Fidelity Personalized Portfolios. A professionally managed account designed to help you keep more of what you earn.

Transcription

1 Fidelity Personalized Portfolios A professionally managed account designed to help you keep more of what you earn.

2 Fidelity Personalized Portfolios is a managed account focused on tax-sensitive investment management 1 for long-term growth. We create a portfolio that can include: Mutual Funds ETFs Stocks Bonds Separately Managed Accounts We use a variety of proven tax strategies designed to help reduce your tax liability. National and/or state-specific funds or ETFs, as appropriate INVEST IN MUNICIPAL BOND FUNDS OR ETFS HARVEST TAX LOSSES YOUR PORTFOLIO DEFER REALIZATION OF SHORT-TERM GAINS In an effort to help reduce your tax liability which can have a negative impact on your portfolio s total return. While other investment management firms may only use tax-loss harvesting at year s end, we work throughout the year with a goal of reducing your tax liability and helping you stay on the path to reach your own goals. That can have costly tax implications MANAGE EXPOSURE TO DISTRIBUTIONS In favor of seeking long-term capital gains, as appropriate FIDELITY PERSONALIZED PORTFOLIOS 2

3 The secret to getting ahead is getting started Has the thought of paying taxes from the sale of an investment stopped you from taking action in the past? Managing your money starts with getting your account set up with the right mix of investments. Once we understand your goals, we ll suggest a strategy designed to help you meet those goals. This may require selling some of your existing investments, but the result is a portfolio that is better aligned to you and your personal situation. CLIENT S CURRENT ASSET ALLOCATION PROPOSED GROWTH ASSET ALLOCATION 5% Consider this hypothetical scenario: 1. Based on the client s Investor Profile, we propose a Growth asset allocation comprised of 70% stocks and 30% bonds and short-term investments. 2. When the account is set up, our investment professionals evaluate the client s existing securities and decide which should remain and which should be sold. This determination is based on our research and outlook for these existing securities, the tax impact, and the overall portfolio. 3. In this hypothetical example, our investment professionals decided to sell certain securities, and as a result, the client would have $80,000 in capital gains and owe $19,000 in taxes. 21% $1M $1M 25% 49% Domestic Stock Bonds Foreign Stock Short-Term In this hypothetical example, selling investments resulted in capital gains of $80,000 and tax liability* of $19,000. That tax liability can happen all at once or be spread out over time. Of course, some clients may not be in a position to offset losses against gains. For illustrative purposes only. Asset allocation does not ensure a profit or protect against loss. * Tax liability is calculated by multiplying the $80K in capital gains realized by the result of sales of the client s investments by his or her tax rate of 23.8%. FIDELITY PERSONALIZED PORTFOLIOS 3

4 The difference tax-sensitive management can make Look at the potential impact tax-sensitive investing might have made over an 18-month period. The cumulative value can really add up, as shown in Exhibit 1. We created a hypothetical example using an initial $1 million investment, representative of actual accounts opened in December The investment was allocated in a Growth strategy (70% stocks, 30% bonds and short-term investments) from January 1, 2015, through June 30, 2016, with no contributions or withdrawals. The shaded areas illustrate how we might take advantage of market moves to rebalance or adjust your investments, as necessary, to keep your strategy aligned with your goals. Market declines may also provide opportunities to take advantage of tax-loss harvesting to potentially reduce the impact of taxes. Portfolio Value ($M) EXHIBIT 1: Hypothetical Cumulative Value of Growth Strategy* January 1, 2015 June 30, 2016 $1.05M $1.00M $0.95M $0.90M $0.85M $0.80M $1.029M WITH $1.007M WITHOUT We look for tax-savings opportunities throughout the year, not just at year-end. Please see page 7 for returns by different strategies and longer time periods. $0.75M 12/14 03/15 06/15 09/15 12/15 03/16 06/16 WITHOUT WITH Rebalancing Harvest Tax Loss $21,693 POTENTIAL CUMULATIVE VALUE ADDED from For illustrative purposes only. The blue line shows a professionally managed portfolio that uses tax-sensitive investment management strategies while seeking to balance an acceptable level of risk. The green line shows the same portfolio without tax-sensitive management. Both portfolios reflect the experience of a composite of clients that entered the service in December 2014 and remained invested over the next 18 months. * Based on a Growth strategy composite. (See page 7 for information on the composites.) These results and Exhibit A are hypothetical and do not represent actual value added to client accounts, and do not reflect the potential impact of account liquidation. Returns for individual clients will vary. Performance shown represents past performance, which is not a guarantee of future results. returns and principal value will fluctuate, and you may lose money. FIDELITY PERSONALIZED PORTFOLIOS 4

5 Keep more of what you earn Although some taxes are unavoidable, we use a variety of strategies for managing investment taxes in Fidelity Personalized Portfolios to potentially reduce the impact of such taxes on your portfolio. The goal behind tax-sensitive investment management is simply to keep more of what you earn. The cumulative value can really add up, as shown in Exhibit 2. In this illustration, the hypothetical results, in dollars, of the potential additional value from tax-sensitive investment management was $21,693,* which more than offsets the initial hypothetical $19,000 tax liability. See page 7 for long-term performance details. Learn more about the potential impact of taxes on your investment returns and the importance of tax-sensitive investment management. Read Why Ben Franklin Was Wrong. EXHIBIT 2: Hypothetical Account Values With And Without Portfolio Value ($M) $1.05M $1.00M $0.95M $0.90M $0.85M $0.80M Initial $19K Tax Liability $1M $1.007M WITHOUT $1.029M WITH $21,693 POTENTIAL CUMULATIVE VALUE ADDED from $0.75M Initial Portfolio Ending Value For illustrative purposes only. * Based on a Growth strategy composite. (See page 7 for information on the composites.) These results and Exhibit A are hypothetical and do not represent actual value added to client accounts, and do not reflect the potential impact of account liquidation. Returns for individual clients will vary. Performance shown represents past performance, which is not a guarantee of future results. returns and principal value will fluctuate, and you may lose money. FIDELITY PERSONALIZED PORTFOLIOS 5

6 We ll help you take the first step A Fidelity Personalized Portfolios account is designed to help reduce the impact of investment risk and taxes on your returns and take the burden of managing your investments off your shoulders. Getting started can be the hardest step. We ve helped many customers over that hurdle, and we can help you, too. Talk with a Fidelity representative about putting Fidelity Personalized Portfolios to work for you FIDELITY PERSONALIZED PORTFOLIOS 6

7 Performance Details Absolute Returns as of 12/31/ Year 5 Year 10 Year Life of Reporting (since 12/31/2001) Composite Return Benchmark Return Excess Return Composite Return Benchmark Return Excess Return Composite Return Benchmark Return Excess Return Composite Return Benchmark Return Excess Return All-Stock Strategy Pre-tax 0.53% 0.93% 0.41% 7.83% 9.39% 1.56% 5.07% 6.03% 0.96% 5.40% 6.32% 0.92% All-Stock Strategy After Tax 0.21% 2.20% 1.99% 7.74% 8.25% 0.51% 6.18% 5.22% 0.96% 6.56% 5.54% 1.02% Tax Alpha 1.59% 1.05% 1.92% 1.94% Aggressive Strategy Pre-tax 0.86% 0.16% 0.70% 7.00% 8.94% 1.93% 4.65% 6.02% 1.37% 4.89% 6.26% 1.37% Aggressive Strategy After Tax 0.64% 1.72% 1.08% 6.60% 8.21% 1.61% 5.58% 5.44% 0.15% 5.84% 5.67% 0.17% Tax Alpha 1.78% 0.32% 1.51% 1.54% Growth Strategy Pre-tax 0.74% 0.35% 1.09% 6.49% 8.07% 1.58% 4.47% 5.68% 1.21% 4.70% 5.88% 1.17% Growth Strategy After Tax 0.57% 0.88% 0.31% 6.14% 7.48% 1.34% 5.13% 5.15% 0.03% 5.37% 5.38% 0.01% Tax Alpha 1.40% 0.24% 1.19% 1.16% Growth w/income Strategy Pre-tax 0.42% 0.81% 1.23% 6.22% 7.70% 1.48% 4.46% 5.61% 1.16% 4.78% 5.84% 1.06% Growth w/income Strategy After Tax 0.30% 0.23% 0.07% 5.89% 7.21% 1.32% 4.99% 5.14% 0.15% 5.30% 5.40% 0.10% Tax Alpha 1.16% 0.16% 1.01% 0.96% Balanced Strategy Pre-tax 0.19% 1.07% 1.27% 5.65% 7.02% 1.38% 4.11% 5.26% 1.15% 4.33% 5.42% 1.09% Balanced Strategy After Tax 0.14% 0.20% 0.35% 5.37% 6.64% 1.27% 4.54% 4.85% 0.31% 4.77% 5.07% 0.31% Tax Alpha 0.92% 0.10% 0.84% 0.78% Conservative Strategy Pre-tax 0.87% 1.60% 0.73% 4.12% 4.66% 0.53% 2.93% 3.96% 1.02% 3.36% 4.09% 0.73% Conservative Strategy After Tax 0.64% 1.18% 0.54% 3.91% 4.57% 0.66% 3.26% 3.75% 0.49% 3.54% 3.97% 0.42% Tax Alpha 0.20% 0.13% 0.53% 0.30% Performance shown represents past performance, which is no guarantee of future results. return and principal value of investments will fluctuate over time. A client s underlying investments may differ from those of the composite portfolio. Returns for individual clients may differ significantly from the composite returns and may be negative. Current performance may be higher or lower than returns shown. Composite and after-tax benchmark returns are asset weighted because both are based on individual client accounts. Pre-tax benchmarks are not asset weighted, because they are based on market indexes. Returns include changes in share price and reinvestment of dividends and capital gains. The index performance includes the reinvestment of dividends and interest income. An investment cannot be made in an index. Securities indexes are not subject to fees and expenses typically associated with managed accounts or investment funds. The underlying funds in each composite portfolio may not hold all the component securities included in, or in the same proportion as represented in, its corresponding customized benchmark. Only Fidelity Personalized Portfolios that are all stock or include national and state-specific municipal bond funds are included. Availability of state-specific funds depends on client s state of residence. Fidelity Personalized Portfolios ( FPP ) launched July 2010; performance before such date reflects only Fidelity Private Portfolio Service ( PPS ) accounts. See endnote 1 for more information on how these returns and benchmarks are calculated. The results above represent average annual composite returns (net of fees) for FPP client accounts managed by Strategic Advisers that use an all-stock strategy or a strategy with municipal bond funds. Non-fee-paying accounts may be included in composites. This may increase the overall composite performance with respect to the net-of-fees performance. The pre-tax benchmarks consist of market indexes. The after-tax benchmarks consist of mutual funds, because an investable asset with known tax characteristics is needed to calculate after-tax benchmark returns for comparison. Composite portfolio excess returns are the difference between composite portfolio returns and their applicable composite portfolio benchmark returns. Both the pre-tax and after-tax composite portfolio benchmark returns are blended from either representative market indexes (for pre-tax benchmarks) or representative mutual funds (for after-tax benchmarks) in weightings based on the long-term asset allocation of each strategy. The benchmark returns are calculated monthly based on the long-term asset allocation of the strategies at that time so the benchmarks reflect historical changes to the asset allocation of each strategy. The benchmark long term allocation weightings may vary slightly from individual client accounts due to individual account investments and activity. The tables on the next page detail the current composition of the benchmarks for each of the investment strategies that are all stock or with a municipal bond fund component mentioned in this paper. FIDELITY PERSONALIZED PORTFOLIOS 7

8 Pre-tax Benchmark Composition (as of 12/31/2015) Strategy Dow Jones U.S. Total Stock Market Index MSCI ACWI ex USA Index (Net MA Tax) Barclays Municipal Bond Index Lipper Tax-Exempt Money Market Funds Index All Stock 70% 30% Aggressive 60% 25% 15% Growth 49% 21% 25% 5% Growth with Income 42% 18% 35% 5% Balanced 35% 15% 40% 10% Conservative 14% 6% 50% 30% All indexes are unmanaged and are not illustrative of any particular investment. s cannot be made directly in any index. Performance of the indexes includes reinvestment of dividends and interest income, unless otherwise noted. The domestic stock pre-tax benchmark component of all strategies is the Dow Jones U.S. Total Stock Market Index, a float-adjusted market capitalization weighted index of all equity securities of U.S.-headquartered companies with readily available price data. The foreign stock pre-tax benchmark component of all strategies is the Morgan Stanley Capital International All-Country World Index (MSCI ACWI ex USA Index [net MA tax]), a free-float-adjusted, market capitalization weighted index designed to measure the equity market performance of developed and emerging markets. The index returns for periods after 1/1/1997 are adjusted for tax withholding rates applicable to U.S.-based mutual funds organized as Massachusetts business trusts. The fixed income pre-tax benchmark component of all strategies with municipal bonds is the Barclays Capital Municipal Bond Index, a market value weighted index of investment-grade municipal bonds with maturities of one year or more. The short-term pre-tax benchmark component of all strategies with municipal bonds is the Lipper Tax-Exempt Money Market Funds Index, an unmanaged index consisting of the largest (assets) 30 funds within the taxexempt money market discipline and is equal weighted and adjusted for capital gains and income. After-Tax Benchmark Composition (as of 12/31/2015) Strategy Spartan Total Market Index Fund Fidelity Advantage Class (FSTVX) Spartan Global ex U.S. Index Fund Fidelity Advantage Class (FSGDX) ishares National Municipal Bond ETF Fidelity Tax-Free Money Market Fund (FMOXX) All Stock 70% 30% Aggressive 60% 25% 15% Growth 49% 21% 25% 5% Growth with Income 42% 18% 35% 5% Balanced 35% 15% 40% 10% Conservative 14% 6% 50% 30% The components of the after-tax benchmarks are mutual funds. The after-tax benchmark uses mutual funds as investable alternatives to market indexes in order to provide a benchmark that takes into account the associated tax consequences of these investable alternatives. Detailed information on these mutual funds is available on Fidelity.com. FIDELITY PERSONALIZED PORTFOLIOS 8

9 Talk with a Fidelity representative about putting Fidelity Personalized Portfolios to work for you *Strategic Advisers, Inc. (Strategic Advisers), applies tax-sensitive investment management techniques in Fidelity Personalized Portfolios and Fidelity Personalized Portfolios for Trusts (including tax-loss harvesting ) on a limited basis, at its discretion, primarily with respect to determining when assets in a client s account should be bought or sold. As a discretionary investment manager, Strategic Advisers may elect to sell assets in an account at any time. A client may have a gain or loss when assets are sold. Strategic Advisers does not currently invest in tax-deferred products, such as variable insurance products, or in tax-managed funds in Fidelity Personalized Portfolios and Fidelity Personalized Portfolios for Trusts, but may do so in the future if it deems such to be appropriate for a client. Strategic Advisers does not actively manage for alternative minimum taxes; state or local taxes; foreign taxes on non-u.s. investments; or estate, gift, or generation-skipping transfer taxes. Strategic Advisers relies on information provided by clients in an effort to provide tax-sensitive investment management and does not offer tax advice. Strategic Advisers can make no guarantees as to the effectiveness of the tax sensitive management techniques applied in serving to reduce or minimize a client s overall tax liabilities or as to the tax results that may be generated by a given transaction. Except where Fidelity Personal Trust Company, FSB ( FPTC ), is serving as trustee, Fidelity Personalized Portfolios and Fidelity Personalized Portfolios for Trusts clients are responsible for all tax liabilities arising from transactions in their accounts, for the adequacy and accuracy of any positions taken on tax returns, for the actual filing of tax returns, and for the remittance of tax payments to taxing authorities. 1 Based on strategy composites. (See page 8 for information on the composites.) These results are hypothetical and do not represent actual value added to client accounts. Returns for individual clients will vary. Performance shown represents past performance, which is not a guarantee of future results. returns and principal value will fluctuate, and you may lose money. 2 The tax-sensitive investment management strategies described in this paper apply only to Fidelity Personalized Portfolios accounts. An assumption of this paper is that investors want to accumulate tax-loss carryforwards through the use of ongoing tax-sensitive investing strategies. Unused tax-loss carryforwards can generally be carried forward indefinitely to offset future realized capital gains and some ordinary income, but at death they do not carry over or pass down to a surviving heir. You cannot invest directly in an index. Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Tax alpha is a measure of value that an investment manager provides in helping improve after-tax returns using tax-sensitive investment management strategies. Tax alpha is calculated by subtracting the annualized pre-tax benchmark relative return (pre-tax excess return) from the annualized after-tax benchmark relative return (after-tax excess return). Cumulative Return Added from : This number represents the hypothetical value added from tax-sensitive investment management strategies that would have accrued on a $1 million investment in a composite of client accounts for each strategy during the stated time period. Essentially, it shows the cumulative tax alpha in terms of percentages. The Pre-tax and After-Tax Composite Portfolios for all strategies (except the Moderate and Moderate with Income Strategies) were created on 12/31/2001. The After-Tax Composite Benchmark for strategies using municipal bond funds and the All Stock strategy were also created on 12/31/2001. For comparison purposes, the Pre-tax Benchmark uses the same creation date as the composites returns. This date signifies when a representative number of accounts were being managed to enable the composite calculation. Returns less than one year are cumulative. Investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Before investing, consider the fund s investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully. Fidelity Personalized Portfolios is a service of Strategic Advisers, Inc., a registered investment adviser and a Fidelity s company, and may be offered through Strategic Advisers, Inc., or Fidelity Personal Trust Company, FSB ( FPTC ), a federal savings bank. Nondeposit investment products and trust services offered through FPTC and its affiliates are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, are not obligations of any bank, and are subject to risk, including possible loss of principal. These services provide discretionary money management for a fee. Brokerage services provided by Fidelity Brokerage Services LLC. Custody and other services provided by National Financial Services LLC. Both are Fidelity s companies and members of NYSE and SIPC. Fidelity Brokerage Services LLC, Member NYSE and SIPC, 900 Salem Street, Smithfield, RI FMR LLC. All rights reserved