Critical Client Conversations

Preserve Purchasing Power During Inflation

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To support clients concerned about holding on to their capital, explore these tips based on biases they often have, insights and education, and ideas on actions to help.

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Behavioral Biases in Investing

Economic shifts, such as high inflation, often bring out biases and perceptions that lurk under clients' awareness.

Knowing which ones your clients have can make it easier for you to get the conversation started.

Learn more from experts in behavioral science including author and Harvard professor Cass Sunstein. View full bio

Cass Sunstein.

Behavioral Spotlight: Loss Aversion

“If we are myopically focused on losses over the importance of gains, we might make decisions that cause terrible economic problems.”

Cass Sunstein, Professor, Harvard University

Behavior-Based Tips for Better Conversations

Professor Sunstein suggests these actions:

  • Offer comparative judgments to help clients understand the risk trade-offs of various investment classes, including cash.

  • Frame your questions to give people a sense of the long term rather than the short. Seeing short-term risks can scare people away. Conversely, seeing long-term patterns can be calming.

Behavioral content Cass Sunstein ©2022 All Rights Reserved

Advisor speaking with client.

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Consider Adding TIPS

As inflation rises, so do Treasury inflation-protected securities’ (TIPS) face values. That’s why TIPS have the potential to generate an income stream that outpaces inflation.

Shifting 25% of a core bond portfolio to TIPS creates the opportunity for:

  • Better performance in a rising interest rate period.

  • A risk level that stays steady with that of a core bond portfolio.

See It in Action

The sample allocation illustrated in the graphic shows that, over the past five years, a 75/25 blended portfolio:

• Improved performance by 58%.
• Held risk constant.

25% American Century Inflation-Adjusted Bond Fund. 75% Core Bond Funds.

Sample allocation.

Supporting Data

All data as of 6/30/2022.
Data reflects past performance, assumes reinvestment of dividends and capital gains and is no guarantee of future results. Current performance may be higher or lower than data shown. Investment return and principal value fluctuate. Redemption value may be more or less than original cost. Obtain performance data current to the most recent quarter-end.

I Class funds are available through many platforms. Please contact your investment company or advisor to see if this share class is offered. (I Class minimum investment per fund is $5 million for individuals and $3 million for endowments and foundations.)

For additional information, consult the prospectus.

Glossary Terms: Bloomberg U.S. Treasury Inflation Protected Securities (TIPS) Index, Standard Deviation

*The Core Bond investment category is represented by iShares Core US Aggregate Bond ETF (AGG). It is not intended to represent a specific investment. Following are daily closing prices as of the dates specified: 6/30/2012: $111.30; 6/30/2017: $109.51;6/30/2019: 111.35; 6/30/2021: $115.33.
A**: Seeks to provide total return and inflation protection consistent with investment in inflation-indexed securities.
B***: Tracks the investment results of an index composed of the total U.S. investment-grade bond market.
All funds and ETFs: Provide daily liquidity. Principal is not guaranteed.

The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10- year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

Overall Morningstar Rating, Three Stars.

American Century Inflation-Adjusted Bond Fund | I Class

Seeks to provide total return and inflation protection consistent with investment in inflation-indexed securities.

Benefits
  • Designed to combat inflation, which can help purchasing power

  • Seeks to deliver returns with lower volatility

  • Actively managed by a veteran team dedicated to inflation protection

As of 6/30/2022. Category: Inflation-Protected Bond. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance, placing more emphasis on downward variations and rewarding consistent performance.


The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10- year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

Additional Solutions for Your Consideration

Five Star Overall Morningstar Rating.

American Century Short Duration Strategic Income Fund | I Class

Seeks to complement core bond holdings with high current income, broad diversification, and the potential to mitigate the impact of rising rates.

Benefits
  • Diversifies sources of income to seek attractive yield regardless of the interest rate environment

  • Features less interest rate risk than longer-duration fixed-income options

  • Emphasizes investment-grade issues in pursuit of lower potential volatility than high yield

As of 6/30/2022. Category: Short-Term Bond. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance, placing more emphasis on downward variations and rewarding consistent performance.


The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10- year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

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What’s Next?

We’re here to help you support your clients in these uncertain times.

The value and/or returns of a portfolio will fluctuate with market and economic conditions.

Investments in fixed income securities are subject to the risks associated with debt securities including credit, price and interest rate risk.

Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline.

In addition, the lower-rated debt securities in which the fund invests are subject to greater credit risk and liquidity risk. Credit risk is the risk that an obligation won’t be paid and a loss will result. Liquidity risk is the risk that the fund will have difficulty selling its debt securities. There is no guarantee that the investment objectives will be met. Dividends and yields represent past performance and there is no guarantee that they will continue to be paid.

The information is not intended as a personalized recommendation or fiduciary advice and should not be relied upon for, investment, accounting, legal or tax advice.

General Disclosures

There is no guarantee that the investment objectives will be met.

Diversification does not assure a profit nor does it protect against loss of principal.

The information is not intended as a personalized recommendation or fiduciary advice and should not be relied upon for, investment, accounting, legal or tax advice.

Fixed Income Disclosures

The value and/or returns of a portfolio will fluctuate with market and economic conditions.

Investments in fixed income securities are subject to the risks associated with debt securities including credit, price and interest rate risk.

Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline.

The lower rated securities in which the fund invests are subject to greater credit risk, default risk and liquidity risk.

Credit risk is the risk that an obligation won't be paid and a loss will result. Generally, a lower credit rating indicates a greater risk of non-payment. Liquidity risk is the risk that the fund will have difficulty selling its debt securities.

Inflation-Adjusted Bond Fund

In certain interest rate environments, such as when real interest rates are rising faster than nominal interest rates, inflation-protected securities with similar durations may experience greater losses than other fixed income securities. Interest payments on inflation-protected debt securities will fluctuate as the principal and/or interest is adjusted for inflation and can be unpredictable.

iShares Core US Aggregate Bond ETF (AGG)

ETFs are baskets of securities that trade like stocks on an exchange and can be bought or sold throughout the trading day at fluctuating market prices (not NAV). Shares may trade at a premium or discount to NAV in the secondary market. Brokerage commissions will reduce returns. Like mutual funds, ETFs also have expense ratios. In general, actively managed ETFs cost more than passively managed index ETFs. Unlike mutual funds, it is possible to buy ETFs on margin and sell them short. ETFs held in a taxable account may result in less tax liabilities than similarly invested mutual fund the same account. Different companies offer ETFs. iShares are distributed by BlackRock Investments, LLC (together with its affiliates, BlackRock). All rights reserved. iShares and BLACKROCK are registered trademarks of BlackRock.

Inflation-Adjusted Bond Fund
Morningstar Rating - I Class

Morningstar Category - Inflation Protected

Overall

3 Year

5 Year

10 year

Ratings

Three stars.

Three stars.

Three stars.

-

# of Funds

198

198

185

-

Short Duration Strategic Income Fund
Morningstar Rating - I Class

Morningstar Category - Short-Term Bond

Overall

3 Year

5 Year

10 Year

Ratings

Five stars.

Five stars.

Five stars.

-

# of Funds

547

547

488

-

ALL DATA AS OF 6/30/2022. SOURCE: MORNINGSTAR.

The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10- year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.