represent dividends or income, but, rather, the proceeds from the sale of shares. This illustration assumes sufficient shares are sold from the shareholder’s account at the time of each withdrawal to provide for the withdrawal amount. Please note that this hypothetical investment does not take into account federal, state or municipal taxes. If taxes were taken into account, the hypothetical values shown would have been lower. The results of the withdrawals could vary substantially depending on investment performance of the fund during the period. The amount chosen for withdrawal impacts the value remaining at the end of the period. In a period of declining market values, continued withdrawals could eventually exhaust the principal. If withdrawals were made at other times and/or in different amounts, the results will be different. Investing in a Franklin Templeton fund does not guarantee one’s retirement income needs would be met. Remember Dave’s brother, Paul, invested in CDs7 to be safe. Without making any withdrawals, his investment grew to $692,262.* *It’s important to note that CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 and offer a fixed rate of return, whereas fund shares are not insured and are subject to loss. The S&P 500 Index is considered representative of the U.S. stock market and returns do not reflect the deduction of fees or sales charges. Indexes are unmanaged and one cannot invest directly in an index. Meet Dave: An Unexpected Investor What will your journey look like? For more information about Franklin Income Fund and to discuss what’s next for you, please contact your financial advisor. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA 94403-1906 (800) DIAL BEN® / 342-5236 franklintempleton.com Franklin Templeton Investments Your Source for: • Mutual Funds •Retirement • 529 College Savings Plans • Separately Managed Accounts WHAT ARE THE RISKS? All investments involve risks, including possible loss of principal. The fund’s share price and yield will be affected by interest rate movements. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in the fund adjust to a rise in interest rates, the fund’s share price may decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The fund’s portfolio includes a substantial portion of higher-yielding, lower-rated corporate bonds because of the relatively higher yields they offer. Floating rate loans are lower-rated, higher-yielding instruments, which are subject to increased risk of default and can potentially result in loss of principal. These securities carry a greater degree of credit risk relative to investment-grade securities. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. These and other risk considerations are discussed in the fund’s prospectus. Investors should carefully consider mutual fund and/or 529 college savings plan investment goals, risks, charges and expenses before investing. To obtain a mutual fund summary prospectus and/or prospectus or the Investor Handbook, which contain this and other information, talk to your financial advisor or call Franklin Templeton Distributors, Inc., the principal distributor of Franklin Templeton’s U.S. registered mutual funds and the manager and underwriter for the 529 plan at (800) DIAL BEN/(800) 342-5236 or visit franklintempleton.com. You should read the mutual fund prospectus and/or Investor Handbook carefully before investing or sending money and, with respect to investments in the 529 plan, consider whether your, or the beneficiary’s, home state offers any state tax or other benefits that are only available for investments in its qualified tuition program. © 2016 Franklin Templeton Investments. All rights reserved. RTSI BMD 01/16