1. You don’t need to be a sailor to appreciate this metaphor — navigating your way through today’s volatile markets is a lot like sailing a boat through stormy seas. There’s little room for error, and you’ve got to keep on course to reach your destination.
Not FDIC Insured
May Lose Value
No Bank Guarantee
EO /16
| 1

2. Navigating stormy seas
Challenges faced by investors today
Bonds can help smooth volatility
Stocks offer long-term growth potential
Opportunities in U.S. and international markets
Today, I’m going to review some of the challenges — and opportunities — that face investors in today’s markets. We’ll discuss different types of investments, how they have performed historically, and how stocks may help you pursue growth over the long term. We’ll also take a look at the opportunity in markets outside the United States.

3. The stock market can be choppy
Monthly stock market returns (%)
January 2013
After the kinds of markets we’ve seen, sea sickness comes to mind. When the stock market grows stormy, it’s natural for you to feel the urge to head for a safe harbor until the seas grow calmer. However, when investing for the long term, it’s usually best to keep sailing. I’ll explain why.
December 2015
Source: Standard & Poor’s. Stocks are represented by the S&P 500 Index, an unmanaged index of common stock performance.
You cannot invest directly in an index. Past performance does not guarantee future results.

4. When stocks were choppy, bonds were often stable
U.S. stocks
Annual market results (%)
U.S. bonds
One of the patterns that has occurred over time in the markets is that when stocks are volatile, bonds are much more stable.
This chart shows stock performance (in red) versus bonds (in yellow) over the past 10 years. You can see that bonds are steadier. They don’t usually go up as much when stocks are doing well or go down as much when stocks aren’t doing so well. In any given year, the return for stocks can be quite compelling, but the volatility is not for everyone.
The moral of this story is that by adding bonds to your portfolio, you can smooth out volatility while still retaining some of the upside potential traditionally offered by stocks.
2005
2006
2008
2010
2012
2015
Data is as of 12/31/15 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 Aggregate Bond Index, an unmanaged index of U.S. investment-grade fixed-income securities. It is not possible to invest directly in an index.

5. Cash yields are still very low
Current yields as of 12/31/15
6-month T-bill
0.49%
6-month CD
0.89%
By “waiting on the sidelines,” I mean investing in cash, such as CDs, T-bills, or money markets. What this chart shows is that today, cash is barely earning a positive return.
Sources: Federal Reserve, 2015, and Bloomberg, T-bills are represented by the 6-month Treasury bill (secondary market) rate quoted on an investment basis. CDs are represented by the average rate on 6-month negotiable certificates of deposit (secondary market), quoted on an investment basis. Past performance is not indicative of future results. Unlike stocks or bonds, which incur more risk, certificates of deposit (CDs) offer a fixed rate of return, and the interest and principal on CDs will generally be insured by the FDIC up to $250,000.

6. And cash has barely kept pace with inflation over time
Returns for asset classes 1926–2015
3.4%
0.4%
Returns
after
inflation
And it’s not just a recent phenomenon. Cash has barely kept pace with inflation over the past 89 years.
The ability to grow and stay ahead of inflation is critical for long-term investors who need to accumulate savings during their working years and draw income from those investments when they retire.
The fact is, stocks have delivered the greatest earnings power over the long term.
Cash
Source: Putnam Investments. Returns are annualized and assume a historical average inflation rate of 3%. Cash is represented by the U.S. Treasury Bill Index. All indexes are unmanaged and measure common sectors of the stock and bond indexes. You cannot invest directly in an index. Past performance is not indicative of future results.

7. Stocks have delivered the strongest growth potential over time
10.0%
Returns for asset classes 1926–2015
7.0%
5.6%
3.4%
2.6%
0.4%
Returns
after
inflation
Let’s take a look at after-inflation returns of other investments.
While bond returns after inflation have outpaced those of cash, the fact is, stocks have delivered the greatest earnings power over the long term.
Cash
Bonds
Stocks
Source: Putnam Investments. Returns are annualized and assume a historical average inflation rate of 3%. Cash is represented by the U.S. Treasury Bill Index. Stocks are represented by the S&P 500 Total Return Index. Bonds are represented by the Long-Term Government Bond Total Return Index. All indexes are unmanaged and measure common sectors of the stock and bond indexes. You cannot invest directly in an index. Past performance is not indicative of future results.

8. Missing even a few of the market’s best days can hurt
Investing $10,000 in the Dow Jones Industrial Average 15-year period, 12/31/00–12/31/15
If you stayed fully invested for 15 years
If you missed the market’s 10 best days
If you missed the market’s 20 best days
5.80%
1.18%
Here’s something else you should know about the stock market: Often, a small number of strong days in the market make up a good deal of the performance over a longer period. For example, a few “up” days in a given year can account for most of that year’s total return. So if you happen to miss those days because you were waiting on the sidelines for the volatility to subside, you’d miss out on most of the market’s potential.
This chart shows the effect of missing even a few days over the past 15 years. As it happens, there were 3,783 trading days in the past 15 years.
By staying fully invested over the past 15 years, an investor would have realized a 5.80% annualized total return vs. a 1.18% return of someone who missed just 10 of the market’s days.
-1.68%
Data is historical. Past performance is not a guarantee of future results. The best time to invest assumes shares are bought when market prices are low. The Dow Jones Industrial Average is an unmanaged index of common stock performance. Indexes assume reinvestment of all distributions and do not have a sales charge. It is not possible to invest directly in an index. The securities in the Putnam funds will differ from those in the index, and the funds’ performance will differ.

9. Diversify to own more of each year’s winners
Changes in market performance, 2000–2015
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Highest return
Lowest return
This chart ranks the yearly performance of a wide range of investments, including value stocks, growth stocks, international stocks, and bonds. Each type of investment has its own color. The winners are on the top row, and the losers are on the bottom.
Notice there is no pattern. Over 20 years, there have been 16 changes in market leadership. Often, the top-performing investment one year falls into the lower half in the next year. It is this unpredictability that can deter many investors.
However, if you owned a greater number of these different types of investments in your portfolio — if you diversified — then it stands to reason that you would be more likely to own the best-performing investments in any given year.
Note:
U.S. small cap growth stocks are represented by the Russell 2000 Growth Index.
U.S. large cap growth stocks are represented by the Russell 1000 Growth Index.
U.S. small cap value stocks are represented by the Russell 2000 Value Index.
U.S. large cap value stocks are represented by the Russell 1000 Value Index.
International stocks are represented by the MSCI EAFE Index.
U.S. bonds are represented by the Barclays Aggregate Bond Index.
Cash is represented by the BofA Merrill Lynch U.S. 3-month Treasury Bill Index.
U.S. Large-Cap Growth Stocks | Russell 1000 Growth Index
U.S. Large-Cap Stocks | S&P 500 Index
U.S. Small-Cap Growth Stocks | Russell 2000 Growth Index
International stocks | MSCI EAFE Index
U.S. Large-Cap Value Stocks | Russell 1000 Value Index
U.S. Bonds | Barclays Capital U.S. Aggregate Bond Index
U.S. Small-Cap Value Stocks | Russell 2000 Value Index
Cash | BofA Merrill Lynch U.S. 3-Month Treasury Bill Index
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.

10. Keep your eyes on the horizon
So now we know a little about the dangers of bailing out of the market during tough times, and we learned about the benefit of spreading your investment across a range of different types of assets, like value stocks, bonds, etc.
There is one more area I’d like to discuss today, and that is the idea of keeping your eyes on the horizon, or in this case, your ultimate goal.
To do this requires perspective to know that the long-term trend of the market will prevail over short-term events. Having that perspective is what enables successful investors to take advantage of investment opportunities that can come up from time to time.
Let’s look at both aspects.

11. The storm has always passed
Bear market
Bull market
January 1975
December 2015
This chart shows the history of bull and bear markets since It shows both the duration of each event (from left to right), and it shows the cumulative return of each event (from top to bottom). Each bull and bear market in this slide is determined by at least four consecutive months of gain or decline.
Over the past 67 years, there have been 13 bear markets, lasting an average of 14 months and declining a total of 24.6% before recovering. By contrast, the 14 bull markets since 1948 have lasted an average of 43 months, each growing an average of 117.9%.
The moral of this story is that bull markets have always returned, and that they have outlasted the difficult times in the market.
Markets are represented by the S&P 500 Index. Data is as of 12/31/15, is historical, and reflects reinvested dividends. Each bull or bear market is determined by at least four consecutive months of continuous gain or decline. Past performance does not guarantee future results. There are no guarantees that prior markets will be duplicated. The S&P 500 Index is an unmanaged index of common stock performance. It is not possible to invest directly in an index.

12. Stocks are priced attractively today
2000
26.80
Price-to-normal- earnings ratio of the U.S. stock market*
2015
21.52
A long-term investor who is confident in the market’s long-term prospects will naturally look for opportunities that arise from short-term events. If a clothing store has a going-out-of-business sale, that’s an opportunity to upgrade your wardrobe for less money. It’s not an indication that clothing is going out of style.
So what’s on sale today as a result of the market’s volatility? Stocks. Everyone loved stocks in 2000, and investors bid up equity valuations to unprecedented levels.
Today, there’s an interesting parallel to Since equity prices have fallen over the past decade even as companies earned record profits, stocks are unambiguously a better value today than in 2000 as measured by their price-to-earnings ratios.
While near-term concerns could push stock prices lower, long-term investors should stay alert to the prospect of attractive valuations building in equities.
* As measured by the S&P 500 Index. Data as of 12/31/15. Current price to earnings is a ratio equal to the market capitalization divided by its after-tax earnings, based on 12 months’ trailing earnings.

13. International stocks are even more attractive
2000
26.80
Price-to-normal- earnings ratio of U.S. and international stock markets*
2015
21.52
International
stocks
International stocks also represent an attractive opportunity in today’s market.
* As measured by the S&P 500 Index. Data as of 12/31/15. International stocks are measured by the MSCI EAFE Index. Current price to earnings is a ratio equal to the market capitalization divided by its after-tax earnings, based on 12 months’ trailing earnings. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments.

14. Navigating stormy seas
Keep your eyes on the horizon
Choppy markets call for a long-term perspective
Consider bonds and stocks to help you navigate markets
Stay on course and keep your eyes on the horizon
So let’s go back to where we started today. Financial markets will always be unpredictable. There are many investments that can help you pursue your goals, but you must also keep your eyes on the horizon. Navigating the markets is like sailing through stormy seas. You must always stay focused on your destination — in this case, your long-term financial goals.

15. A COMMITMENT TO EXCELLENCE
A BALANCED APPROACH
A WORLD OF INVESTING
A COMMITMENT TO EXCELLENCE
EO /16
| 16

16. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing.
For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at Please read the prospectus carefully before investing.
Putnam Retail Management putnam.com

17. EO /16
| 18