UNCHARTED WATERS Navigating Stock Market Volatility in a Coronavirus World

Not FDIC Insured • May Lose Value • No Bank Guarantee

Presentation description: places current shocks in a historical perspective, describes how emotions affect decision‐making ability, and provides three strategies to help investors live with market volatility.

1 What’s Happening in the Markets?

LAST 10 YEARS S&P 500 Index Cumulative Return Avg Annual Return Mar 31, 2010–Mar 31, 2020 10.53% $40,000 TODAY $30,000

$20,000

$10,000

$0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020. Franklin Templeton Capital Market Insights Group. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. 2

Slide objective: review how the market has behaved over the last 10 years.

• With all the events in the news and related market volatility, investors may be wondering, “how are these events impacting my investments?”

[click mouse]: • This chart shows the growth of the S&P 500 index over the past 10 years through March 31, 2020. • The S&P 500 Index measures the stock performance of 500 large companies listed on stock exchanges in the United States. Although investors can not directly invest in an index, the S&P 500 Index is seen by many as a representation of the US stock market which is why we will be referencing it throughout this presentation.

[click mouse]: • The average annual return of the S&P 500 index over the last 10 years as of 3/31/2020, which includes the current crisis, has been10.53%. • As you can see, up until recently, we’ve been fortunate to experience a bull market and some investors, who’ve just starting investing recently, have never experienced a significant downturn. • It’s not surprising that investor emotions are running high.

[click mouse]: • Here we are today.

[click mouse] to go to next slide and zoom in on this timeframe.

2 TODAY

S&P 500 Index Cumulative Return MAR. 29, 2020 December 31, 2019 – March 31, 2020 Trump announces CDC guidelines will be extended 1 DEC. 31, 20191 MAR. 11, 2020 through April 30th 4 Coronavirus first reported WHO declared COVID-19 a from Wuhan, China pandemic; DJIA enters bear territory MAR. 25, 2020 UN issued a $2B Global Humanitarian response plan1 FEB. 24, 20202 JAN. 30, 20201 Coronavirus fears send US MAR. 23, 2020 WHO declares international public stocks tumbling; Steepest point Fed announces new measures health emergency as cases are decline since Dec. 2018 to support economy5 reported outside of China

MAR. 12, 20203 President Trump announces EU travel ban; S&P 500 index enters bear territory

12/31/19 1/15/20 2/1/20 2/15/20 3/1/20 3/12/20 3/31/20

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Sources: © Morningstar 2020. 1. World Health Organization - International Diseases - Coronavirus Disease 2019. 2.Foxbusiness-markets-stocks –Feb 24, 2020. 3. NYTimes article- coronavirus-timeline. 4. Donaldjtrump.com-timeline: the Trump Administration’s Decisions Actions to Combat the Coronavirus. 5. federalreserve.gov/newsevents/pressreleases. © Morningstar 2020. Franklin Templeton Capital Market Insights Group. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. 3

Slide objective: review how recent shocks are impacting the market.

[click mouse] • 12/31/2019 – Coronavirus disease first reported from Wuhan, China. • 1/20/2020 – Other countries, including the United States, confirmed cases. [click mouse] • 1/30/2020 – The World Health Organization (WHO) declared an international public health emergency as cases are reported outside China. Three days later, the first coronavirus death was reported outside China. [click mouse] • 2/24/2020 – The US stock market plummeted over coronavirus fears, after the Dow Jones Industrial Average experienced the worst day in two years. [click mouse] • 3/11/2020 – The WHO declared COVID‐19 a pandemic and the Dow Jones Industrial Average entered bear market territory. • 3/12/2020 ‐ The S&P 500 Index enters bear market territory after President Trump announces travel ban on most of Europe which raised the prospect of a worldwide economic slowdown. [click mouse]: • 3/23 – The Federal Reserve announces new measures to support economy. [click mouse]: • 3/25 – The UN issues a $2B Global Humanitarian response plan. [click mouse]: • 3/29 –Trump announces CDC guidelines will be extended through April 30th.

• The combination of the coronavirus outbreak and oil price reductions is unprecedented, and it may be too early to tell how this will impact the economy. • However, we do know that volatility can cause investors to act on their emotions and that lessons learned from the past can help in navigating these “uncharted waters.”

3 Agenda • Current Shocks in Historical Perspective

• What’s Going on in Our Heads

• Living with Market Volatility

Slide objective: review the agenda.

Today we will cover: • Current shocks in historical perspective • What’s going on in our heads • Living with market volatility

Let’s get started.

4 Current Shocks in a Historical Perspective

Slide objective: to put current shocks into historical perspective.

• While most investors know the market goes through cycles, it’s in times like these, when markets are stormy, that emotions are running high. • A historical view, focusing on relevant research, solid data and proven strategies, can help put current events into perspective. • While the past is not predictive of the future, it does offer valuable perspective.

Transition: Let’s go look at the past.

5 Bull and Bear Markets S&P 500 Index Bull and Bear Markets (Jan 30, 1970 – Mar 31, 2020)

+16% 1 w. 16,000 3/23/2020- +529% 3/31/2020 10 yr., 11 mo. 3/9/2009-2/19/2020 12,000 +818% +121% 5 yr. 12 yr., 10 mo. 10/9/2002-10/9/2007 11/30/1987-9/4/2000 8,000 +845% 13 yr. +53% 9/30/1974-9/29/1987 4,000 3 yr., 6 mo. 1/30/1970-1/30/1973 -43% -30% -47% -55% -34% 0 19701973 1976 1979 19811984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2019

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020. Franklin Templeton Capital Market Insights Group. Bear Market is defined as a 20% drawdown from a peak to low. Calculations based on daily returns. Supporting data / table from Morningstar Direct / Presentation Studio. The calculations do not reflect any Franklin Templeton Funds. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. 6

Slide objective: show that bull markets have lasted longer than bear markets.

• This chart shows the growth of the S&P 500 index since 1970. It illustrates the history of bull and bear markets.

[click mouse]: • In this illustration, a bear market is defined as a 20% decline from a peak.

[click mouse]: • A bull market starts when the previous contraction has reached its maximum drawdown and continues until another 20% decline or more. • The recent market contraction, by above definition, ended on 3/23/2020. However, its still to early to tell how long this crisis will last and when and what kind of recovery may follow.

• Take a look at the big picture, can you draw any conclusions?

• As you can see bull markets have lasted longer compared to bear markets and the average gain during a bull market was larger than the average loss during a bear market.

6 6 16/04/2020 16:27

Bull Markets Average growth: +396.9% 7 years, 4 months Bear Markets Average fall: -42% 13 months

Past performance does not guarantee future results. Source: © Morningstar 2020. Franklin Templeton Capital Market Insights Group. Bear Market is defined as a 20% drawdown from a peak to low. Calculations based on daily returns. Supporting data / table from Morningstar Direct / Presentation Studio. The calculations do not reflect any Franklin Templeton Funds. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. 7

Slide objective: show how bull markets have historically lasted longer than bear markets.

• In fact over this period, the average bull market rose 396.9% and lasted 7 years, 4 months while the average bear market fell ‐42% and lasted 13 months.

Insert Lit Code Here 7 Market Declines are Part of Investing

S&P 500 Index Over the Last 50 Years 1970–March 2020

Size Of -5% -10% -15% -20% Decline or more or more or more or more

Avg. EVERY EVERY EVERY EVERY Frequency 10 MONTHS 2 YEARS 4 YEARS 8 YEARS

Last AUG 2019 DEC 2018 DEC 2018 MAR 2020 Occurrence

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020, Standard and Poor’s. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. 8

Slide objective: market downturns happen frequently but don’t last forever.

• This history of bulls and bears tells us that market declines are just a part of investing. They are inevitable. They happen frequently but don’t last forever.

For example: [click mouse]: • Market corrections of 5% or more has historically happened once every 10 months. • In fact, the last market correction of 5% or more was in August 2019. [click mouse]: • A market correction of 10% or more has historically happened once every 2 years. [click mouse]: • A market correction of 15% or more has historically happened once every 4 years. [click mouse]: • A market correction of 20% or more, which is considered by many to be bear market territory, has historically happened once every 8 years. • As you saw with the bull and bear chart, following each historical correction, the market bounced back.

8 Markets Have Rebounded from Viral Outbreaks in the Past

Cumulative Growth of the S&P 500 Index Dec. 2019 20-year period ending March 31, 2020 July 2014 COVID-19 $40,000 Ebola

Jan. 2016 $30,000 Zika Apr. 2009 Mar. 2003 Swine Flu

$20,000 SARS

$10,000

$0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Mar. 2020

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020. Prior Disease Outbreak Years are from World Health Organization 2020. Indexes are unmanaged and one cannot invest in them. They do not include fees, expenses or sales charges. 9

Slide objective: show that markets have historically rebounded from viral outbreaks in the past.

• But what about the history of viral outbreaks (or epidemics). • Viral outbreaks are not new to the markets. While markets react to the news events in the short term, they have tended to reward patient investors over long periods of time. For example:

[click mouse]: • In 2003, SARS saw 8,000 people infected. It was brought to an end by good hygiene (hand‐ washing) and environmental factors (warming temperatures). It burnt out when enough people became infected to build an immunity to the disease. [click mouse]: • In 2009, there was the swine flu. [click mouse]: • In 2014, Ebola in West Africa ended with human intervention, when the WHO declared a coordinated international response. Countries worked together to administer to the sick, and when a second outbreak occurred in 2018, treatments developed from the first outbreak were offered to patients. [click mouse]:

9 • In 2015, there was the Zika virus. [click mouse]: • And that brings us to today. • There is nothing exactly like this COVID‐19. We don’t know yet how everything is going to play out. But you can compare it to historical epidemics to help put things in perspective.

9 Markets Have Tended to Rebound Quickly

Market Performance Following Past Epidemics As of January 31, 2020

Start of Peak in Local Index(es) From Start to 1 Month After 3 Month After Epidemic Global Interest* Global Interest* Impacted Peak Interest* Peak Interest Peak Interest

SARS 3/25/03 4/24/03 MSCI China -8.6% 14.7% 30.9%

MSCI Hong Kong -9.3% 9.8% 17.0%

SWINE FLU 4/24/09 4/28/09 MSCI Mexico -4.0% 15.3% 25.7%

EBOLA 7/25/14 10/24/14 MSCI Africa -4.0% 6.7% 7.2%

ZIKA 1/14/16 2/2/16 MSCI Brazil -2.0% 14.8% 35.4%

COVID-19 1/9/20 ?? ?

AVERAGE -4.7% 12.3% 23.1%

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. *Peak interest determined by story counts on Bloomberg. Sources: Franklin Templeton Multi-Asset Solutions, Bloomberg, JP Morgan. Indexes are unmanaged and one cannot invest in them. They do not include fees, expenses or sales charges. 10

Slide objective: show how markets have tended to rebound quickly.

• Historically, the markets have tended to rebound quickly from viral epidemics.

[click mouse]: • This chart shows the performance of prior epidemics from the start of global interest to the peak in global interest. • Global interest is measured by story counts on Bloomberg.

[click mouse]: • One month after the peak in global interest of these viral outbreaks, the markets showed signs of recovery.

[click mouse]: • Three months after the peak of global interest, the markets, on average, saw a gain of 23.1%.

10 What’s Going on in Our Heads

Slide objective: explain how emotions can impact how we respond to volatility.

• At the end of the day, we are all emotional beings and when volatility strikes, many of us feel like we’re riding a roller coaster.

• So, let’s find out what’s going on in our heads and why.

11 12

Slide objective: describe how we make decisions.

• Here’s what’s on our brains.

[click mouse]: • When we make decisions, our frontal cortex processes lots of information to make a logical and informed decision. Usually we can do this quite well ‐ what to eat, what clothes to wear, what kind of toothpaste to buy, the quickest route to work, etc.

[click mouse]: • But then there’s this little part of the brain known as the amygdala. It’s often referred to as the reflexive brain because it connects stimuli in the world around you to experiences. • So, while our frontal cortex gives us the logical response, our reflexive brain acts on emotions.

Transition: To best explain this, let’s look at an example. Fight or Flight

NOTE: In the PDF version, this slide has been separated into two pages to illustrate the speaking notes. Applies to this slide and the next.

Slide objective: describe how we make decisions.

• Remember the caveman? The amygdala may help when confronted by a saber tooth tiger (a stimulus). Based on past experiences, the amygdala would tell the caveman that now might be a good time to run. • In fact, the amygdala is often associated with fight or flight responses. Fight or Flight

Slide objective: describe how we make decisions.

• But, letting our reflexive brain control our reactions when making financial decisions may lead to some undesirable outcomes. Anchoring We often focus too heavily on one piece of information when making decisions.

Slide objective: introduce anchoring bias.

• The first concept I’d like to discuss is a behavioral bias called anchoring. • Anchoring is the tendency to focus too heavily on one piece of information when making decisions. ANCHORING Anchors Influence Performance Expectations

Franklin Templeton Investor Sentiment Survey results

20% Adjusted return expectation 20% after introducing Hypothetical the anchor market return Original 10% investor return expectations

Source: 2020 Franklin Templeton Investor Sentiment Survey conducted in partnership with Qualtrics of at least 500 US adult investors. 16

Slide objective: anchors influence performance expectations.

• Anchors have a powerful hand in our decision‐making and can create unrealistic expectations for investors. • We asked investors in a survey to tell us their average annual portfolio return expectations over a five‐year period, and the median response was 10%.

[click mouse]: • But, when presented with a hypothetical market that was up 20% in any given year,

[click mouse]: • investor return expectations shifted to a median response of 20%. • The introduction of the hypothetical 20% anchor caused investors to abandon their original return expectations and expect stronger returns. • Later, when those same investors were presented with a hypothetical market that was down 20%, the median return expectation was positive 3%. Surprisingly, investors expected to outperform a down market by 23%. ANCHORING The Full Picture Tells a Different Story

S&P 500 Index vs. an 8% average annual return Growth of a $10,000 investment for the 30-year period ended December 31, 2019 $200,000 $172,731 10% average $150,000 annual return

$100,000 $100,627 8% average annual return

$50,000

$0 1989 1994 1999 2004 2009 2014 2019 Investment with an 8% average annual return S&P 500 Index

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: Morningstar. Indexes are unmanaged and one cannot invest directly in an index. 17

Slide objective: show how anchors influence performance expectations.

• Now let’s see how anchoring can influence the way we feel about our investment plan. • Imagine investing $10,000 in 1989 and setting a goal to earn an 8% average annual return on your investment portfolio.

[click mouse]: • Here’s the goal you’ve set. And if you earn a consistent return over the entire period, the growth of your account would look like this and you’d have an ending account value of over $100,627.

[click mouse]: • But the reality of the market is that things don’t move in a smooth fashion.

[click mouse]: • After a few years, when the market hits a new high point, it’s easy to anchor to a new higher return expectation.

[click mouse]: • And if the market drops you may feel like you’ve lost, losing sight that you are actually still on track to reach your long‐term goal. • It’s important to keep focused on your long‐term strategy and not let the anchoring that may come with short‐term volatility steer you astray.

17 Loss Aversion The pain we associate with a loss is much more intense than the reward felt from a gain.

Slide objective: introduce loss aversion behavior.

• Loss aversion is another fear‐induced behavior many investors experience.

• It can be defined as our preference to avoid losses because the associated pain is much more intense than the reward felt from a gain.

• In fact, studies have shown that the pain of a loss is almost twice as strong as the reward felt from a gain. LOSS AVERSION Fear Drives Investors Into Cash

$943B $491B

Dot-Com Bust Global Financial Crisis March 2000 – October 2002 October 2007 – March 2009

Source: Federal Reserve Bank of St. Louis. The figures given here are for illustrative purposes only. 19

Slide objective: fear drives investors into cash.

• As emotional investors, we tend to make decisions to avoid the pain of loss.

• For example, when the dot‐com bubble burst, investors panicked and pulled their money out of the market. This contributed to an increase of $491 billion moving into cash during this period.

[click mouse]: • The similar movement occurred during the global financial crisis just a few years later, with investors piling $943 billion into cash.

• To avoid more losses in today’s markets, investors may be tempted to move their investments to a place they perceive as a safe haven now. LOSS AVERSION Perceived Safety May Come at a Cost

Money market accounts’ average yield before and after inflation January 1, 2000–December 31, 2019 6%6

4%4 Money Market Yield 2%2 0.15%

0%0

-2%-2 Inflation Adjusted -4%-4 Yield -0.65% -6%-6 1/31/2000 1/31/2003 1/31/2006 1/31/2009 1/31/2012 1/31/2015 1/31/201812/31/2019

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results It’s important to note that money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. Sources: Money Market Accounts’ Average Yield: BanxQuote® and Federal Reserve Bank of St. Louis; Inflation: Bureau of Labor Statistics. Inflation is represented by year-over-year changes of the Consumer Price Index (CPI) plotted on a monthly basis. 20

Slide objective: illustrate how seeking safety may mean losing purchasing power.

• But, what emotional investors may not realize, is that this security comes at a cost. • If you look at the average money market account yield since 2000, you’ll see that while the yield bounced between one and four percent through the first quarter of 2008, it’s been close to zero for the past decade.

[click mouse]: • Your clients may be surprised to learn, that once inflation is factored in, staying in investments they may consider more secure (while they wait out stock market volatility), may in fact lead to erosion of their purchasing power. • Over the past 19 years, average money market account yields on an inflation‐adjusted basis, were only positive about 15% of the time. The “positive” yields in 2009 and 2015, were largely due to periods of deflation.

20 Living with Market Volatility

Slide objective: describe three strategies to help investors live with market volatility.

• As we’ve seen market volatility is part of investing. So, what can we do today? • Let’s look at three strategies that can help investors live with market volatility.

21 Stay Calm First and arguably the most important concept of investing is to stay calm and keep a long- term perspective.

Slide objective: introduce the first strategy, stay calm.

• First and arguably the most important concept of investing is to stay calm and keep a long‐term perspective.

22 4/16/2020 4:27 PM

STAY CALM Keep a Long-Term Perspective

S&P 500 Index (Cumulative Growth of a $10,000 Investment) December 31, 1970–March 31, 2020 $1,600,000 COVID-19 Total Investment ENERGY CRISIS $1,191,541

GLOBAL FINANCIAL CRISIS Average Annual $1,200,000 10.06%

TECH BUBBLE BURST $800,000 BLACK MONDAY

$400,000

$0 19701973 1976 1979 19811984 1987 1990 1993 19961999 2002 2005 2008 2011 2014 2017 2019 9/30/1973 6/30/1976 3/31/1979 9/30/1984 6/30/1987 3/31/1990 9/30/1995 6/30/1998 3/31/2001 3/31/2012 12/31/1970 12/31/1981 12/31/1992 12/31/2003 This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020. Franklin Templeton Capital Market Insights Group. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. 23

Slide objective: stay calm and keep a long‐term perspective.

• As you’ve just seen, some investors when faced with volatility act on fear and pull their money out of the market diverting them from their long‐term goals. • Suppose you put to work a $10,000 investment into the S&P 500 on December 31,1970.

[click mouse]: • Several events over the course of history caused short‐term volatility in the overall market. [click mouse]: • By staying the course, your $10,000 investment would have grown to $1,191,541. That’s an average annual return of 10.06%. While past performance cannot guarantee future results, keeping a long‐term perspective can help during times of volatility.

Transition: However, sticking to these fundamentals is sometimes easier said than done.

Insert Lit Code Here 23 24 STAY CALM Tune Out the Noise S&P 500 Index Dec 31,1970 - March 31, 2020

% of 1-Year 3-Year 5-Year 10-Year Time Daily Monthly Period Periods Periods Periods Seeing

Gains 54% 63% 80% 86% 90% 91%

Losses 46% 37% 20% 14% 10% 9%

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020, Macrobond. S&P 500. Analysis by Franklin Templeton Capital Group. Monitoring periods are represented by 10-year, 5-year, 3-year, 1-Year, monthly rolling periods for S&P 500 Index from 12/31/70–3/31/2020. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges.

Slide objective: Don’t over review your portfolio.

• A way for investors to stay calm and not act on emotions is to “tune out the noise”. Simply said, investors should watch their portfolio less.

For Webinars: Ask learners to respond via chat, “How often do you currently look at your portfolio?”.

[click mouse]: • Stock markets rise and fall every day with many ups and downs throughout the day. This may cause anxiety for those who keep their eyes fixed on daily market movements. The more they watch their portfolio, the more they lose.

• Suppose you were investing over a 10‐year investment horizon. Your perception of your portfolio would change depending on the monitoring period. If monitoring on a monthly basis, you would observe a loss 38% of the time. However, a 10‐year time frame has been positive 91% of the time.

24 • Tip: During your regularly scheduled review of your portfolio with your financial advisor, focus on your investment goals. Discuss with your advisor your portfolio’s results in terms of your goal attainment and time horizon.

24 Diversification Matters Diversification may reduce overall volatility and provide a smoother ride through bumpy markets.

Slide objective: introduce the concept that diversification matters.

• Diversification is a staple of investing. • Diversification may reduce a portfolio’s overall volatility and provide a smoother ride through bumpy markets.

25 DIVERSIFICATION MATTERS Why Diversify? Because Winners Rotate

Annual Total Return of Key Asset Classes 2005-2019 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Best Global Small Growth Small Growth Large Growth Large Growth Small Value Large Value EM Stocks EM Stocks EM Stocks EM Stocks Bonds EM Stocks EM Stocks Bonds Bonds Stocks Stocks Stocks Stocks Stocks Stocks 34.54 32.55 39.82 10.89 79.02 29.09 7.84 18.63 43.30 14.89 5.52 31.74 37.75 0.01 31.93 Small Value Global Small Value Small Value Large Value Large Growth Large Growth Large Growth Foreign Stocks Foreign Stocks Foreign Stocks Bonds High Yield Bonds Bonds High Yield Bonds Stocks Bonds Stocks Stocks Stocks Stocks Stocks Stocks 14.02 26.86 11.63 5.24 54.22 24.50 6.35 18.05 34.52 12.36 0.55 18.25 27.44 -0.01 31.13 Small Value Global Small Growth Large Growth Large Value Global Small Growth Hedge Strategies Hedge Strategies EM Stocks High Yield Bonds Foreign Stocks Bonds Foreign Stocks Foreign Stocks Stocks Bonds Stocks Stocks Stocks Bonds Stocks 9.27 23.48 10.95 -19.02 34.47 19.20 5.47 17.90 32.75 5.97 -0.39 17.40 25.62 -0.84 28.48 Large Value Large Value Large Value Large Growth Large Value Large Value Small Growth Small Growth Hedge Strategies High Yield Bonds Foreign Stocks Hedge Strategies EM Stocks High Yield Bonds Foreign Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks 5.82 20.80 9.95 -26.17 32.46 15.10 4.65 17.68 31.99 5.60 -1.11 11.60 22.17 -2.37 22.66 Small Value Small Growth Large Growth Small Value Large Growth Large Growth Large Value Small Value Small Growth Small Growth Large Value Small Value High Yield Bonds Foreign Stocks Hedge Strategies Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks 4.71 13.35 9.13 -28.92 31.57 15.05 -0.48 14.71 23.29 4.22 -1.38 11.32 15.36 -4.08 22.39 Small Growth Small Growth Large Growth Large Value Small Growth Large Growth Large Value Large Growth Large Value Hedge Strategies High Yield Bonds Hedge Strategies Hedge Strategies Hedge Strategies EM Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks Stocks 4.15 12.89 7.05 -34.92 21.18 14.42 -2.91 14.61 9.14 2.98 -3.13 6.89 8.52 -8.95 18.90 Large Growth Small Growth Small Value Small Growth Global Small Value Small Growth High Yield Bonds Bonds Hedge Strategies Hedge Strategies High Yield Bonds High Yield Bonds Hedge Strategies High Yield Bonds Stocks Stocks Stocks Stocks Bonds Stocks Stocks 4.00 11.92 6.97 -38.54 20.58 10.25 -5.25 14.59 7.53 1.86 -3.57 5.45 7.84 -9.31 14.00 Large Growth Large Value Small Value Global Global Small Value Bonds High Yield Bonds Hedge Strategies Foreign Stocks Hedge Strategies Bonds High Yield Bonds Bonds Hedge Strategies Stocks Stocks Stocks Bonds Bonds Stocks 2.43 11.01 2.65 -39.22 20.00 8.21 -5.50 6.37 -2.02 -0.48 -4.93 2.65 7.49 -12.86 12.03 High Yield Global Large Value Small Value Global Foreign Stocks Bonds Bonds Foreign Stocks Bonds EM Stocks EM Stocks High Yield Bonds Foreign Stocks Bonds Bonds Bonds Stocks Stocks Bonds 2.26 6.12 1.99 -43.06 5.93 6.54 -11.73 4.21 -2.27 -1.82 -7.47 1.60 7.03 -13.36 8.72 Global Small Value Global Global Global Global Global Bonds EM Stocks EM Stocks Foreign Stocks EM Stocks Foreign Stocks Bonds EM Stocks Bonds Stocks Bonds Bonds Bonds Bonds Bonds Worst -6.88 4.33 -9.78 -53.18 2.55 5.17 -18.17 1.65 -4.00 -4.48 -14.60 1.51 3.54 -14.25 5.90 This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020. Larger growth stocks are represented by the S&P Growth Index; Large value stocks are represented by the S&P 500 Value Index; Small growth stocks are represented by the Russell 2000 Growth Index; Small Value stocks are represented by the Russell 2000 Value Index; Foreign stocks are represented by the MSCI EAFE Index; Bonds are represented by the Bloom berg Barclays U.S. Aggregate Index; High yield bonds are represented by the Credit Suisse High Yield Index; Emerging market stocks are represented by the MSCI Emerging Markets Index; Global bonds are represented by the FTSE World Government Bond Indexes; Hedge Strategies are represented by the HFRI Fund Weighted Composite Index. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. Diversification does not guarantee a profit or a protect against loss. 26

Slide objective: show why diversification matters.

• Perhaps nothing better illustrates the need for a diversified an asset allocation plan than the chart here, which shows how various asset classes performed on a year‐by‐year basis over the last 15 years. The best‐performing asset class for each calendar year is at the top of each column. No asset class has consistently offered the best return year in and year out.

[click mouse]: • For example, let’s look at emerging markets. If you invested in 2005, 2006, and/or 2007 you’d be feeling pretty good. But what if you had put all of your money into emerging market stocks in 2008? You wouldn’t be feeling so great by the end of that year.

26 DIVERSIFICATION MATTERS Why Diversify? Because Winners Rotate.

Growth of $10,000 invested annually between 2000–2019 Average Annual Three Strategies Total Investment Value of Portfolio Total Return Chasing the winners* Investing in last year’s best-performing $200,000 $438,114 6.99% asset class Investing with the losers** Investing in last year’s worst-performing $200,000 $416,500 6.56% asset class

Asset Allocation*** Investing consistently across several asset $200,000 $469,285 7.57% classes in equal proportion each year

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. *Annual investments are made into the best performing asset class index of the previous 12-month period. **Annual investments are made into the worst performing Index of the previous 12-month period. ***Annual investments are evenly distributed across all asset class indexes each year and rebalanced annually. Source: © Morningstar 2020. The three scenarios include large growth stocks, represented by the S&P Growth Index; large value stocks, represented by the S&P 500 Value Index; small growth stocks, represented by the Russell 2000 Growth Index; Small Value stocks, represented by the Russell 2000 Value Index; foreign stocks, represented by the MSCI EAFE Index; bonds, represented by the Bloomberg Barclays U.S. Aggregate Index; high yield bonds, represented by the Credit Suisse High Yield Index; emerging market stocks, represented by the MSCI Emerging Markets Index; global bonds, represented by the FTSE World Government Bond Indexes; hedge strategies, represented by the HFRI Fund Weighted Composite Index. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results. Diversification does not guarantee a profit or a protect against loss. Indexes are unmanaged and one cannot invest in them. They do not include fees, expenses or sales charges. 2727

Slide objective: show how attempting to time the market doesn’t make sense.

• Let us consider three different strategies. • Some investors may choose to chase the winners. That is, they invest in last year’s best‐performing asset class. • Others may choose to chase the losers, investing in last year’s worst performing asset class. • The last strategy is asset allocation, investing consistently across several asset classes in equal proportion each year.

• Which strategy do you think will be the top performer?

[click mouse 3X]: • In addition to helping reduce overall volatility and improving your chances to earn more consistent returns over time, keeping assets properly allocated across several asset classes helps avoid the temptation to try and time the market. • In addition, as markets change, your portfolio may need to evolve. Times of volatility offer a great opportunity to reevaluate and possibly rebalance your asset mix.

27 Remember Your Strategy While it may be tempting to pull out of the stock market during volatility, it is important to stick with your investment strategy.

Remember your investment strategy when markets turn south —and review that plan when emotions are running high.

28 REMEMBER YOUR STRATEGY Stay Invested

S&P 500 Index Max Drawdown and Calendar Year Returns January 1988–December 2019 50%

40% 38% 33% 32% 32% 31% 30% 29% 29% 30% 26% 23% 21% 22% 20% 17% 16% 16% 15% 14% 10% 11% 12% 8% 10% 5% 5% 1% 2% 1% -3% -9% -12% -22% -37% -4% 0% -3% -3% -5% -10% -7% -7% -6% -6% -7% -7% -7% -7% -6% -7% -7% -8% -10% -10% -11% -12% -10% -14% -12% -20% -17% -16% -19% -19% -19% -19% -30% -29% -27% -33% -40%

-50% -48% -60% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Max Drawdown Annual Returns

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020. Franklin Templeton Capital Market Insights Group. Max Drawdown is calculated using daily returns. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charge 29

Slide objective: show why it’s important to stay the course by staying invested.

• Short‐term losses can trigger anxiety, but letting emotions drive your investment decisions may prove costly. One key to living with market volatility is focusing on long‐ term results rather than the daily bumps along the way. Staying the course can be difficult, but it can also create opportunities.

• In the chart, the blue bars represent the largest declines from a peak (high) to a trough (low) that occurred each year. Despite intra‐year volatility, the S&P 500 Index had positive year‐end total returns in 26 out of 32 years from Jan. 1, 1988 to Dec. 31, 2019.

Transition: • Volatility, while challenging, can represent some of the greatest opportunities to buy.

29 REMEMBER YOUR STRATEGY Dollar Cost Averaging

Example: $500 Monthly Investment

Monthly Investment Shares Purchased Month Amount Share Price Each Month AVERAGE SHARE PRICE: $10.00 ($60.00/6 purchases) January $500 $9.00 55.6 AVERAGE SHARE COST: $9.77 ($3,000/307.1) February $500 $10.00 50.0 March $500 $8.00 62.5 RESULTS April $500 $11.75 42.6 The average cost of your shares would be May $500 $12.25 40.8 $0.23 less than the average price of your June $500 $9.00 55.6 shares over that period. Total $3,000 $60.00 307.1

This chart is for illustrative purposes only. Dollar cost Averaging does not assure a profit or protect against loss in declining markets. Investors should consider their ability to make regular investments during all market conditions. 30

Slide objective: show how dollar cost averaging may make it easier for investors to cope with volatility.

• Most people are quick to agree that mustering the discipline to make purchases during a volatile market can be difficult for some. • Simply put, dollar cost averaging is committing a fixed amount of money at regular intervals to an investment.

[Click Mouse]: • Let’s look at an example of a $500 monthly investment. • As you can see, you buy more shares when prices are low and fewer shares when prices are high.

[Click Mouse]: • In this example, your average share price over this 6‐month period is $10.00 ($60.00/6 purchases). • However, your average share cost is $9.77 ($3,000/307.1)

[Click Mouse]: • The results: The average cost of your shares would be $.23 less than the average price of

30 your shares over that period.

• Dollar cost averaging can help reduce anxiety about the investment process. • Investors should consider their financial ability to continue purchase through periods of low‐price levels and economic conditions.

30 REMEMBER YOUR STRATEGY Jumping In and Out of the Market Can be Costly

Study Based on S&P 500 Index Over a 20-Year Period Ending March 31, 2020

Scenario Annualized Return

STAYED FULLY INVESTED 4.85%

Missed the Best 10 Days 0.86%

Missed the Best 20 Days -1.70%

Missed the Best 30 Days -3.85%

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020. S&P 500. Based on returns in local currency over a 20-year period ended 3/31/2019. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. For Financial Professional Use Only / Not for Distribution to the Public 31

Slide objective: jumping in and out of the market can be costly.

• When markets become volatile, a lot of people try to guess when stocks will bottom out. In the meantime, they often park their investments in cash. • But, just as many investors are slow to recognize a retreating stock market, many also fail to see an upward trend in the market until after they have missed opportunities for gains.

[click mouse]: • Missing out on these opportunities can take a big bite out of an investor’s returns.

[click mouse]: • An investor who stayed fully invested and didn’t miss any of the best days would have earned a significantly higher return than those who missed the best 10, 20, or 30 days.

31 REMEMBER YOUR STRATEGY Don’t Time the Market

S&P 500 Index Over a 20-Year Period Ending March 31, 2020

DATE DAILY RETURN DATE DAILY RETURN 20 Worst 3/16/20 -12.0% 10/13/08 11.6% 20 Best 3/12/20 -9.5% 10/28/08 10.8% 3/24/20 9.4% Trading 10/15/08 -9.0% Trading 12/1/08 -8.9% 3/13/20 9.3% 9/29/08 -8.8% 3/23/09 7.1% Days 11/13/08 6.9% Days 10/9/08 -7.6% 11/13/08 6.9% 3/9/20 -7.6% 11/24/08 6.5% 11/20/08 -6.7% 3/10/09 6.4% 8/8/11 -6.6% 11/21/08 6.3% 11/19/08 -6.1% 3/26/20 6.2% 10/22/08 -6.1% 3/17/20 6.0% 4/14/00 -5.8% 7/24/02 5.7% 10/7/08 -5.7% 9/30/08 5.4% 1/20/09 -5.3% 7/29/02 5.4% 11/5/08 -5.2% 12/16/08 5.1% 3/18/20 -5.2% 1/3/01 5.0% 11/12/08 -5.1% 12/26/18 4.9% 11/6/08 -5.0% 3/10/20 4.9% 2/10/09 -4.9% 3/16/00 4.8% 9/17/01 -4.9% 10/20/08 4.8% This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. Source: © Morningstar 2020. S&P 500. Analysis by Franklin Templeton Capital Market Insights Group. Based on returns from 3/31/20-3/31/20. Indices are unmanaged and include reinvested dividends. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. 32

Slide objective: jumping in and out of the market can be costly.

• This chart shows the 20 worst trading days and the 20 best trading days of the S&P 500 Index over the last 20 years.

• In many cases the best trading day immediately follows the worst trading day illustrating how difficult it is to attempt to time the market.

32 4/16/2020

Key Takeaways

• History has shown us that while markets react to shocks in the short term, they have tended to reward patient investors over long periods of time.

• Emotions affect decision-making ability in times of market volatility.

• Three strategies to live with market volatility are stay calm, diversification matters, and remember your strategy.

Slide objective: review agenda and key takeaways.

[click mouse 3X]: review key takeaways. • History has shown us that while markets react to shocks in the short term, they have tended to reward patient investors over long periods of time. • Our emotions affect decision‐making ability in times of market volatility. Behavioral biases such as anchoring and loss aversion may lead to some undesirable outcomes. • Three strategies to help your client’s live with market volatility are stay calm, diversification matters, and remember your investment strategy.

• I hope our discussion today has helped make sense of the current markets and the behavioral biases that may affect our financial decisions. • I encourage you to meet with your financial advisor to discuss your current plan. Now may be the best time to consider how you might react as the stock market changes in the future. If you can set realistic investment expectations, you may be ready to survive the market’s ups and downs with a greater sense of confidence.

EEE SEM 05/17 33 Coaching Makes a Difference

Your personal trainer will help you: • Build a long-term strategy • Keep emotions in check • Stay on track

MAKE A VIRTUAL APPOINTMENT TODAY!

NOTE: In the PDF version, this slide has been separated into two pages to illustrate the speaking notes. Applies to this slide and the next.

Slide objective: your financial advisor can help you.

A sudden drop in the market can have dramatically different implications for someone just starting their career compared to someone nearing retirement. What’s important is you understand your situation and your financial strategy.

• For health‐related goals, studies show that people who regularly work with a personal trainer, nutritionist or a doctor are more likely to have success. • Why? Because a personal trainer can help you build a long‐term strategy to achieve your goals, keep you motivated and ensure you stay on track with regular training sessions. Coaching Makes a Difference

Your personalfinancial professionaltrainer will help you: • Build a long-term strategy • Keep emotions in check • Stay on track

MAKE A VIRTUAL APPOINTMENT TODAY!

Slide objective: your financial advisor can help you.

• Similarly, working with your financial professional can help you build a long‐term investment strategy, keep emotions and biases in check and stay on track with regular portfolio reviews and adjustments. QUESTIONS?

For Financial Professional Use Only / Not for Distribution to the Public

36 Important Legal Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments.

Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor, call us at (800) DIAL BEN/342-5236 or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money.

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